Spotify's new royalty policies to drive additional revenue towards artists

Over the coming months, Spotify will work with licensors to limit the revenue generated by noise tracks, to a fraction of the value of music streams. (Representational Image)

Spotify has updated its streaming royalty policies, to what it claims, will drive an addition $1 billion in revenue towards artists.

The company says this will be done by diverting payments that were previously wasted on noise content, fraudulent streams, or distributors who do not disburse royalties below a certain amount.

This is because many distributors do not give out royalties below a threshold. For context, 1000 streams on Spotify generate $3 (approx. Rs 250) of revenue annually in royalties. Certain distributors do not disburse such low royalties, which means the money does not go to the artists.

Spotify also outlined how it will attempt to combat fraudulent streams and bad actors.

Artificial Streaming or Streaming Fraud is a way to manipulate play counts within a digital music service. This is done through non-organic means such as using bots that continuously play a song on loop, or by paying streaming farms, that are 3rd party services that sell fake streams for money.

Spotify's updated guideline now state that if artists are caught using these methods to inflate their numbers, then the company will take strict action, including withholding any royalties they may have generated.

Spotify says it has invested significant engineering resources to combat the problem, using tools to detect and mitigate the effects of fake streams. As another deterrent, Spotify will now begin charging labels and distributors per track if any fraudulent methods are detected.

Spotify says that it hosts nearly 100 million tracks, and each of them have been streamed between 1 - 1000 times each year. On average, one thousand streams generate just $0.03 (approx. Rs 2) per month.

The problem is these small payments are lost in the system because distributors and labels require a minimum amount to withdraw, and on top of that, banks charge a transaction fee. Which is why these payments are usually never withdrawn or accounted for, staying in the system but not reaching the artists.

Starting in 2024, only tracks that have reached at least 1000 streams in 12 months, will be able to generate royalties. Now Spotify claims that it will not make any additional money on this model, and it will simply abide by existing royalty pools. The company says it will use this money annually to increase payments to all eligible tracks, instead of limiting it to small payments who no one cashes out.

According to Spotify's own Loud and Clear website, only 37.5 million tracks out of more than 100 million even reached 1000 streams. This leaves a massive amount of unused money on the table, something the company says it will now use to increase distribution to eligible tracks.

Spotify says that 99.5% of all streams that have at least 1000 streams annually, will earn more with this policy.

Noise recordings are a popular new sub-genre that involve heavy use of white noise, rain sounds, static, etc. to generate a different listening experience for the listener. It is common for users who listen to this genre to leave it playing in the background on loop.

This leaves it open to "gaming the system", artists will often artificially shorten the length of their tracks, for no artistic reason, except to generate more streams, since an user will play it back on loop.

For example - There might be a sample of whale sounds, which are usually a few minutes long. Some bad actors shorten the length down to 30 seconds, and stack them one after the other in a playlist, generating more revenue per stream.

Starting next year, the company will increase the minimum length of Noise recordings to two minutes, anything below that number will not generate royalties. Spotify will accept white noise, nature sounds, machine noises, sound effects, non-spoken ASMR and silence recordings only.

Over the coming months, Spotify will work with licensors to limit the revenue generated by noise tracks, to a fraction of the value of music streams.

The new 1000 streams policy is bound to ruffle a few feathers. For starters, this will negatively impact smaller artists or labels who won't be able to meet the 1000 streams per annum quota. Further, this will encourage only popular artists and tracks to prosper.

According to Spotify's own numbers, only 37.5 million songs out of 100 million even reach 1000 streams annually, leaving the distribution pie unfairly skewed towards big labels and artists.

The Union of Musicians and Allied Workers has already voiced its concerns saying that the redirection of funds towards more popular tracks, discourages smaller artists from putting their songs on the platform.

In an interview with The Guardian, Brandon Washington aka Ando San, said that 1000 streams for royalties, "is too much". He agrees that there is, "an oversaturation of artists on Spotify. But without them there would be no Spotify – the platform only exists because of artists and music.”