State Champ Radio Royalties
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In the new year, Spotify plans to roll out a new royalties model that will drive more money to more popular artists, record labels and distributors, while clamping down on streaming fraud.
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The scheme is three-pronged, based on Billboard’s reporting, creating a new streaming threshold that tracks must reach in order to qualify for royalties, penalizing fraudulent activity and setting a minimum play-time length for non-music noise tracks to earn revenue on the platform. The details on each of these elements have trickled out in the press without a formal announcement, but Billboard can now report specifics on each, according to sources in streaming and distribution.
Here’s a full rundown of Spotify’s new royalties model:
Tracks that receive less than 1,000 streams within a 12-month period will not qualify for royalties. Those royalties, instead, will be redistributed into the greater royalty pool.
Labels and distributors will be charged 10 euros for any track that is found to have 90% or more of its streams deemed fraudulent.
Non-music noise tracks must now be at least two minutes long in order to qualify for royalties. As well, according to a source, there are conversations about implementing a rate reduction on these tracks that would value their streams below those for music.
As previously reported, Spotify’s new royalty model will affect more than two-thirds of its song catalog but that’s due to the magnitude of music that’s uploaded to the platform, where the vast majority of songs don’t get listened to with any frequency. While tens of millions of songs will fall below the 1,000 streams threshold, a source tells Billboard that policy will only shift about 0.5% of Spotify’s royalty pool to more popular tracks. That was equal to about $46 million in royalties in 2022, out of $9.27 billion paid out in total.
The changes have been largely applauded by the music industry, although some in the independent distribution sector are concerned that the anti-fraud measures could disproportionately affect DIY distributors, even though major label acts sometimes engage in this activity too. These companies that have built hands-off, high-volume distribution businesses with small margins, charging a small fee per upload have huge batches of new music uploading daily, which means it’s hard to know who is doing the uploading.
DistroKid founder Philip Kaplan voiced his objection to the penalty system on a recent call with the Music Fraud Alliance, according to two sources who were also on the line.
One of those executives described the gist of Kaplan’s comments: “We can’t determine if a new client is going to hire a marketing service that’s going to bot streams until they’ve done it. It’s like you can’t determine if your neighbor is going to commit a crime.”
Spotify is planning to roll out its new royalties model in early 2024, although no firm date has yet been announced. The changes will not affect songwriters for the time being.
The leaders in perhaps the largest known YouTube royalty scam in history, Jose “Chenel” Teran and Webster “Yenddi” Batista Fernandez, have been ordered to pay more than $3.3 million in restitution to their victims. The amount is just a fraction of the $23 million in total royalties the two fraudsters siphoned from mostly Latin music makers, including Don Omar, Julio Iglesias, Prince Royce and Anuel AA, from about 2016-2021.
In total, the duo’s company MediaMuv fraudulently claimed to be the rights holder of over 50,000 sound recording and composition copyrights. Proceeds from this scam were then used by Batista and Teran to fund their lavish lifestyles, including Lamborghinis, real estate, diamond-encrusted jewelry and other luxuries, until their indictment in November 2021. They were indicted on 30 counts of conspiracy, wire fraud, money laundering and aggravated identity theft.
The two will split the $3.3 million they are ordered to pay back to victims; one source explained that the money will be paid out slowly each month after their release from prison. Earlier this year, Teran was sentenced to nearly six years in prison and Batista was given four years.
The court is ordering Teran and Batista to pay just a small sampling of the many songwriters and artists who are owed royalties as a result of the scam. It stipulates that Regalias Digitales — a rights management firm that represents a number of the victims — is owed nearly $1.4 million, the Recording Industry Association of America (RIAA) — which also represents many of the victims — is owed more than $1.2 million, Jose Luis Perales is owed $153,000, Los Caminantes is owed more than $149,000, Nancy Ramirez is owed more than $100,000, Vagon Chicano is owed $98,000, Grupo Mandingo is owed $67,000, Grupo Ladron is owed almost $56,000, SPARX is owed $49,000, Don Omar is owed nearly $21,000, El Ojo is owed $15,000, INAMU — Argentina’s National Institute of Music — is owed $11,000 for its catalog of artists, Pappo is owed almost $2,000 and La Renga is owed over $700.
The latest court document reveals that Reggaeton superstar Bad Bunny was also a victim of Teran and Batista’s false royalty claiming, which they conducted under the company name MediaMuv. The thieves stole $500 from the star, which they have been ordered to pay back.
