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Spotify says its upcoming royalty model changes will generate $1B for artists over five years

A logo of Spotify is seen on a beach during the Cannes Lions International Festival of Creativity in Cannes, France, June 20, 2023. REUTERS/Eric Gaillard/File Photo
A logo of Spotify is seen on a beach during the Cannes Lions International Festival of Creativity in Cannes, France, June 20, 2023. REUTERS/Eric Gaillard/File Photo

According to an announcement by Spotify on Tuesday, the forthcoming adjustments to its licensing scheme will earn one billion dollars in five years for both up-and-coming and established musicians.

As previously reported, Spotify is modifying its royalty system to give more money to well-known musicians and record labels. Additionally, the company is increasing the minimum payment threshold for music streaming on the site and is working to combat streaming fraud.

According to the corporation, the new policy would discourage fake streaming, improve the distribution of modest payments that aren’t reaching artists, and crack down on individuals who are trying to scam the system by using noise.

Spotify noted in a blog post that resolving these problems “while each of them only impacts a small percentage of total streams, it means that we can drive approximately an additional $1 billion in revenue toward emerging and professional artists over the next five years.”

For a track to be eligible for royalties beginning the next year, it must have received a minimum of one thousand plays during the preceding year. This is the new minimum payment level. According to the company, this new model will not result in an increase in revenue for them, and “there is no change to the size of the music royalty pool being paid out to rights holders from Spotify; we will simply use the tens of millions of dollars annually to increase the payments to all eligible tracks,” rather than “spreading it out into $0.03 payments.”

Spotify claims to have more than 100 million tracks available for streaming and that tens of millions of those tracks have been listened to between one and 1,000 times over the course of the past year, generating an average of $0.03 per month in revenue for the company.

According to Spotify, “labels and distributors typically require a minimum amount to withdraw, which ranges anywhere from $2 to $50 per withdrawal,” and “banks typically charge a fee for the transaction, which ranges anywhere from $1 to $20 per withdrawal.” As a result, “this money often does not reach the uploaders.” And people frequently forget about these insignificant sums of money. However, when taken together, these insignificant payments have accumulated to the tune of $40 million each year, which might instead be used to raise the amount paid to musicians who are most reliant on revenue from streaming services.

The company reports that 99.5% of all streams come from tracks with at least 1,000 annual streams, and according to this guideline, each of those tracks will earn more money.

Because uploaders will no longer be able to “generate pennies from an extremely high volume of tracks,” Spotify believes that the new policy will eliminate one approach used to trick the system or mask false streaming.

Starting in 2019, Spotify will begin charging record labels and distributors per track when artificial streaming is discovered on their material. This move is being made to discourage artificial streaming. Even though Spotify can combat artificial streaming once it has occurred on its platform, the company believes that this adjustment will discourage users from sharing content of this kind in the first place.

To crack down on users trying to “game the system with noise,” Spotify will raise the minimum track length requirement for functional noise recordings, such as white noise and nature sounds, to a minimum of two minutes before they will be eligible to generate royalties. Spotify claims that dishonest users will occasionally take advantage of the fact that consumers stream this kind of music for long periods of time by intentionally shortening their tracks to increase the number of streams that generate royalties.

According to Spotify, “For instance, the length of a typical song is a few minutes.” “To gain obscene amounts of money, some unscrupulous individuals are cutting whale sound tracks down to 30 seconds in length and then placing them one after the other in a playlist without the listeners’ knowledge. Noise recordings have the same value as music recordings in every other respect, including the length of the tracks. A monetary potential for noise uploaders has been established due to the tremendous development of the royalty pool, which is much beyond the uploaders’ contribution to listeners.

Spotify believes that by establishing a minimum track duration, this type of music will make a fraction of what they previously earned. This will, in turn, free up additional money that will go back into the royalty pool for artists who have worked hard.

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