Spotify’s New Royalty Model: A Fair and Transparent System or a Threat to Independent Music?

Spotify, the world’s largest music streaming platform, is planning to change to a new royalty model. And how it pays artists and rights holders in early 2024. The company says it wants to create a more fair and transparent system that rewards legitimate music and discourages fraud and noise. However, some critics argue that the changes will hurt independent and emerging artists who rely on Spotify for exposure and income.

The new royalty model will keep the existing pro-rata system, which means that Spotify pays 75% of its total revenue to songwriters, publishers, and sound recording owners based on their share of total streams. However, the model will also introduce some new rules that will affect the lowest-streaming acts, non-music noise tracks, and distributors and labels committing fraud.

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According to Music Business Worldwide, the three changes Spotify plans to implement are:

• Introducing a threshold of minimum annual streams before a track can earn royalties. The threshold, according to MBW, will de-monetize tracks that had previously received 0.5% of Spotify’s royalty pool.
• Cracking down on fraudulent uploads by imposing financial penalties for music distributors and labels when fraudulent activity on tracks they have uploaded to Spotify has been detected.
• Introducing a minimum playtime that each non-music “noise” track must reach in order to generate royalties. These tracks include bird sounds, white noise, or other sounds that are not considered music.

Spotify says that these changes are meant to improve the platform’s integrity and ensure that artists are paid fairly for their work. The company also claims that the changes will benefit most artists and rights holders, as they will increase the pool of royalties for more established and popular acts.

Spotify’s new royalty model

However, not everyone is happy with Spotify’s new royalty model. Some independent and emerging artists fear that the changes will make it harder for them to earn money and gain exposure on the platform. They argue that the minimum stream threshold will exclude many niche genres and styles of music that have loyal but small fan bases. They also worry that the minimum playtime rule will penalize experimental and avant-garde music that does not conform to conventional song structures or lengths.

Additionally, some music industry experts question whether Spotify’s new royalty model will actually address the root causes of fraud and noise on the platform. They point out that Spotify’s pro-rata system itself incentivizes fraud and noise, as it rewards quantity over quality and encourages gaming the system by creating fake accounts, bots, or playlists. They suggest that Spotify should consider alternative models, such as user-centric or value-based models, that would pay artists based on individual listeners’ preferences or the value of their music.

Spotify’s new royalty model is expected to take effect in early 2024, after the company reaches new agreements with most record labels and distributors. The company says it will communicate more details about the changes in the coming months. Meanwhile, artists and rights holders are waiting to see how the changes will impact their careers and incomes in the streaming era.