Representatives for Regalias Digitales and the RIAA did not respond to Billboard’s requests for comment.
INAMU told Billboard it learned of Batista and Teran’s scam from its partners at AdRev, a digital rights management firm that is now part of Downtown Music. At the time, INAMU was working with AdRev to collect royalties on behalf of its catalog, and the organization subsequently got in touch with prosecutors. The Argentinian institute — which controls the rights to a recorded music catalog that includes Leon Giaco and Seru Giran — no longer works with AdRev.
AdRev was also a business partner of Teran and Batista. Over the course of the duo’s five-year scam, AdRev helped claim the duo’s royalties. To date, AdRev has not been accused of any wrongdoing by prosecutors, and Batista admitted to sending three falsified contracts with companies that “purportedly” managed artists to AdRev “for the purpose of deceiving [AdRev] into allowing [MediaMuv] to continue [its] fraudulent operation.” However, a previous Billboard investigation into the $23 million scam revealed that AdRev executives were warned of Teran and Batista’s suspicious ownership claims on many occasions but continued to work with MediaMuv despite those emails.
The Warner Music Group has signed on to Deezer’s new royalty payment structure in France, which was developed in partnership with Universal Music Group and announced in September, the president of the major label’s French operations confirmed today (Nov. 13). The move, which was first confirmed in a story with French outlet Les Echos, has been in place since Oct. 1, and only covers streams in France, where Deezer is based.
In September, Deezer and UMG announced their new model, which they referred to as an “artist-centric” royalty model aimed at combatting fraud, reducing the royalty pool for so-called “non-artist noise” like white noise and nature sounds, and boosting payouts for what the companies referred to as “professional artists,” or artists who were accumulating 1,000 streams per month from 500 unique listeners. The model replaces the existing pro-rata model, in which rights holders were paid by share of streams, regardless of their stature or content, which is still in place globally.
“We are delighted to partner with Deezer on this artist-centric model which rewards engaging music and demonetizes non-artist noise,” Warner Music France president Alain Veille told the outlet. “Our new deal will benefit creative talent at all stages of their careers and support our ability to invest in the next generation.”
In opting in to Deezer’s new structure, WMG joins UMG and a handful of small indies, while the third major, Sony Music, has so far not signed on. The move comes amid a year’s worth of conversation in the music industry about how to tweak the streaming royalty structure as the amount of tracks being uploaded each day to major services surpasses 100,000, and fraud on services is becoming an increasingly big topic. Universal also announced a royalty review with SoundCloud and TIDAL, while Spotify released its own tweaked model, which has far lower thresholds for artists than Deezer’s and is more narrowly aimed at fraud, rather than at determining the level of streams that constitutes an artist’s professional status.
When Deezer and UMG first announced the new model, it was met with pushback from several corners of the music business, particularly the indie sector, which was concerned about those seemingly-arbitrary levels to qualify as a “professional” and about the one-label study that led to its adoption. And while there is broad consensus in the industry that the model needs to change — including public statements from UMG chairman/CEO Lucian Grainge and WMG CEO Robert Kyncl — there is not universal agreement in how to do so, and there is a possibility that each digital service provider could adopt its own model moving forward.
In initially announcing the model in September, Deezer CEO Jeronimo Folgueira told Billboard that he expected more rights holders than UMG to sign on, and planned on rolling out the new structure globally in the coming year. For now, the model is limited to France.
In the Mechanical Licensing Collective’s (The MLC) third annual membership meeting, the Nashville-based non-profit organization revealed that it has distributed $1.5 billion in total royalties to date to songwriters and publishers, up by about $500 million from March.
This year marked the Music Modernization Act‘s fifth anniversary since passing into law — the landmark occasion that instructed the MLC’s formation. As part of the law, a new blanket license was created for musical work (also known as “song” or “composition”) mechanical royalties that greatly simplified music licensing for digital services like Spotify and Apple Music, among others.
The previous, piece-meal system was not only complicated for the services — it also led to a growing pool of over $400 million in streaming royalties that were unallocated because the compositions’ owners couldn’t be found. (This is colloquially known in the business as “black box” money, although the MLC uses the term “historical unmatched royalties.”) The MLC was tasked to implement and administer this new blanket license and distribute the money in this stagnant royalty pool. It officially opened its doors on Jan. 1, 2021.
According to its latest report, The MLC has completed 31 monthly royalty distributions to date, each one of them completed on time or early. Its match rate for all royalties processed through October is also up 1% since their last reporting in March, rising from 89% to 90%. According to the MLC, the match rate represented the percentage of total royalties processed that were able to match to a registered work in their database.
