Spotify Didn’t Quite Think Its ‘Royalty Modernizing’ Plan Through — But That’s a Problem for the Accountants

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Photo: Vlad

Spotify overlooked a few details in its much-ballyhooed ‘royalty modernizing’ plan — including the illegal parts. What else is about to blow?

On paper, it all seemed so simple. A well-considered, 1,000-stream-per-year minimum threshold — and a benevolent redistribution of $40 million in funds that would have been locked up anyway. Actually, make that a billion dollars, according to Spotify’s five-year calculations of the ample redistributions its ‘royalty modernizing’ plan would yield.

Yes, this plan to reimagine streaming royalties was that good — and that beneficial to the artist community.

It was also illegal, at least on the publishing side. Turns out that the entire publishing side has strict royalty payout rules under US Copyright Law (and the copyright laws of other countries), with little room to make things up. A 1,000-play threshold might fly on the recording side, but withholding funds for publishing-specific licenses like mechanicals is against the law.

The problem came to light in a bombshell DMN report earlier this month — with a showdown between Spotify and an army of litigants potentially next.

After word of Spotify’s royalty revamp started circulating, activist songwriter George Johnson promptly raised the matter with the Copyright Royalty Board (CRB).

“This fraudulent scheme is apparently a way for Spotify to not pay almost two-thirds of all American music copyright authors for their performances, reproductions, and distribution of their individual works already licensed to Spotify,” Johnson fumed in a CRB filing.

Fast-forward to Tuesday of this week, and Spotify’s officially unveiled royalty remake suddenly applies only to recordings — with words like ‘publishing’ and ‘songwriters’ not even mentioned.

“Starting in early 2024, tracks must have reached at least 1,000 streams in the previous 12 months in order to generate recorded royalties,” the streaming giant clarified.

Translation: Spotify won’t be paying for streams 1-999 on the recording side, but will still comply with statutory requirements on the publishing side. One payment will be withheld while under the threshold, while the other will be immediately distributed to comply with various laws.

Which means that instead of simplifying the royalty accounting process, Spotify has invented a way to double the complexity. And keep the fun times rolling in the accounting and legal departments.

Beyond that successful pushback, however, the rebellion may be muted.

Despite continued kvetching within indie, distribution, and artist rights corners, it’s unclear if Spotify will face any serious challenges ahead. In an email to Digital Music News, indie label organization Impala promised to discuss Spotify’s plan at its upcoming board meeting on November 30th. But outside of a broad pledge of ‘ensuring a fair, diverse and sustainable music ecosystem for all,’ the organization didn’t offer any concrete resolutions or demands.

And it’s uncertain if any will come. Part of the issue is that most serious artists, even unsigned emerging artists, have long since crossed the 1,000-song threshold that Spotify now requires. And for those struggling to get those plays, it won’t make a difference anyway. For starters, the money is already extremely low. And as Stem Disintermedia’s president Kristin Graziani recently articulated, most of that sub-1,000-stream money gets trapped in distributor accounts anyway.

Spotify’s plan just isn’t that bad — or damaging — at least at this stage. It might even be helpful (though be cautious with Spotify’s grandiose redistribution claims.)

However, the fallout from the changes for ‘noise’ recordings remains uncertain.

For starters, Spotify has decided to denigrate one of its most important sub-categories as ‘noise,’ a term that typically refers to aggravating sounds that people want to escape, like a jackhammer or screaming baby.

Gentle raindrops on a tin roof may not be the pinnacle of musical achievement. Still, people enjoy listening to this ‘noise’ for hours and hours while studying, working, or focusing on something demanding. In that light, does it make sense for Spotify to launch an attack on this ‘noise?’

This is actually a fairly large category for Spotify, with listeners tapping the platform for raindrops and Drake alike. With that in mind, it’s difficult to understand Spotify’s sudden shift in tone towards this creator group.

Perhaps Spotify felt pressure to appease UMG chief Sir Lucian Grainge, who’s adopted a sneering attitude towards sound effects and non-musical focus tracks. Whatever the reason, Spotify now looks condescendingly at this class of audio. Some changes certainly make sense, including forcing minimum length requirements on ‘noise’ tracks to block royalty-gaming schemes. But even for those following the rules, royalties will be severely chopped.

In its Tuesday disclosure, Spotify promised to “value noise streams at a fraction of the value of music streams,” with “white noise, nature sounds, machine noises, sound effects, non-spoken ASMR, and silence recordings” facing the cut. That will make Grainge and other major label executives happy, though it may also result in a thinner ‘noise’ selection on Spotify.

Perhaps you study best to that smattering of raindrops for hours. But will you be able to find what you need on Spotify? If not, other platforms like YouTube will happily fill the void, with Spotify suddenly becoming less competitive and functional for millions of subscribers.