Why Spotify’s New Payment Model Falls Short For Emerging Artists: Guest Column

Why Spotify’s New Payment Model Falls Short For Emerging Artists: Guest Column

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After much speculation on what Spotify’s updated payment model would actually look like, the streaming giant finally released a comprehensive breakdown in a blog post late last month. Although the post was titled Modernizing Our Royalty System to Drive an Additional $1 Billion toward Emerging and Professional Artists, emerging artists have been completely left out of the discussion. And this change not only does very little to support emerging artists, it ignores the real issues hurting these artists at the core of Spotify’s platform.

Let me explain.

First, what Spotify announced is a slight shift in the royalty calculations for the tracks on its platform. (Note I didn’t say “songs.” More on this in a minute). Basically, for a track to start earning royalties, it now must get at least 1,000 streams over the course of a year. Why this change? Spotify claims that this will reduce streaming fraud and divert revenue away from “bad actors” to “emerging and professional artists.”

Also part of this announcement, “noise” tracks (like rain sounds, white noise, etc.), must now be at least 2 minutes long to earn a royalty – instead of the current threshold of 30 seconds. And Spotify says it is going to value noise streams at a fraction of the value of music streams in the coming months.

Why not just demonetize noise tracks altogether? People will still upload these for personal enjoyment (like they’ve been doing on YouTube for 15 years). These tracks should not contribute to the music streaming ecosystem whatsoever.

Spotify explains this payment shift further:

“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 per year, which could instead increase the payments to artists who are most dependent on streaming revenue.”

Spotify’s stated reason for doing this is to combat “artificial streaming” that “bad actors continue to attempt to steal money from the royalty pool that should be delivered to honest, hardworking artists.” And also to get more money into the royalty pool by taking from the songs where it wouldn’t make a material difference to the artist. What’s a few dollars here and there? I get that.

In my interview on  the New Music Business podcast with the founders of BeatDap, a company which focuses on identifying streaming fraud, they highlighted all of the inventive ways fraudsters are able to steal from the royalty pool. One of these ways is by uploading thousands of songs, then hacking into real users’ Spotify accounts and streaming each of these songs just a few times on each account to fly under the radar. Most users don’t realize they were hacked or that this fraud was committed on their account because it’s just a few streams of songs they don’t recognize. But for the fraudsters, it can add up.

Spotify is claiming that not only will this new payment threshold not really hurt the “hardworking artists” that fall below the threshold, but will also reduce this type of fraud in the process.

Well, an artist with 20 songs at just under 1,000 streams each previously would earn around $60. Now that artist would earn $0. $60 is not life changing, but it’s also not nothing — and it meets the minimum payment threshold of virtually every distributor. What has been lost in all of the commentary around this topic over the past few weeks is that most artists don’t just release one song. The payment thresholds for distributors are for all the songs the artist distributed.

Let’s not pretend this change is helping (or effecting) emerging artists. The only entities that will see a meaningful difference from this policy are superstar artists, labels and commission-based distributors.

Major labels currently control about 65% of all global streaming revenue. If $40 million annually is now diverted away from the tracks that don’t meet the 1,000 stream threshold to the tracks that do, using Spotify’s math, it’s safe to assume that the major labels look to gain $26 million more per year. That’s significant. And even the commission-based indie distributors will see a noticeable uptick to their balance sheets – which is most likely why they are in favor of this policy. Kristin Graziani, president of Stem, who initially explained this new payment model, cautioned “some critics will make arguments purely out of self-interest.”

Let’s be clear, no individual artist is actually going to notice much of a difference. What, so now we make about $.0031 per stream on average versus $.003? Sweet.

Spotify also says it will start charging distributors when streaming fraud is detected as a deterrent. Does Spotify not realize that the distributors will simply pass down these fees to the artists who may have been scammed themselves? I take great offense when Spotify calls these artists “bad actors.” In part because I am an artist who hired a marketing agency (back in 2017) that used tactics (unbeknownst to me) that got my album flagged for fraud and removed from Spotify! This continues to happen all the time to “hardworking artists” who are just trying to figure out how to play the game and don’t know any better.