The MLC reported a membership of 32,000 people — 9,000 of which joined in 2023 — and touts 33 million works in its database, with data for over 3 million works added in 2023 alone. An MLC spokesperson clarified that this metric means that there were 3 million new songs this year, calculated by taking the total number of songs registered at the beginning of the year and comparing that to the total number registered at the end of September.
During the membership meeting, The MLC also announced some new board appointments. Alisa Coleman was re-elected by The MLC’s Class B Members to serve on The MLC’s Board of Directors for a second three-year term; The MLC’s Class A Members selected Troy Verges to fill the open seat as a songwriter director of the board, a position previously held by Craig Wiseman; The Class A Members selected Kevin Kadish to serve a second three-year term as a songwriter director of the board. (The Class C membership will not change in 2024.)
“We are proud of these accomplishments, particularly in reaching the milestone of distributing over $1.5 billion in royalties,” said Kris Ahrend, CEO of the MLC. “We have effectively illuminated the black box by empowering our members with several tools that enable them to take actions intended to eliminate the black box. We look forward to continuing our work to fulfill our mission of ensuring songwriters, composers, lyricists and music publishers receive their mechanical royalties from streaming & download services in the United States accurately and on time.”
As part of the five year anniversary of the MMA, Congress hosted a committee hearing in June to review its impact on the music business so far. Ahrend, along with Garrett Levin (then-president and CEO, Digital Media Association), Michael Molinar (president, Big Machine Music), Abby North (president, North Music Group), Daniel Tashian (songwriter, producer) and David Porter (songwriter, producer) all spoke as witnesses.
Most tracks on Spotify will not be eligible to receive royalties based on the company’s proposed royalty scheme that will go into effect in 2024. That’s because a track must reach a threshold of 1,000 streams within 12 months to receive royalty payouts, according to an article this week written by Kristin Graziani, president of music distributor Stem. A source with knowledge of the plan confirmed the details to Billboard.
According to Spotify’s Loud & Clear website, 37.5 million tracks had surpassed 1,000 all-time streams as of 2022. That’s out of a catalog of 100 million tracks at the end of 2022, per Spotify’s 2022 annual report. In other words, almost two-thirds of Spotify’s catalog has never reached the 12-month minimum stream count to be eligible to receive royalties. Given that’s all-time streams since the company launched in 2008, it stands to reason that fewer yet will reach 1,000 streams within a 12-month period.
While this 1,000-stream threshold affects a large number of tracks, it doesn’t impact much of Spotify’s royalties to creators and rights holders. Implementing the threshold will shift about 0.5% of Spotify’s royalty pool to more popular tracks, a source tells Billboard. That was equal to about $46 million in royalties in 2022, based on Spotify’s $9.27 billion cost of sales that year, which represents virtually all royalty payouts.
Tackling fraudulent streams could have a larger impact than a minimum threshold. Spotify’s new royalty scheme also imposes financial penalties for music distributors and labels when fraudulent activity has been detected on tracks they uploaded. That should incentivize distributors to locate and remove fraudulent tracks before they can get to streaming platforms.
Various estimates put fraudulent tracks’ share of listening — at Spotify and elsewhere — at 3% to 10% of total streams. With the 2022 global streaming market valued at $17.5 billion, according to the IFPI, up to $1 billion worth of streaming royalties globally is ending up in the wrong hands. Removing those fraudulent streams from eligibility means all other tracks will receive a greater share of the royalty pool.
French music company Believe would get a “significant double-digit” percentage growth in its market share at Deezer under the company’s new artist-centric royalty scheme, Believe CEO Denis Ladegaillerie said during the company’s Oct. 24 earnings call. The bulk of that impact comes from fighting streaming fraud and abuse, said Ladegaillerie, adding that Deezer has a “much higher” level of streaming fraud and abuse than Spotify and Apple Music. In contrast, he added, changing how royalties are allocated to artists would impact an “extremely marginal” amount of royalties.
A cleaner, easier way to improve all artists’ royalties — one resisted by streaming services until recently — is to raise subscription prices. Every time a streaming service raises fees by 10% — such as Spotify going from $9.99 to $10.99 per month in the U.S. in July — the royalties earned from those subscribers increase a commensurate amount. Deezer has raised its price twice in less than two years. Amazon Music, Apple Music and YouTube Music have also raised prices in the last year.
