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Functional content — think rain noises, whale sounds, recordings of wind rustling the leaves and the like — will be significantly devalued under Spotify‘s new royalty system: Plays of this audio will generate one fifth of the royalties generated by a play of a musical track, according to a source with knowledge of the streaming service’s new policy.
In response to a request for comment, a Spotify spokesperson pointed Billboard to the streaming service’s blog post from Tuesday (Nov. 21). The blog notes that, “over the coming months,” Spotify will “work with licensors to value noise streams at a fraction of the value of music streams.” The blog does not say what the fractional amount will be.
Spotify’s decision to count functional content at 20% of the rate for music tracks is the culmination of nearly a year’s worth of bad press for rain sounds and the like. While this type of audio is often used for the seemingly innocuous purpose of relaxing after a long and stressful day, Spotify wrote on its blog that the space is “sometimes exploited by bad actors who cut their tracks artificially short — with no artistic merit — in order to maximize royalty-bearing streams.”
This initiative, says Spotify’s blog post, is intended to free up “extra money to go back into the royalty pool for honest, hard working artists.”
As a result, some of the most powerful executives in music have launched a sustained assault on rain and its various non-musical cousins over the course of 2023. “It can’t be that an Ed Sheeran stream is worth exactly the same as a stream of rain falling on the roof,” Warner Music Group CEO Robert Kyncl told analysts in May.
Two months later, Universal Music Group CEO Lucian Grainge told analysts that streaming services must ensure that “real artists don’t have their royalties diluted by noise and other content that has no meaningful engagement from music fans.” He later amped up the rhetoric by describing companies that upload this content as “merchants of garbage” that were “flooding the platform with content that has absolutely no engagement with fans, doesn’t help churn, doesn’t merchandise great music and professional artists.”
When UMG rolled out a new royalty system with Deezer in September, the streaming service said it would replace “non-artist noise content” with its own functional music, while also excluding this audio from the royalty pool. “The sound of rain or a washing machine is not as valuable as a song from your favorite artist streamed in HiFi,” Deezer CEO Jeronimo Folgueira said. Deezer said plays of rain, washing machines and other non-music noise content counts for roughly 2% of all streams.
Spotify did not provide a comparable number in its blog post. It is taking one other step to limit the impact of functional content on the royalty pool: To generate royalties, a functional audio track must be longer than two minutes.
“These policies will right-size the revenue opportunity for noise uploaders,” Spotify wrote. “Currently, the opportunity is so large that uploaders flood streaming services with undifferentiated noise recordings, hoping to attract enough search traffic to generate royalties.”
Spotify’s new royalty model should be a money-spinner worth an additional $1 billion for emerging and established artists over the next five years, according to the streaming giant, as content partners line-up to salute the initiative.
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As previously reported, Spotify is updating its royalty system, an overhaul the company anticipates will funnel more money to more popular artists, record labels and distributors, while clamping down on streaming fraud.
In a new blog post, published today (Nov. 21), Spotify reps say its three-pronged policy will apply better hygiene to its platform, better distribute small payments that aren’t reaching creators, and, while tackling these issues that account for just a “small percentage of total streams,” its new policing of content “now means that we can drive approximately an additional $1 billion in revenue toward emerging and professional artists over the next five years.”
As previously reported, Spotify’s controversial 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, confirmed today in Spotify’s blog, which features breakdowns and why they’ve been actioned, are welcomed by a string of music industry figures.
“Believe welcomes Spotify’s initiative to clean-up the market from artificial streaming and noise, driving more revenues to all legitimate artists,” comments Denis Ladegaillerie, founder & CEO of Believe. “We believe that creating more benefits to develop up-and-coming artists would be a great complement to the institution of a 1.000 stream threshold. We are encouraged by our current dialogue with them on this topic.”
Spotify’s changes are “going to help us deliver on that goal: these new policies acknowledge the simple truth that improving outcomes for artists goes beyond demanding bigger payouts from the DSPs,” adds Kristin Graziani, president of Stem. “All three of Spotify’s new mechanisms redirect funds that currently sit on the balance sheet of distributors or land with bad actors back to the artists we serve.”
