Spotify Projects New Royalty Model Will Reallocate $1B to Artists and Labels Over Five Years

Spotify’s new royalty model should be a money-spinner worth an additional $1 billion for emerging and established artists over the next five years, according to the streaming giant, as content partners line-up to salute the initiative.

As previously reported, Spotify is updating its royalty system, an overhaul the company anticipates will funnel more money to more popular artists, record labels and distributors, while clamping down on streaming fraud.

In a new blog post, published today (Nov. 21), Spotify reps say its three-pronged policy will apply better hygiene to its platform, better distribute small payments that aren’t reaching creators, and, while tackling these issues that account for just a “small percentage of total streams,” its new policing of content “now means that we can drive approximately an additional $1 billion in revenue toward emerging and professional artists over the next five years.”

As previously reported, Spotify’s controversial new royalty model will affect more than two-thirds of its song catalog but that’s due to the magnitude of music that’s uploaded to the platform, where the vast majority of songs don’t get listened to with any frequency. While tens of millions of songs will fall below the 1,000 streams threshold, a source tells Billboard that policy will only shift about 0.5% of Spotify’s royalty pool to more popular tracks. That was equal to about $46 million in royalties in 2022, out of $9.27 billion paid out in total.

The changes, confirmed today in Spotify’s blog, which features breakdowns and why they’ve been actioned, are welcomed by a string of music industry figures.

“Believe welcomes Spotify’s initiative to clean-up the market from artificial streaming and noise, driving more revenues to all legitimate artists,” comments Denis Ladegaillerie, founder & CEO of Believe. “We believe that creating more benefits to develop up-and-coming artists would be a great complement to the institution of a 1.000 stream threshold. We are encouraged by our current dialogue with them on this topic.”

Spotify’s changes are “going to 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,” adds Kristin Graziani, president of Stem. “All three of Spotify’s new mechanisms redirect funds that currently sit on the balance sheet of distributors or land with bad actors back to the artists we serve.”

Under the new model touted by Spotify:
• Tracks that receive less than 1,000 streams within a 12-month period will not qualify for royalties. Those royalties, instead, will be redistributed into the greater royalty pool.
• Labels and distributors will be charged 10 euros for any track that is found to have 90% or more of its streams deemed fraudulent.
• Non-music noise tracks must now be at least two minutes long in order to qualify for royalties. As well, according to a source, there are conversations about implementing a rate reduction on these tracks that would value their streams below those for music.

To date, Spotify boasts more than 574 million users, including 226 million subscribers in more than 180 markets, generating “over $40 billion and counting” in royalties to artists and copyright holders, the Sweden-based business reports.

Adding to the support for Spotify’s new model is Terry McBride, chairman & CEO, Nettwerk Music Group. “Fraud and artificial music are significant problems for streaming services, depriving legitimate artists from building a community of fans and earning a sustainable living,” McBride comments. “I applaud Spotify’s continual and evolving efforts to address these issues.”

Bob Valentine, CEO, Concord, and Andrew Bergman, CEO Downtown Music Holdings, also welcome Spotify’s new policies.

Led by founder and CEO Daniel Ek, Spotify is said to be planning a roll-out its new royalties model in “the new year,” although no firm date has yet been announced. The changes will not affect songwriters for the time being.

Read more here.