As part of our continuing efforts to serve the music industry and its creators, Billboard now features a royalty calculator for Spotify and Apple Music for readers. Explore Explore See latest videos, charts and news See latest videos, charts and news Created by Manatt, Phelps & Phillips, a legal and consulting firm that specializes in […]
As part of our continuing efforts to serve the music industry and its creators, Billboard now features a royalty calculator for Spotify and Apple Music for readers. The calculator below was created by Manatt, Phelps & Phillips, a legal and consulting firm that specializes in music industry law; and is based on the firm’s analysis […]
Global music rights revenue collections reached €10.83 billion ($11.4 billion) in 2022, according to CISAC, the trade organization of collective management societies. That’s a new record that reflects growth of 28% over 2021, as live concert revenue continues to recover from the pandemic and digital income keeps growing.
Income from concerts — the royalties collected from the public performance of songs being played live — was up 185.7% based on a sample of 100 societies, since different organizations account for that revenue differently. And since these numbers are from 2022, when the concert business still hadn’t fully recovered, next year’s numbers will be better still.
The real change is in digital, though, which is now worth €4.08 billion ($4.3 billion), up 33.5% from 2021 and almost double its value from 2019. It now accounts for 37.7% of collections revenue — marking the first time it has been the biggest category — and is likely to be the main engine of growth for years to come. The TV and radio category, traditionally the largest source of revenue, is now No. 2 behind digital with $3.55 billion.
The CISAC Global Collections Report tracks money taken in by collective management organizations for authors’ rights — composers and publishers in the music business, plus audiovisual creators, writers and more. (Neighboring rights revenue for recordings is not included.) More than 90% of the money comes from song rights — specifically, the funds that flow through societies rather than through direct deals.
By any measure, the growth in the CISAC report is remarkable — a record both for the revenue collected and year-on-year growth. And while some of that reflects the unprecedented disappearance and return of the live business, digital growth has been, and will continue to be, steady.
“This is a remarkable return to growth as our whole sector fully recovers from the disastrous three-year pandemic,” said CISAC director general Gadi Oron in the announcement of the results. “While live and public performance have bounced back strongly, the recovery is driven most of all by digital which has now become creators’ largest source of income.”
Much of this growth reflects the changing role of collecting societies in the streaming era. Rather than just represent and license rights in the market in which they operate, societies also compete online. The biggest of the societies — PRS, SACEM and others — now license online rights from writers in most countries.
The growth is worldwide, too. All of the top ten music markets increased collections revenue, with an average growth rate of more than 25%. The biggest market is the United States with €2.616 billion ($2.759) and 30.5% growth; then France, with €1.325 billion ($1.398 billion) and more than 39% growth. Rounding out the top 10 are the United Kingdom, Germany, Japan, Italy, Australia, Canada, Spain and Korea.
Deezer is partnering with French collective management society SACEM to explore the potential impact that “artist-centric” streaming royalty payment models will have on remuneration for songwriters and publishers.
In a joint announcement on Wednesday (Oct. 25), Deezer and SACEM said they were carrying out an “in depth” study that will analyze streaming data to evaluate the viability of different economic models “aimed at remunerating songwriters, composers and publishing rights owners more fairly.”
A representative for Deezer tells Billboard that the first stage of the study commenced earlier this month using data from paid subscription accounts in France in the first quarter of 2023.
The next stage of the project, which is expected to last several months and focuses purely on the French digital music market, will see Deezer and SACEM specifically evaluate the impact that an artist-centric streaming model would have on the society’s 210,000-plus members and international partners, which include Universal Music Publishing Group and Wixen Music Publishing, as well as collective management organizations (CMOs) SOCAN and ASCAP.
“Songwriters, composers and publishers play a crucial role in the music industry as the creative driving force behind the songs we love, and it’s time to evolve how we reward these efforts,” said Deezer CEO Jeronimo Folgueira in a statement.
The joint initiative comes less than two months after Deezer announced it was partnering with Universal Music Group (UMG) on what it calls an “artist-centric music streaming model” for recorded music.
The new artist-centric model for recorded music replaces the traditional pro-rata model whereby one stream equals one play and the total number of plays is divided up by artists and labels according to how many they each accrue.
Since launching Oct. 1, the model has been exclusively limited to France, Deezer’s home market, and, so far, only applies to artists signed to UMG and French independent label Wagram Music. However, a spokesperson for Deezer says discussions are ongoing with all labels and content providers and that the company plans to have achieved “a full rollout with all providers and countries” in 2024.
