Despite accounting for roughly half of all music streams, only 0.6% of the money allegedly defrauded in a high-profile US streaming fraud case came from Spotify, the streaming service says.
“Spotify invests heavily in automated and manual reviews to prevent, detect, and mitigate the impact of artificial streaming on our platform,” a Spotify spokesperson told MBW in an email.
“In this case, it appears that our preventative measures worked and limited the royalties [Michael] Smith was able to generate from Spotify to approximately $60,000 of the $10,000,000 noted in the indictment. As Spotify typically accounts for around 50% of streamshare, this shows how effective we are at limiting the impact of artificial streaming on our platform.”
As MBW reported last week, the US Department of Justice charged North Carolina resident Michael Smith with three felony counts in connection with a “scheme to create hundreds of thousands of songs with artificial intelligence and use automated programs called ‘bots’ to stream the AI-generated songs billions of times.”
The US Attorney’s office alleged that Smith “fraudulently obtained more than $10 million in royalty payments through his scheme” between 2017 and 2024.
Smith faces charges of wire fraud, wire fraud conspiracy and money laundering conspiracy, each of which carries a maximum of 20 years in prison.
The indictment against Smith, unsealed in the US District Court for the Southern District of New York, describes one unnamed streaming service that was able to detect Smith’s activities as streaming fraud, and cut him off from payments as early as 2019.
At least one news source has identified that streaming service – referred to as “Streaming Platform-1” in the indictment – as Spotify, based on the wording of its terms of service as quoted in the indictment.
“In or about March 2019, Streaming Platform-I informed a music distribution company (“Distribution Company-3”) that Michael Smith, the defendant, was working with, that Streaming Platform-I believed Smith had engaged in streaming fraud,” the indictment states.
“Shortly thereafter, [Smith] communicated directly with Streaming Platform-I to deny that he was engaged in streaming fraud and demand that Streaming Platform-I reinstate his music.”
With streaming fraud becoming an ever-larger issue in the music industry, Spotify has shown signs that it is taking the problem seriously, and has developed tools to detect it.
In May of last year, Spotify blocked access to certain tracks made with AI music generating platform Boomy, after detecting “artificial streaming” of Boomy-created tracks.
(As of last count, Boomy says it has been used to create more than 20 million songs.)
Also last year, Spotify began implementing changes to its royalty payment model, among which was a policy to financially penalize music distributors, including labels, when streaming fraud has been detected on tracks they uploaded.
“Spotify invests heavily in automated and manual reviews to prevent, detect, and mitigate the impact of artificial streaming on our platform.”
Spotify
Spotify also teamed up with fellow streamers Amazon Music and SoundCloud, along with music companies such as Believe, EMPIRE, DistroKid and UnitedMasters to form Music Fights Fraud, an “unprecedented alliance… aimed at eradicating streaming fraud.”
According to Beatdapp, a music data company that bills itself as a “leading authority in fraud detection,” streaming fraud takes around $2 billion out of artists’ royalties every year.
While the US Attorney’s Office has described the Smith case as the “first criminal case involving artificially inflated music streaming,” it’s not the first such case outside the US.
Earlier this year, a 53-year-old man in Denmark was sentenced to 18 months in prison, after a court found he had artificially inflated the stream count on 689 songs he had uploaded to streaming services including Spotify, Apple Music and YouSee Musik.
Prosecutors initially alleged that the defendant had earned DKK 4.38 million ($635,000) on the fraudulent streams, but were ultimately only able to prove DKK 2 million ($290,000) in earnings.
The Danish Rights Alliance called the verdict “historic” and said it sent “a strong signal about the severity of stream manipulation challenges.”Music Business Worldwide
