Spotify is Tweaking its Royalty Payout Model from January 2024

Spotify is on the brink of changing its royalty payout model from Q1 2024. The aim is to direct $1 billion in royalty payments to "legitimate" artists and rightsholders over the next five years.

This development comes just a month after Deezer and Universal Music Group (UMG) reached an agreement to experiment with the artist-centric royalty model, set to kick off for UMG artists in France this month. Interestingly, both turns share some similarities.

While Spotify will continue with its pro-rata payout model, it is determined to implement three changes that will encourage the flow of more money to legitimate artists (the ones Deezer referred to as ‘Professional’ artists) viz:

1. Earning Starts at a Minimum Stream Benchmark

Currently, any play on Spotify that exceeds 30 seconds triggers a royalty payment. But from Q1 2024, each track on Spotify will need to reach a minimum number of streams before it starts generating royalties.

This is expected to de-monetize a portion of tracks that previously absorbed 0.5% of Spotify's royalty pool. Some royalty payouts are being turned into fractional payments that are just pennies, which often don't reach the actual human beings behind the music because some [indie] artists need to meet a minimum level of paid-out streaming royalties before they can withdraw the money through distributors.

So, this new policy targets tracks that fall below these minimum levels, preventing such royalty payouts from just remaining idle. The exact number of streams required for eligibility hasn't been publicly disclosed yet though.

1. Monetary Penalties for Distributors and Labels Guilty of Streaming Fraud

From January 2024, whenever Spotify detects flagrant streaming fraud on a track, they won't just remove the track, they'll also impose a monetary fine on the distributor or label responsible. The goal is to discourage this fraudulent behavior over time, ensuring more genuine artists and rightsholders can benefit from the revenue.

In May, Spotify made headlines when they removed tens of thousands of tracks from their platform due to evidence of illegal streaming, through AI tools or stream farms. However, from January, not only will Spotify take down such tracks, but the distributors or labels found guilty will also be subjected to monetary penalties.

By introducing these deterrent measures, Spotify aims to protect the integrity of its platform, promote fair play, and create a financial ecosystem where legitimate artists and rightsholders receive their rightful share of the revenue.

1. Minimum Length Rule for Non-Music or ‘Noise’ Tracks

The present state of streaming platforms is such that creators of non-music content receive the same royalties as artists. Some people exploit this by scheming to generate royalties with ‘noise’ content, which then eats into the share of more professional artists.

For instance, most tracks on this playlist are just a little over 30 seconds and they’re all non-music or ‘noise’ tracks.

What are ‘Noise’ Tracks?

Tracks that are commonly used for sleep, study, and relaxation purposes often created by non-artists.

Starting from January 2024, Spotify is taking steps to address this. They will increase the minimum unit of time required for each track of non-music audio content before a payout is triggered. While the specific minimum unit of time hasn't been publicly revealed yet, this change aims to create a fairer system for actual artists on Spotify.

Spotify's approach is somewhat more lenient compared to Deezer, who is seemingly demonetizing "noise" content completely. Spotify is finding a middle ground by extending the minimum duration. This way, creators of non-music content still have an opportunity to earn royalties, while ensuring a more balanced distribution among professional artists.

What are your thoughts on these three changes? Fair play? Which are you most supportive of?