Spotify is in conversation with the major record companies, key indies and distributors about changing the way it allocates revenues to individual tracks and catalogues each month.
It follows the pilot scheme launched by Deezer earlier this month which makes similar changes. Spotify’s plans include the introduction of a threshold for monetisation, meaning tracks will need to reach a certain number of streams each year before any money is allocated to them at all. There will also be new rules for “functional audio”, such as white noise and birdsong.
The changes by both Spotify and Deezer reflect growing pressure from the major record companies to change aspects of the business model employed by the streaming services. In particular, the majors increasingly resent that their content - which they see as “premium content” - is monetised the same as what they would consider “lower value” content.
That lower value content includes functional audio, but also tracks uploaded by what the majors might regard as “non-professional” musicians - creators for whom pure monetisation may not be a priority, but who nevertheless want their music available on the streaming platforms.
Music streaming services operate on a model where revenue is shared with the music industry based on consumption share. That means that each month, in each market, each service allocates a portion of its revenue to each track - or to each catalogue.
Under the current system the portion of revenues allocated to each track is based on what percentage of total consumption any one track accounts for - with all tracks treated equally and plays counted at 30 seconds.
There have been calls for changes to be made to this track allocation system for years, though mainly from the indie and music-maker communities. However, since the start of this year the majors have been calling for changes too, so now we are starting to see some alternative systems being seriously considered.
When it comes to functional audio, Deezer’s alternative approach removes third party content of that kind entirely, replacing it with similar content made by the streaming firm itself that will not be allocated any revenue.
Under Spotify’s proposals - first reported by MBW and Billboard and since confirmed by CMU’s own sources - new rules would be brought in specifically for this kind of content regarding the duration of listening to any one track.
Because plays are currently counted at 30 seconds, functional audio producers often create playlists of tracks split into 31 second segments - meaning that each short track triggers a payment. Spotify’s current proposal is to significantly increase the play time required for payment, making it harder for functional audio producers to generate revenue from lots of short tracks.
In terms of music uploaded by what the majors regard as “non-professional” musicians, Deezer’s new system is set up so that tracks by “professional” artists get a “double boost”, meaning each play counts as two plays, and therefore less money flows to “non-professional” artists.
Spotify’s solution, however, is based on setting an annual threshold for the number of streams a track must pass before it starts to be allocated any revenue at all.
It is this proposal in particular - splitting music-makers into two tiers - where these changes get controversial. Deezer, Spotify and their mates at the majors insist that the definitions and thresholds being proposed mean independent artists and emerging talent will end up in the privileged group, with many of those in the lower tier not really seeking to make money from their music anyway. However, the new policies will affect everyone in that lower tier, and the change could particularly impact certain niche genres or artists from non-traditional backgrounds.
Those artists may well ask why, if their music gets played - even just a few hundred times - they should not be paid the same as anyone else. They might also ask whether the two tier pay-out proposal is not just price-fixing, where dominant streaming platforms collude with dominant music companies, and a small handful of major players push millions of independent creators out of the marketplace - or at the very least offer them less favourable terms.
While the streaming services and majors might argue that UGC and social media platforms have already set a precedent that creators must have a certain amount of traction before they qualify to monetise their output, many in the music industry might argue that such a distinction is a false parallel.
It will be interesting to see how Deezer and Spotify's plans progress as they seek to get buy-in from across the industry. But what seems certain is that the track allocation systems employed by the streaming services are going to change in the next year, making everything even more complicated. Hurrah!
Oh, as with Deezer, Spotify is also making some new commitments to tackle streaming fraud. Needless to say, specifics are not yet clear.