Spotify is introducing a significant update to the way it calculates recorded royalties next year.
Starting in early 2024, tracks must have reached at least 1,000 streams in the previous 12 months in order to generate royalties on the platform.
This policy is one of the more contentious amongst a suite of new changes coming to the platform in the new year, which were first reported by MBW in October, and subsequently confirmed by Spotify in a blog post last month.
SPOT wrote in its blog post that the reasoning behind the new monetization policy is to “better distribute small payments that aren’t reaching artists”.
The company explained further that “tens of millions” of the 100 million-plus tracks it hosts on its platform “have been streamed between 1 and 1,000 times over the past year and, on average, those tracks generated $0.03 per month.”
The blog post continued: “Because labels and distributors require a minimum amount to withdraw (usually $2-$50 per withdrawal), and banks charge a fee for the transaction (usually $1-$20 per withdrawal), this money often doesn’t reach the uploaders. And these small payments are often forgotten about.”
According to Spotify, in aggregate, these small “disregarded payments” added up to $40 million in 2022 alone, which the company adds “could instead increase the payments to artists who are most dependent on streaming revenue”.
The streaming company says that “99.5% of all streams” on its platform “are of tracks that have at least 1,000 annual streams”, and that “each of those tracks will earn more under this policy”.
Spotify published a series of FAQs last month that go into more detail about how the new monetization policy works.
Here are three observations on those details.
1. There’s also a minimum number of unique listeners required for tracks to get paid… but Spotify won’t share that number
One key point clarified in Spotify’s FAQs: from Q1 2024 onwards, there will be a minimum number of unique listeners required for a track to become eligible for royalties.
This means that in addition to being required to hit a 1,000 global streams threshold (in any prior 12-month period) to be eligible to generate royalties, those same tracks will need to be streamed by a minimum number of unique listeners before they can earn any money on the platform.
According to Spotify, this policy is intended to deter artificial streaming and will ensure “that a handful of users can’t stream the track hundreds of times each to become eligible”.
“We won’t share publicly what that minimum is to prevent bad actors from gaming the system.”
Spotify says that it won’t share publicly what that minimum number of unique listeners is “to prevent bad actors from gaming the system”.
The company adds: “Of course, our industry-leading artificial streaming detection systems will continue to remove artificial streams as identified.”
Deezer’s ‘artist-centric’ model was initially announced with Universal Music Group in September. Warner Music Group has also signed up to the model in France, which works by attributing a so-called ‘double boost’ to what it defines as “professional artists” – those who have a minimum of 1,000 streams per month by a minimum of 500 unique listeners.
When Deezer calculates an artist’s royalty payments, streams of that artist’s music will carry double the weight versus streams of ‘non-professional’ artists (those with fewer than 1,000 streams per month by a minimum of 500 unique listeners).
MBW recently noted that Spotify is embracing elements of UMG and Deezer’s ‘artist-centric’ royalties model.
2. How royalties are calculated…
Spotify explained in its blog post last month that it “will not make additional money” under the new payout model and that “there is no change to the size of the music royalty pool being paid out to rights holders from Spotify”.
In its FAQs section, Spotify goes into more about how its recording royalties are worked out.
“In practice, that means a track generates royalties for all streams in the first month it reaches eligibility — but not for streams from any month prior.”
“Recording royalties are typically calculated at the end of each month based on streamshare,” Spotify explains. “For example, if a track received 1% of all streams on Spotify, it would receive 1% of that month’s royalty pool.”
Currently, all music streams on Spotify are included in this streamshare calculation, but, starting in early 2024, that will change.
From early next year, under the new policy, each month, Spotify will only calculate streamshare for eligible tracks i.e. those tracks that have received at least 1,000 streams globally on the service in the previous 12 months.
Spotify clarifies: “In practice, that means a track generates royalties for all streams in the first month it reaches eligibility — but not for streams from any month prior.
“If a track is streamed over 1,000 times in its first calendar month on platform, all streams will be included in the streamshare calculation that month.
“If, for example, a track is streamed 750 times in its first calendar month on platform, and 500 times in its second month, that track would generate royalties for all 500 streams in that second month (as well as for streams in subsequent months, as long as it remains eligible).”
3. Tracks can go in and out of eligibility.
Tracks will evidently need to maintain a minimum of 1,000 global streams in any prior 12-month period in order to be eligible to generate royalties.
Spotify clarifies in its FAQs that a track can go in and out of eligibility.
“A track can go from eligible to ineligible to eligible again as popularity changes over time.”
In other words, according to SPOT, a “track can go from eligible to ineligible to eligible again as popularity changes over time”.
Spotify adds: “Each month, all tracks that have been streamed at least 1,000 times globally in the previous 12 months will be included in streamshare calculations for royalties.”
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