What’s Wrong With Spotify’s New Royalty Payout Changes? Not Much.

Spotify royalty changes: the pile of pennies gets a new look (photo: Olichel)
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Spotify royalty changes: the pile of pennies gets a new look (photo: Olichel)
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Photo: Olichel

Spotify is implementing a royalty-payment threshold of 1,000 streams per year, according to preliminary details now surfacing. So what’s the problem with that?

The shocking answer to that question is ‘not much,’ even though the move technically cuts off a vast majority of creators on the platform. Take a closer look at the numbers, however, and it becomes obvious that this isn’t a lot of money — both in terms of the overall percentage of the streaming pie and the actual payments themselves. There are also some interesting benefits that immediately come into play.

As a quick recap, details on Spotify’s planned royalty-payout changes were recently revealed by Stem Disintermedia president Kristin Graziani. Aside from fraud-monitoring requirements on distributors and changes to the minimum length of non-music tracks like raindrop recordings, Spotify will also implement a minimum play threshold for a song at 1,000 streams per year. Pass that threshold, and you get paid. Miss that threshold, and there’s no payment.

It’s shocking how many artists will get cut off by this simple shift.

Just how many are we talking about here? Yesterday, we estimated that roughly two-thirds of artists would stop receiving payments due to this shift. But that’s based on Spotify’s data on the number of tracks that cross 1,000 streams during their lifetimes — not one year. Shift the timeframe from ‘lifetime’ to ‘annual,’ and it’s reasonable to estimate that more than 80% of artists and creators on the platform will suddenly lose their royalty checks.

For reasons that make sense and are entirely defensible, that is provoking protests and howls from the indie sector and artist advocates (we’ll have more on that later). They aren’t wrong to be upset, especially since the money may be directly transferred from those underperforming artists to better-performing artists (or, more likely, their labels). In other words, bigger, more successful artists will receive money for streams they didn’t earn.

So how is that okay?

The answer is complicated. On one hand, this non-payment redistribution is technically unfair, and arguably theft if shifted into the hands of more successful artists. Perhaps Believe founder and CEO Denis Ladegaillerie nailed it by calling this sort of redistribution a ‘reverse Robin Hood system.’ But Ladegaillerie was referring to a very different and more serious recalibration being cooked up by Universal Music Group and Deezer.

In the Spotify context, however, this probably doesn’t add up enough to matter. For evidence of that, consider what 1,000 streams mean for an artist on Spotify.

The penny payout rates from streaming platforms are shockingly low: Graziani estimated that 1,000 streams translate into $3 for the average Spotify artist. Imagine an artist with ten tracks, each drawing 500 streams. The missing payout would be $15.

And what’s wrong with a minimum threshold? Graziani further points out that most distributors have minimum thresholds already in place. In this case, the money isn’t hitting artist bank accounts at these lower levels.

“$3.00 is well below the threshold at which almost every distributor allows artists to transfer earnings into their own bank accounts,” Graziani noted. “In other words, this is money that isn’t currently making it to artists in the first place.”

So where is that big pile of pennies sitting?

“Right now, artists don’t benefit from the millions of tiny payments that Spotify pays for content that receives a few streams per month,” Graziani continues. “It’s the distributors who benefit from the hundreds of thousands of dollars sitting in their bank accounts earning interest. Redirecting those tiny payments can immediately increase the royalty pool by $40 million dollars each year, and that number can grow over time.”

$40 million sounds like a lot of money — and it is. But placed into the context of overall streaming revenues, it’s actually a tiny portion.

Billboard, citing an anonymous source, has claimed that the new payout approach would shift only “about 0.5% of Spotify’s royalty pool to more popular tracks.” All of those tiny crumbs aren’t adding up to a very big cake.

But that 0.5% accounts for a disproportionate amount of the headaches involving metadata mismatches and unclaimed funds. Delve into the bowels of the SoundExchange and the Mechanical Licensing Collective (MLC) databases, and vast piles of dangling, disconnected, and otherwise unclaimed cash surfaces. But what if the smaller stuff — defined by tracks garnering fewer than 1,000 streams per year — were simply removed from consideration? Maybe the war against bad metadata is about to take a fortuitous turn.

Still, from an ethical standpoint, is it fair to shift that money to bigger artists? Graziani says yes, though that’s certainly worthy of debate. But how important is that debate in the grand scheme of things? Given the broader and more controversial changes happening at Deezer at the behest of Universal Music Group, perhaps not so much.

Perhaps a middle-ground solution would be to not distribute that money to bigger artists that didn’t generate those streams. Instead, why not use the funds to support up-and-coming artists, even in a for-profit scheme? 

Stem knows plenty about this: the company recently raised $250 million to help fund emerging artist careers. According to the company, the fund “provides advances against future projects without taking any ownership” and represents a model that’s “had a profound impact” on certain indie acts’ careers.

Now we’re talking.