The scheme is three-pronged, based on Billboard’s reporting, creating a new streaming threshold that tracks must reach in order to qualify for royalties, penalizing fraudulent activity and setting a minimum play-time length for non-music noise tracks to earn revenue on the platform. The details on each of these elements have trickled out in the press without a formal announcement, but Billboard can now report specifics on each, according to sources in streaming and distribution.
Here’s a full rundown of Spotify’s new royalties model:
- Tracks that receive less than 1,000 streams within a 12-month period will not qualify for royalties. Those royalties, instead, will be redistributed into the greater royalty pool.
- Labels and distributors will be charged 10 euros for any track that is found to have 90% or more of its streams deemed fraudulent.
- Non-music noise tracks must now be at least two minutes long in order to qualify for royalties. As well, according to a source, there are conversations about implementing a rate reduction on these tracks that would value their streams below those for music.
As previously reported, Spotify’s new royalty model will affect more than two-thirds of its song catalog but that’s due to the magnitude of music that’s uploaded to the platform, where the vast majority of songs don’t get listened to with any frequency. While tens of millions of songs will fall below the 1,000 streams threshold, a source tells Billboard that policy will only shift about 0.5% of Spotify’s royalty pool to more popular tracks. That was equal to about $46 million in royalties in 2022, out of $9.27 billion paid out in total.
The changes have been largely applauded by the music industry, although some in the independent distribution sector are concerned that the anti-fraud measures could disproportionately affect DIY distributors, even though major label acts sometimes engage in this activity too. These companies that have built hands-off, high-volume distribution businesses with small margins, charging a small fee per upload have huge batches of new music uploading daily, which means it’s hard to know who is doing the uploading.
DistroKid founder Philip Kaplan voiced his objection to the penalty system on a recent call with the Music Fraud Alliance, according to two sources who were also on the line.
One of those executives described the gist of Kaplan’s comments: “We can’t determine if a new client is going to hire a marketing service that’s going to bot streams until they’ve done it. It’s like you can’t determine if your neighbor is going to commit a crime.”
Spotify is planning to roll out its new royalties model in early 2024, although no firm date has yet been announced. The changes will not affect songwriters for the time being.