For Better or Worse, Spotify’s 1,000 Streams Royalty Limit Now In Effect

Spotify's 1,000 streams royalty limit now in effect
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Spotify's 1,000 streams royalty limit now in effect
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Photo Credit: Travis Essinger

Spotify’s payout to the music industry has topped $40 billion and counting. Now royalty changes announced by the DSP have gone into effect as of April 1st.

Spotify says it found three drains on the royalty pool that “reached a tipping point” — demanding changes to how royalties are distributed. The idea behind these changes is to deter artificial streaming, better distribute small payments to artists, and rein in bad actors attempting to game the system with noise.

Spotify says it expects these changes to drive an additional $1 billion in revenue toward emerging and professional artists over the next five years.

Spotify hosts well over 100 million tracks, with tens of millions of them streamed between 1 and 1,000 times. On average, tracks that generate less than 1,000 streams per 12 months generate around $0.03 per month. With distributors requiring a minimum amount for artists to withdraw their earnings—these small payments often get left behind.

As of April 1, tracks must have reached 1,000 streams in the previous 12-month period in order to generate recorded royalties. “There is no change to the size of the music royalty pool being paid out to rights holders from Spotify; we will simply use the tens of millions of dollars annually to increase the payments to all eligible tracks, rather than spreading it out into $0.03 payments,” Spotify says.

Spotify says it made this change to increase the royalty pool for artists who are eligible (over 1,000+ streams in 12 months)—rather than being spread out in tiny payments that typically don’t reach the artist. Spotify says 99.5% of all streams are of tracks that have at least 1,000 listens over the period of a year.

The streaming giant also hopes this move will help reduce fraud, those some analysts are skeptical. One current form of artificial streaming fraud is bad actors generating pennies from distributing an extremely high volume of tracks. Other changes that went into effect include charging distributors per track when “flagrant artificial streaming” is detected.

Spotify also changed its royalty scheme for what it calls ‘functional noise’ or white noise people listen to as background sound while working, studying, or exercising. Now the minimum track length for white noise recordings to be eligible to receive royalties is two minutes. Spotify is also working with its licensors to “value noise streams at a fraction of the value of music streams.”

By setting a minimum track length for these functional noise tracks, they generate one royalty-bearing stream instead of four at the previous length (30 seconds). Spotify says the change also evens the playing field for artists who create functional noise as there is no monetary incentive to shorten tracks without artistic merit.

Spotify’s announced changes haven’t been without criticism, though. The royalty threshold has been especially contentious among emerging artists—who may now see their tracks’ earnings wiped to nil. “If $40 million annually is diverted away from the tracks that don’t meet the 1,000 stream threshold to the tracks that due, using Spotify’s math, it’s safe to assume that the major labels look to gain $26 million more per year,” one critic estimates.