When stream counts and monthly listeners are incentivized and prioritized over actual fan engagement, you’re training artists to do whatever they can to increase these metrics – even if it means imploring tactics that Spotify deems inappropriate. Instead of penalizing artists, change your model.

Spotify has approached this all wrong.

Spotify’s “streamshare” pro-rata payment model is what’s broken (where each stream earns its share of the total royalty pool based on the number of streams it got against all the other streams on the platform). And, sure, a user-generated payment model (where every artist’s payment comes directly from the users that actually listened to them) wouldn’t solve 100% of streaming fraud, it is a lot more fair. And would make a noticeable difference for emerging artists’ bottom line – as per an extensive study done by MIDiA Research. We wouldn’t be counting streams, but rather fandom.

If just 100 fans solely listened to five artists this month and spent $10 on their subscription, those five artists would earn around $140 each. Even if that fan only streamed each artist a few times. It’s not about streamshare, but fanshare. That makes all the difference.

If Spotify really wants support emerging artists, there are far more impactful things it can do:

  1. Remove all public-facing numbers to improve artists’ mental health
    There is a mental health crisis in the music industry. And artists are suffering tremendously. You want to know one reason why musician’s mental health suffers?  Comparing their numbers to other artists’ numbers. Feeling inadequate. Worthless.

    In the recent lawsuit filed against Meta from attorneys general from 42 U.S. States, it highlighted a test program Meta ran in which it hid the “like” counts on Instagram for some uses. The study revealed that this experiment reduced the users’ experience of negative emotions.

    If public facing numbers were removed altogether from Spotify (monthly listeners, stream counts, follower counts), I believe musicians’ mental health would improve. Artists are valuing their self worth based not on the impact their music is having with individuals, but rather on these numbers which have become a toxic currency in the music industry.

  2. Allow artists to choose their own “Fans Also Like”
    Want to know what drives emerging artists crazy? When their “Fans Also Like” either is not reflective of their music or showcases artists who don’t reflect appealingly on them. When Spotify recently changed its FAL algorithm, artists were in uproar. Many artists with tens of thousands of monthly listeners saw artists with hundreds of listeners now amongst their FAL. Like stream and monthly listener numbers, this is a point of immense frustration.

    BandsInTown allows artists to simply choose their similar artists. There is absolutely no reason Spotify should not allow artists to choose this if they’d like. For the artists that are happy with their listed FAL, fine, great, no action required. For the artists that want this changed? Allow it.

  3. Display Credits
    The most requested feature from artists is to display credits. Tidal displays credits. Pandora displays credits. Why doesn’t Spotify? Not just producer and songwriter — all credits. Every single person who contributed to the track should be listed. This is just basic respect for these individuals. Give the mixing engineer and trumpet player some love!
  4. Create an appeals process for flagged songs
    I’ve heard countless stories from artists about their distributors withholding payment and blocking artists’ access to their platform because of supposed “fraudulent streaming” detected. These artists swear they didn’t do anything wrong, but have no recourse. Distributors usually take these actions when a DSP flags the songs to the distributor. There needs to be an appeals process which gives the artists, distributors, labels and Spotify time to investigate what actually happened.

    And what about the bad actors who are issuing false copyright infringement notices for rival artists’ songs just to mess them up? Currently, Spotify (and YouTube, Instagram, etc.) will immediately take the song down and require the parties to work it out amongst themselves. This can kill viral momentum and cost artists thousands in marketing costs. Spotify needs a new policy for addressing this where it keeps the songs up during the investigation.

  5. Prioritize Artist-Fan engagement instead of streaming numbers
    After over 12 years of streaming in the U.S., it’s true, we need a completely new model. This new payment structure perpetuates all of the problems of streaming. Not least of which prioritizes streaming growth over fan growth. Meaningless stream counts over real fan engagement. Numbers over humans.

    Want to truly help artists? Shift the platform and payment structure away from streaming and towards fandom.

    Pay based on fandom. Reward based on fandom. Incentivize humanity. Not numbers.

Ari Herstand is the author of the 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.

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