As expected, Spotify unveiled its updated streaming payment policies for artists and labels on Tuesday morning, and they are essentially the ones that have been previously reported in recent weeks: efforts to cut down on fraudulent streams; increasing the minimum payable track length for what is called “noise” content (the often-cited “rain falling on a rooftop” recordings); and eliminating payment for songs with less than $1,000 streams.
The company claims the updates will drive an additional $1 billion toward artists, by re-directing the payments that had previously gone to fraudulent streams, noise content or distributors that do not distribute royalties below a certain amount.
While there has been significant uproar around the last element in particular, it should be noted that 1,000 streams generates an average of $3 annually in royalties, while many distributors do not distribute such low amounts — which means that money remains with the distributor. While those amounts are very small for the average artist, added up across thousands of artists per year, it’s a substantial total. Spotify also claims that just .5% of all tracks have less than 1,000 streams. (Head here for an analysis of what Spotify’s payment updates really mean.)
Relevant excerpts from the announcement, which can be found in full on Spotify’s Loud & Clear blog, appear below.
As the royalty pool and catalog on Spotify have surged, three particular drains on the royalty pool have now reached a tipping point. So, we’re working in close collaboration with industry partners — artist distributors, independent labels, major labels, label distributors, and artists and their teams — to introduce new policies to (1) further deter artificial streaming, (2) better distribute small payments that aren’t reaching artists, and (3) rein in those attempting to game the system with noise. While each of these issues only impacts a small percentage of total streams, addressing them now means that we can drive approximately an additional $1 billion in revenue toward emerging and professional artists over the next five years.
|The Issue||How We’re Addressing the Issue|
|Artificial Streaming Spotify invests heavily in detecting, preventing, and removing the royalty impact of artificial streaming. Still, bad actors continue to attempt to steal money from the royalty pool that should be delivered to honest, hardworking artists.||Charges for Artificial Streaming As a new deterrent, beginning early next year we will start charging labels and distributors per track when flagrant artificial streaming is detected on their content. This new deterrent follows improved artificial streaming detection technology we rolled out earlier this year, as well as the establishment of the newly formed Music Fights Fraud Alliance.|
|Why Spotify is able to fight artificial streaming once it occurs on our platform, but the industry would be better off if bad actors were disincentivized from uploading to Spotify and other streaming services in the first place. We believe this will meaningfully deter labels and distributors from continuing to distribute the music of known bad actors that attempt to divert money from honest, hardworking artists. These charges will support our continued efforts to keep the industry and platform free of artificial activity.|
|Payments Lost in the System Today, Spotify hosts well over 100 million tracks. Tens of millions of them have been streamed between 1 and 1,000 times over the past year and, on average, those tracks generated $0.03 per month. Because labels and distributors require a minimum amount to withdraw (usually $2-$50 per withdrawal), and banks charge a fee for the transaction (usually $1-$20 per withdrawal), this money often doesn’t reach the uploaders. And these small payments are often forgotten about. But in aggregate, these small disregarded payments have added up to $40 million in 2022 alone, which could instead increase the payments to artists who are most dependent on streaming revenue.||Track Monetization Eligibility Starting in early 2024, tracks must have reached at least 1,000 streams in the previous 12 months in order to generate recorded royalties. Spotify will not make additional money under this model. 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.|
|Why It’s more impactful for these tens of millions of dollars per year to increase payments to those most dependent on streaming revenue — rather than being spread out in tiny payments that typically don’t even reach an artist (as they do not surpass distributors’ minimum payout thresholds). 99.5% of all streams are of tracks that have at least 1,000 annual streams, and each of those tracks will earn more under this policy. We also believe the policy will eliminate one strategy used to attempt to game the system or hide artificial streaming, as uploaders will no longer be able to generate pennies from an extremely high volume of tracks. For more details on this policy, check out the Spotify for Artists help center here.|
|Gaming the System with Noise In the streaming era, “functional” genres are popular – like white noise, whale sounds, static, and so on. Listeners often stream these functional genres for hours at a time in the background, and this is sometimes exploited by bad actors who cut their tracks artificially short — with no artistic merit — in order to maximize royalty-bearing streams. For example, a typical song is a few minutes long. Some bad actors are shortening whale sound tracks to 30 seconds and stacking them consecutively in a playlist without listeners noticing, so that they earn outsized payments. Beyond track length, noise recordings are valued in the same way as music recordings. The massive growth of the royalty pool has created a revenue opportunity for noise uploaders well beyond their contribution to listeners.||New Policies for Noise Recordings Starting next year, we’ll increase the minimum track length of functional noise recordings to two minutes, in order to be eligible to generate royalties. Functional genres will include white noise, nature sounds, machine noises, sound effects, non-spoken ASMR, and silence recordings. Additionally, over the coming months, we’ll work with licensors to value noise streams at a fraction of the value of music streams.|
|Why By setting a minimum track length, these tracks will make a fraction of what they were previously earning (because two minutes of listening to noise recordings would generate one royalty-bearing stream not four), freeing up that extra money to go back into the royalty pool for honest hard working artists. It also creates a more fair playing field for artists in these functional genres, by eliminating the perverse incentive to cut tracks artificially short with no artistic merit, at the expense of listener experience. These policies will right-size the revenue opportunity for noise uploaders. Currently, the opportunity is so large that uploaders flood streaming services with undifferentiated noise recordings, hoping to attract enough search traffic to generate royalties.|