A Thousand Streams in Your Pocket: Spotify’s New Royalty Model Explained by an Expert
The post A Thousand Streams in Your Pocket: Spotify’s New Royalty Model Explained by an Expert appeared first on Consequence.
Kristin Graziani is the president of music distribution platform Stem. In this guest column, she argues that Spotify’s new royalty model is likely to benefit artists.
The news broke last week that Spotify is preparing to make the most significant changes to their royalty model in the company’s 15-year history. This is the music industry, so everyone already has a lot to say. Some members of the media have speculated that the average independent artist will lose out on royalties from the streaming giant, and certain distributors have claimed Spotify is out to help “the rich get richer.” But after doing some analysis on what Spotify has actually communicated to distributors, we can say that in reality, these changes are intended to benefit emerging and growing artists.
The outcry from fans and artists is understandable: You need experience with the complexities of royalty payments to see why these changes will benefit artists. The outcry from other distributors, however, feels like it comes in bad faith – let’s talk about why.
The industry has been asking streaming services to increase payouts for years. Every artist—and many fans—can point to the fractions of a penny earned for each stream. To date, Spotify’s response has mostly been to provide contextualizing data. They say that artists earn a pro-rata share of the royalty pool so there is no per-stream rate. The number of artists releasing tracks on Spotify every day is so large that they need an entire website to describe it. The conversation on increasing payouts is far from over, but right now Spotify is starting to take steps in the right direction.
As president of a distributor collecting royalties on behalf of artists, I understand more than most how complicated it is to pay artists what they deserve. Over the past eight years, Stem has become known for showing artists exactly what they’ve earned, paying them on time, and advocating for much larger industry changes. This conversation is not new to us; we care so deeply because we’ve developed successful partnerships with artists at all stages of their career. An artist like Justine Skye came to us with a dedicated fanbases, and we enabled her to grow her businesses outside of the major label system. And we helped artists like bbno$ build from the ground up. Our goal is and always will be to get more money into the hands of artists.
Spotify’s changes can help us deliver on that goal. These new policies acknowledge the simple truth that improving outcomes for artists goes beyond demanding bigger payouts from the DSPs. There are plenty of problems in this industry preventing money that’s already in the system from reaching artists. In addition to increasing payouts, we must plug these holes or else the same bad actors will continue to profit at the expense of artists who are none the wiser. Let’s take a look at what Spotify is trying to accomplish today.
Spotify is introducing three new policies to its platform in 2024:
All tracks will have to reach a minimum streaming threshold of 1000 streams within 12
months in order to be paid a royalty.Labels and distributors will be charged a penalty for delivering content responsible for
fraudulent streams.Functional tracks (think white noise and environmental sounds) will require a longer
minimum play time than music tracks to earn a royalty.
What’s most interesting about these three policies is that they have little to no negative impact on career artists; instead it will make more money available to them by way of a larger royalty pool. Critics have said that a minimum streaming threshold would harm artists at the start of their careers, but the actual policy paints a different picture. According to Spotify, songs will begin to earn royalties once 1000 streams per track are generated within the course of a year (just over 80 streams a month). 1000 streams in a 12-month period accounts for, at most, $3.00 in earnings. $3.00 is well below the threshold at which almost every distributor allows artists to transfer earnings into their own bank accounts. In other words, this is money that isn’t currently making it to artists in the first place.
Right now, artists don’t benefit from the millions of tiny payments that Spotify pays for content that receives a few streams per month. It’s the distributors who benefit from the hundreds of thousands of dollars sitting in their bank accounts earning interest. Redirecting those tiny payments can immediately increase the royalty pool by $40 million dollars each year, and that number can grow over time.
The second policy increases royalties for artists by preventing the flow of money to fraudsters. Beginning next year, Spotify intends to charge a penalty to distributors for enabling fraudulent streams. For years now, labels and distributors have put pressure on Spotify to improve fraud detection and ensure all royalty-earning streams are legitimate. And now Spotify is sharing some of that responsibility with the rest of the ecosystem, asking them to stop distributing tracks whose streams are clearly coming from bots or other forms of manipulation. Right now, the labels and distributors who earn a percentage of streaming revenue have every incentive to point fingers at other players and zero incentive to snuff it out on their own platform.
Let me be clear: most distributors, like Stem, take great care in serving the needs of every artist they work with. We’re doing the hard work of supporting artists with credible resources and valuable guidance. Those distributors should have nothing to fear from these fees. Unfortunately some distributors are happy to look the other way and continue to collect their
fees from fraudsters.
The last policy change concerns so-called “functional” content. This is non-music audio that currently earns at the same rate as traditional music. Don’t get me wrong — I understand how important a good white noise playlist can be. I don’t, however, think we should assign the same value to white noise that we do to a new release from an artist who has been working on their album for three years. Tracks like white noise, environmental sounds, even silence might be 30 seconds long and rack up a dozen streams before a Taylor Swift song reaches the bridge. Functional audio obviously plays an important role (it’s in the name), but I think it’s a different role than artist-driven music, and it should be compensated differently.
Now, anytime someone changes the rules of a game that’s been played for 15 years, there will be new winners, new losers, and plenty of unintended consequences. I will be watching closely when Spotify provides the full details of these policies, and I will be vocal in calling out issues that will harm the independent labels and artists who have chosen to work with Stem. At the same time, I encourage everyone — especially artists — to pay close attention to the arguments that come out against these policies over the next few weeks.
Some critics will point out legitimate concerns that I may have missed. I hope Spotify takes those critiques seriously and makes adjustments. But some critics will make arguments purely out of self-interest. This is a “line in the sand” moment for labels and distributors. We all have to ask ourselves if we want to make our living by enabling legitimate artists to have success in their careers or by being merchants of garbage? I have made statements critical of Spotify in the past, and I’ll probably make more in the future. But my goal is always to fight on behalf of artists and evolve this industry that we all participate in. Spotify’s upcoming changes seem to me like a step in the right direction.
Because of the nature of the pro-rata royalty pool, I’m not being cute when I say we’re all in this together. Bad actors are taking money out of your pocket when they use bots to inflate streams on these tracks. Any distributor who isn’t willing to make the technical changes to limit that activity — any distributor who isn’t willing to play their part to stop fraud — is doing a disservice to their own clients and to every other artist trying to earn their fair share.
I am happy to see Spotify’s willingness to change their model to distribute more money to artists, but we need to empower the industry to keep pushing for change in the future. Ultimately one of the ways in which we move this industry forward is to provide artists and labels with insight into their earnings and the context required to understand it. That’s one of the reasons why we launched Tone earlier this year. We believe artists will demand what they need from companies once they can see the impact on their bottom line.
Thanks to Spotify’s policy changes, working artists stand to see over a billion dollars added to the royalty pool over the next five years. But that’s just the beginning. Five years from now, I don’t want to be thanking Spotify. I hope to be thanking the artists and other organizations that advocated for themselves, fought for better deals, left the partners who weren’t serving them, demanded to be paid what they deserve, and inspired every emerging artist to know exactly what they’re worth.
A Thousand Streams in Your Pocket: Spotify’s New Royalty Model Explained by an Expert
Kristin Graziani
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