Business

In May 2022, the German Music Industry Association (BVMI) set its sights on “curbing streaming manipulation and streaming fraud.” These issues are “a central concern” for the music business, the organization wrote in a confidential document reviewed by Billboard, due to their “distortion of the chart ranking and/or influencing of royalty payments.” As a result, BVMI issued a call for proposals to “establish a ‘Fraud Detection System.’ ”

Related discussions have been taking place around the music industry recently. In January, the French government published what appears to be the first-ever national analysis of streaming fraud. In the United States, the outline of a fraud-mitigation proposal is circulating among several distributors, publishers and streaming platforms, while the annual Music Biz conference in Nashville in May will feature not one but three panels on the topic.

Why all the sudden attention on this issue? The Centre National de la Musique (CNM), an organization that operates under France’s Ministry of Culture, found that 1% to 3% of streams in the country were fraudulent in 2021. If those numbers were to hold true for the worldwide music market — which IFPI valued at $17.5 billion in 2022 — that would mean approximately $175 million to $525 million of streaming royalties are being hijacked globally.

Some think that’s on the low end. The streaming service Deezer has said that 7% of streams on the platform are fraudulent — and that’s just what it identifies. BeatDapp, a Vancouver-based company that builds fraud detection software for labels, distributors and streaming services all over the world, estimates that around 10% of global streams are fraudulent; while some of this activity is caught, that could mean that over $1 billion in royalties ends up in the wrong pockets.

“Nobody’s immune” to streaming fraud, says Christine Barnum, chief revenue officer at the distributor CD Baby. “So people are finally having the realization, ‘Yeah, this is a problem.’ ”

“It’s just very common,” adds one indie-label head who has “definitely bought” streams. “People are really worried about optics — ‘I need to have at least a million streams on a song,’ whatever the bar is that they’re trying to hit to make it look a certain way. There’s so much pressure.”

“Streaming fraud” is a rangy term that can encompass a variety of behaviors. These include uploading an unauthorized remix of a viral single, boosting play counts by streaming music through a hacked Spotify account or creating a bot network to drive streams to a pop hit (for chart purposes) or a white noise recording (for royalties). (CNM’s study found that 80% of fraud was detected in streaming’s “long tail,” meaning it had little to do with the charts.)

The unifying thread across these activities: They can siphon money from the royalty pool. For most streaming services, dollars from ads and subscriptions are lumped together and then distributed to rights holders according to their share of total plays. “If the demand for certain titles is increased due to streaming manipulation,” BVMI’s document explains, “other rights holders automatically receive lower royalty payments.”

Or, as Barnum puts it, fraud is “ruining it for the genuine artists who deserve to be accurately compensated for their listens. That’s being diluted.”

Some fraud is similar to old-fashioned music piracy, like uploading an unsanctioned version of an artist’s work to Spotify — or even just a duplicate under an alternate name — and claiming royalties from the resulting streams. With both piracy and fraud, “artists and anyone that makes their living from music have the potential to suffer real economic loss,” says Morgan Hayduk, co-founder/CEO of BeatDapp.

But while piracy in the file-trading and CD-burning era of the 2000s stemmed from “consumer demand for lower costs and more choice,” streaming fraud is “primarily driven by the profit motivations of nonconsumer enterprises seeking to extract revenue from the digital music industry,” Hayduk continues. “They leverage the same tools used for other types of online fraud, like stolen account credentials and bots. This isn’t a consumer-led phenomenon — it’s a reflection of the ease with which digital platforms can be manipulated for specific commercial gain.”

Sure enough, CNM’s report lamented that “fraud seems to be getting easier and easier to commit.” “In the beginning, fraud came mostly from unknown artists trying to get visibility, increased promotion or maybe a record or distribution contract,” says Ludovic Pouilly, senior vp of institutional and music industry relations at Deezer. “Right now, streaming fraud is more sophisticated and increasingly harder to detect, and we can see activity for the music of artists on all levels.” Meaning both that bad actors are diverting streams from major artists and it’s no longer simply unknown artists using bots to get visibility.

Currently, most efforts to combat fraud take place within individual organizations — whether that’s a streaming service or a distributor — which try to detect suspicious activity before it can affect payouts. In addition, IFPI has had some success taking legal action against streaming fraud sites in Germany and Brazil.

But fraud persists, which might be why there’s a growing realization that if the music industry really wants to prevent hundreds of millions of dollars from slipping out a side door, it may need a more comprehensive, cooperative approach. That said, there’s no consensus yet on what that might look like. In a statement to Billboard, BVMI said, “We are currently working on a tool to find artificial streams,” calling it a “work in progress.”

Louis Posen, founder of Hopeless Records, is an advocate for third-party oversight. “Currently, security is on a [digital service provider] by DSP level,” he says. “I think we need a monitoring, prevention, detection, mitigation and enforcement system at the level of the financial industry — both a third-party company that can monitor all the services as well as a department at each service with full resources.”

A senior executive at a major label doesn’t agree. “I’d really like to believe it’s not necessary, because it adds cost to the ecosystem,” the executive says. “Between the DSPs, the labels and the distribution side of our business, there are ways to solve this: having strong technology and technology controls, having strong rules and policies [around fraud] and adding consequences when you violate those.”

While the major labels either declined to speak about this issue on the record or did not respond to requests for comment, the senior executive notes that “we have concern over any level of fraud that happens in any of the platforms.” In 2019, the majors were among those that signed a code of conduct condemning streaming fraud, though the document was not legally binding, so it’s hard to tell the extent of its impact.

The disagreement about the best ways to combat fraud were evident in the CNM report. The study was hamstrung by several streaming services — Apple Music, YouTube and Amazon — declining to share information about fraud on their platforms, seemingly content to handle the issue internally. Those three platforms are estimated to account for a little over 35% of global streaming subscriptions; CNM was forced to perform its analysis without a complete view of the French streaming market.

Barnum maintains that “a global problem is going to take a global solution.” For now, she’s at least heartened by the fact that more people are willing to acknowledge streaming fraud’s existence: “I’m no longer a weirdo on the corner saying, ‘I think there’s a problem.’ ”