Upcoming changes to Spotify’s royalty model will generate $1 billion over five years for new and popular artists, the streaming service announced Tuesday. Like before mentiontedSpotify is changing its royalty system to direct more money to popular artists and record labels, while raising the minimum payment threshold for streaming music on the platform and tackling streaming fraud.
The company says the new policy will prevent artificial streaming, better distribute small payments that don’t reach artists, and crack down on those trying to game the system with noise.
“While each of these issues affects only a small percentage of total streams, addressing them now means we can secure approximately $1 billion in revenue to emerging and professional artists over the next five years,” Spotify wrote in a suspension.
As for the new minimum payment threshold, tracks must reach at least 1,000 streams in the last 12 months in order to generate rights from next year. The company says it won’t make any extra money with this model and that “there is no change in the size of the music rights pool paid to rights holders by Spotify. We’ll just use the tens of millions of dollars a year to increase payments across all eligible pieces, rather than spreading them out in $0.03 payments.”
Spotify says it has more than 100 million tracks, and that tens of millions of them have been streamed anywhere from 1 to 1,000 times in the past year, earning $0.03 a month on average.
“Because labels and distributors require a minimum amount to withdraw (typically $2-50 per withdrawal) and banks charge a transaction fee (typically $1-20 per withdrawal), these funds often do not reach users who uploaded the content,” notes Spotify. “And these small payments are often forgotten. But in total, these small overlooked payments have added up to $40 million a year, which could increase payouts to artists more dependent on streaming revenue.”
The company notes that 99.5% of all streams are tracks that have at least 1,000 annual streams, and each of these tracks will earn more under this policy.
Spotify believes that since users will no longer be able to “make pennies from an extremely large volume of tracks,” the policy will eliminate a strategy used to try to game the system or hide an artificial stream.
To prevent artificial streaming, Spotify will start charging labels and distributors per track when artificial streaming is detected in their content from next year. Although Spotify is able to crack down on artificial streaming once it appears on the platform, it believes this change will prevent users from uploading such content in the first place.
As for cracking down on those trying to “game the system with noise”, Spotify will increase the minimum track length of functional noise recordings, such as white noise and nature sounds, to two minutes in order to be eligible for creation exploitation rights. Since users often stream this kind of content for hours, Spotify says it’s sometimes exploited by bad actors who artificially chop up their tracks to maximize royalty-bearing streams.
“For example, a typical song lasts a few minutes,” says Spotify. “Some bad actors shorten the whale sound tracks to 30 seconds and stack them consecutively in a playlist without the listeners knowing, so that they earn big payouts. Aside from track length, noise recordings are valued in the same way as music recordings. The massive growth of the rights pool has created a revenue opportunity for those who raise noise well beyond their contribution to listeners.”
By setting a minimum track length, Spotify believes this type of content will make a fraction of what they were previously earning, which in turn will free up extra money to go back into the royalty pool for hard-working artists.