The new model promises royalty “boosts” for “professional” artists whose music is actively searched for by users, as well as boosts for artists who maintain a level of 1,000 streams per month from at least 500 unique accounts.
It also includes a monetization cap of 1,000 streams for each user, meaning that every single user’s contribution to the royalty pool is counted as 1,000 plays no matter what the actual amount is. (If a subscriber listens to 2,000 streams, for example, then their streams will count half.) Deezer says the cap will help tackle fraud and ensure that royalties are shared more fairly between artists and rights holders.
Following in Deezer’s footsteps, Spotify is understood to be planning similar changes to its streaming royalty model that will come into effect in 2024. These are reported to include introducing minimum annual stream thresholds and financial penalties for music distributors and labels committing fraudulent acts, as well as a minimum play-time length for non-music tracks, such as bird sounds or white noise, before they can generate royalties.
Over the past two years, several other streaming services, including Soundcloud and Tidal, have either introduced or announced that they are exploring different economic models to the standard pro rata streaming model following criticism from creators over low royalty payouts.
In a statement, SACEM CEO Cécile Rap-Veber said the launch of the study into how alternative remuneration models will impact publishers, authors and composers was an “essential” development, “which we hope will make it possible to increase the value of streaming for our members.”
Spotify is planning to implement changes to its streaming royalty model in early 2024 that would affect the lowest-streaming acts, non-music noise tracks and distributors and labels committing fraud, sources tell Billboard.
Conversations have been going on for weeks with the major record labels, Universal Music Group, Sony Music Entertainment and Warner Music Group, as well as independent labels and distributors, sources say. While the new royalty system will keep its existing pro-rata model, it introduces new floors that will grow the pool for more established artists and rights holders.
The changes to Spotify’s royalty model, which were first reported by Music Business Worldwide, include:
A new threshold of minimum annual streams that a track must meet before it starts to generate royalties. The threshold, according to MBW, will de-monetize tracks that had previously received 0.5% of Spotify’s royalty pool.
Financial penalties for music distributors and labels when fraudulent activity on tracks they have uploaded to Spotify has been detected.
A minimum play-time length that non-music noise tracks, such as bird sounds or white noise, must reach to generate royalties.
The specific benchmarks of these changes and how financial penalties will be calculated or implemented are currently unclear.
Spotify will need new agreements to the royalty structure changes with most record labels and distributors to implement the plan, but that doesn’t mean entirely new licensing renewals. Changes can be made specifically for these elements, sources say. And since the major labels — which all negotiate their deal renewals with Spotify on different timelines — are likely to benefit from the new terms, they are all likely to sign onto them.
When reached for comment, a Spotify spokesperson said in a statement, “We’re always evaluating how we can best serve artists, and regularly discuss with partners ways to further platform integrity. We do not have any news to share at this time.”
The standard, existing pro-rata streaming model has been a major topic of consideration this year, ever since Universal Music Group CEO Lucian Grainge called for an “updated model” for the business that will be “an innovative, ‘artist-centric’ model that values all subscribers and rewards the music they love” in his annual New Year’s letter to staff. Following, UMG announced partnerships with Tidal, Deezer and Soundcloud to explore alternative models, and reports surfaced that similar conversations were underway with the other leading streaming platforms.
In July, during UMG’s second quarter earnings call, Grainge announced a “newly expanded agreement” with Spotify, under which he said “they have committed to continue to work to address” what he outlined as key components to the “artist-centric” approach: Fairly rewarding “real artists with real fanbases” for “the platform engagement they drive”; applying “stricter fraud detection and enforcement systems” and “ensuring real artists don’t have their royalties diluted by noise”; and “better aligning the relationship between artists and fans by promoting greater discovery and promotion of real artists.” Two out of three of these priorities are now being pursued by Spotify.
In September, UMG and Deezer outlined a new model for what they called “artist-centric streaming.” That model was similar, albeit more severe, than what Spotify is planning. It included royalty “boosts” for “professional” artists whose music streamed above a threshold, while promising to crack down on fraud and replace “non-artist noise content” with its own functional music that would be excluded from the royalty pool.
Unlike Spotify — which relies heavily on industry-leading algorithm-recommended playlists and auto-play, lean-back listening — Deezer’s plan also demoted passive listening royalties by “boosting” artists who are actively searched for by users. Unlike Deezer, Spotify is planning to roll this out will all major labels and leading independent labels and distributors.
