Spotify has confirmed the changes it is making to the way it processes royalties each month. Among the changes is the new 1000 plays a year threshold that each track must pass in order to be allocated any money at all.
Providing a rationale for the revamp, the streaming service states: "As Spotify payouts to the music industry continue to grow … three particular drains on the royalty pool have now reached a tipping point".
Those three “drains” are stream manipulation, functional audio and the millions of tracks uploaded by what could be deemed 'non-professional musicians' that generate minimal streams. Spotify is introducing new rules that it says will deal with each of those challenges.
The new rules aim to either stop or reduce the money that currently flows to artificial streams, functional audio and music made by 'non-professional musicians'. Though that cash will stay in the royalty pool that is then shared out across the music industry, hence the uplift in payments for all the artists and labels not negatively impacted by the new policies.
In terms of stream manipulation, Spotify bigs up the "improved artificial streaming detection technology we rolled out earlier this year" and its involvement in the Music Fights Fraud Alliance, which is coordinating the efforts of streaming services and music distributors to tackle fraud.
It also confirms that "beginning early next year we will start charging labels and distributors per track when flagrant artificial streaming is detected on their content". It has been reported that labels and distributors that deliver tracks shown to be subject to heavy stream manipulation - so that 90% of plays are artificial - will be fined $10 for each offending track.
With functional audio - like white noise and birdsong - a track will need to be played for two minutes for the play to be counted, rather than the current 30 seconds. That's to stop the makers of this kind of content gaming the system by uploading lots of 31 second tracks joined together in a playlist. This content will also be allocated less money per play than music content.
Those changes are likely to be supported by most of the music community. However, the 1000 play threshold - which will stop grassroots artists from earning anything - is more contentious.
Spotify attempts to justify it by pointing out that most distributors have their own thresholds, so an artist needs to have generated a certain amount of money in order to have that cash transferred to their bank account.
It then claims that money which is due to artists that don’t pass those distributor thresholds is “lost in the system” and "these small disregarded payments have added up to $40 million per year, which could instead increase the payments to artists who are most dependent on streaming revenue".
That’s not a great argument, given that not all distributors have such thresholds and with those that do, they tend to be £10 or less. And while musicians falling under Spotify’s new 1000 play threshold may only be making nominal amounts of money from their streams each year, it could be the money that allows them to play a gig or buy some new kit.
And with this change to the system, inevitably most of that redistributed $40 million will end up with the most streamed tracks, ie the major labels and the superstars.
CMU will be scrutinising each of these three proposed changes in more detail in the next few days, looking at the pros and the cons, identifying the winners and the losers, and suggesting the questions the music community should be asking to properly assess Spotify's big reforms.