AI Isn’t the Music Industry’s Biggest Problem: Here’s How to Stop Streaming Fraud Right Now
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Ari Herstand is the author of the best-selling book How To Make It in the New Music Business, the host of the Webby award winning New Music Business podcast, the CEO and founder of the music business education company Ari’s Take, and an independent musician. He currently fronts the original 1970s funk/soul immersive experience Brassroots District. Variety welcomes responsible commentary, please submit to music@variety.com.
A couple weeks ago, some of the largest independent distribution companies and streaming services — including Spotify, Amazon Music, DistroKid, Empire, United Masters, Tunecore (and its parent company Believe), CD Baby (and its parent Downtown) — launched what they’re calling “a global task force aimed at eradicating streaming fraud.”
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Let’s step back for a moment to understand what this is, why they’re launching it and how I believe the music industry is thinking about this all wrong.
Streaming fraud is not a new thing. Because of how the streaming model pays out royalties, it’s relatively easy to game the system and steal a lot of money from artists and labels. How? Streaming pays on a “pro rata” model, where royalties are paid out based on the percentage of total streams each track gets. So if you pay a $10/month subscription fee and you never listen to Bad Bunny or Taylor Swift, part of the $10 is going to Bad Bunny and Taylor Swift because they have some of the most streams on the streaming platform.
So, the more streams a track gets, the more market share it commands and the more money that artist and label get. Because of this model, companies and savvy individuals upload tracks that you or I may or may not consider good music, hire services that get bots to stream these tracks on repeat and/or get these tracks added to user generated playlists (that they may also own) and get bots to stream the songs on these playlists on repeat. Most services count a monetized stream at 30 seconds, oftentimes these bots are trained to “listen” for 31 seconds or so to maximize efficiency and revenue.
Of course, over the years, the streaming services have gotten better at detecting these fraudsters (“Too many 31-second streams? Remove it!”) and it’s been a game of whack-a-mole to stop them. Entire ecosystems have been built around this streaming and payment model, some legit and some not. But for the indie artists and labels attempting to navigate these murky waters, it can be hard to differentiate a legitimate marketing agency that is promoting your music to real, human listeners, and a nefarious agency that is taking your money, inflating your streams with bot listeners and then disappearing when the streaming service rips down the track and cites it for “fraudulent streaming activity.”
These nefarious actors don’t necessarily need to create their own music to distribute, they can just create mechanisms that get unassuming artists and labels to hire them to market and promote their music. Only later do these artists and labels realize they’ve been duped when their music gets removed and they’re out a lot of money.
A couple months back, there was an uproar around the news that Spotify had removed “tens of thousands” of AI-generated songs after Universal Music Group flagged the AI music-generating service Boomy for allegedly using bots to boost its streaming numbers (a claim that Boomy refutes).
Boomy probably did not artificially inflate streams on tracks they distributed (they had distributed over 14 million tracks and only a fraction of those had been caught for fraudulent streaming) — but likely, bad actors had used Boomy to quickly create songs, get them distributed and then hired a dodgy service to inflate those streams.
As long as the streaming royalty model functions this way, fraud will exist. No amount of coalitions or fraud detectors will solve this problem. As the detectors get smarter, so do the fraudsters.
The only way to solve streaming fraud is to switch from a pro-rata payment model to a user-centric payment model.
A “user-centric” payment model functions completely differently. If you pay $10 for a streaming subscription and you listen to only one artist this month, that one artist gets all of your $10 – less the platform’s commission. This payment model incentivizes fandom instead of fraud. The focus would no longer be on maximizing streaming numbers, but rather maximizing super fans.
SoundCloud has actually been testing this payment model for years. And last year SoundCloud released their findings via a commissioned report from Midia Research. This report found that nearly 65% of artists with fewer than 100,000 listeners earned more money using the user-centric payout model or “fan powered royalties” as SoundCloud calls it.
Tidal was also testing their own version of the user-centric payout model with 70,000 artists. But according to the CEO Jesse Dorogusker, they scrapped the program earlier this year because it fell “short of our goal” and instead have invested in their Tidal Rising program – which “back(s) and celebrate(s) emerging artists through education, custom promotion, and future direct-funding.”
I interviewed SoundCloud’s Chief Content Officer, Tracy Chan, on the New Music Business podcast and he told me that there are currently 150,000 artists (of their 40 million artists) opted into the Fan Powered Royalties system, along with Warner Music Group and the indie label collective Merlin (which includes labels like Secretly Group, Domino and Epitaph, and distributors like DistroKid, Symphonic, AWAL and Amuse). However, he expects many more to opt-in in the coming months as they roll out their new Fans program within SoundCloud for Artists.
The main takeaway from this fan-powered royalties SoundCloud/Midia report was that artists with super fans earn more, but artists with lots of passive listeners (like superstars who have a lot of their songs on popular playlists) earned a bit less.
This is very exciting news for middle-class artists with super fans who have not been able to adequately monetize their fandom through the streaming model, but less so for the major labels who have built their business over the past 12 years on this pro-rata system.
Arguably the most powerful person in the music industry, Universal Music Group Chairman/CEO Lucian Grainge, agrees that the payout model for streaming is broken and wrote in a letter earlier this year that “the economic model for streaming needs to evolve.” Grainge, however, isn’t convinced that the user-centric payout model is the way (many of the company’s superstar artists would earn less under that model than they do now), but he agreed that the current model incentivizes bad actors. Grainge is promoting an “artist-centric” model where “it can’t be that [an] Ed Sheeran stream is worth exactly the same thing than a stream of rain falling on the roof.” However, this system would seem to
pay major label artists more and indie artists less — which might fit UMG’s business model quite nicely, but not helpful for the rest of us indie artists.
A user-centric payout model fixes all of this, levels the playing field and finally, fairly compensates artists for streaming fandom: An Ed Sheeran stream will only be worth the same as a stream of the sound of rain if the sound of rain has as many active listeners as Ed does.
As long as the artist is getting paid based on the amount their fans listen to them, I have no problem if some listeners pay a streaming service to primarily listen to rain sounds. Streaming services will also not care: Most of them currently pay out about 70% of their revenue to rights holders (labels, publishers, artists and songwriters), and how it is sliced up is not their decision. Spotify even said as much in their Loud and Clear report this year stating “We are willing to make the switch to a user-centric model if that’s what artists, songwriters, and rights holders want to do. However, Spotify cannot make this decision on its own; it requires broad industry alignment to implement this change.”
A user-centric payout model wipes out fraud overnight. Now if people upload nonsense to DSPs and use bots to inflate those streams, those streams will not generate any revenue (because those bots of course aren’t paying a subscription to the platform), so there will be no incentive for stream bots or fraud to exist.
It’s time to adopt the user-centric payout model.
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