Under the new model touted by Spotify:• 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.To date, Spotify boasts more than 574 million users, including 226 million subscribers in more than 180 markets, generating “over $40 billion and counting” in royalties to artists and copyright holders, the Sweden-based business reports.
Adding to the support for Spotify’s new model is Terry McBride, chairman & CEO, Nettwerk Music Group. “Fraud and artificial music are significant problems for streaming services, depriving legitimate artists from building a community of fans and earning a sustainable living,” McBride comments. “I applaud Spotify’s continual and evolving efforts to address these issues.”
Bob Valentine, CEO, Concord, and Andrew Bergman, CEO Downtown Music Holdings, also welcome Spotify’s new policies.
Led by founder and CEO Daniel Ek, Spotify is said to be planning a roll-out its new royalties model in “the new year,” although no firm date has yet been announced. The changes will not affect songwriters for the time being.
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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.
After Uruguay’s parliament passed a bill that changes the country’s copyright laws, Spotify issued a statement on Monday (Nov. 20) saying that it “will unfortunately begin to phase out its service in Uruguay effective January 1, 2024, and fully cease service by February.” Explore Explore See latest videos, charts and news See latest videos, charts […]
While Spotify is planning to start penalizing labels and distributors for egregious instances of streaming fraud, Apple Music quietly rolled out its own strengthened fraud protections — including hitting repeat offenders with “financial adjustments” — more than a year ago, according to an email obtained by Billboard that the platform sent to music industry partners in March. Apple Music’s internal metrics indicate that the policy has already led to a 30% drop in streaming manipulation.
In the March email, the streamer defines manipulation as “the deliberate, artificial creation of plays for royalty, chart, and popularity purposes” as well as “the delivery of deceptive or manipulative content, like an album of 31-second songs.” “In October [2022], we launched new tools and policies designed to prevent stream manipulation on Apple Music,” the email explains. “Since we launched the new tools, manipulated streams have accounted for only 0.3 percent of all streams.”
That 0.3 percent figure is lower than the stats cited by some of Apple Music’s rivals. A Spotify spokesperson told a Swedish newspaper earlier this year that “less than one percent of all streams on Spotify have been determined to be tampered with,” while Deezer has said that it finds 7% of plays to be fraudulent. (This comparison only goes so far, though, because each service might define fraud differently, and not all of them have ad-supported tiers.)
In a statement, an Apple Music spokesperson said the platform “takes stream manipulation very seriously. Apple Music has a team of people dedicated to tracking and investigating any instances where manipulation is suspected. Penalties include cancellation of user accounts, removal of content, termination of distributor agreements, and financial adjustments.”
When Apple Music emailed industry partners in March, the streaming service noted that “despite the low percentage [of fraud], manipulation remains a widespread and persistent problem: That 0.3% of streams came from more than 85,000 albums across hundreds of record labels.”
As a result, the email indicates the company outlined a sharper anti-fraud policy in October 2022, promising to take “remedial actions against content providers with repeated and significant stream manipulation.” This means of incentivizing reform has worked for some — half the distributors that were flagged for fake streaming have reduced manipulation on their content by over 45%, the company said.
To help labels and distributors figure out where fraud is occurring, Apple Music’s email says the platform started sending daily reports detailing “a content provider’s albums with streams held in review.” “After each review,” the email goes on, “we remove manipulated streams and release legitimate plays. At the end of each month, content providers also receive a report with all excluded streams.” (Spotify has now also ramped up the reporting it provides to labels and distributors, according to one executive at a distribution company, “adding a new dimension of seeing repeat offenders.”)
“This all happens before Apple Music pays royalties and tabulates charts,” the email noted. “We block wrongdoers from the primary advantages of stream manipulation and redirect royalties to valid plays of content.”
The last six months have seen a flurry of companies committing publicly to fraud mitigation. More than half a dozen distributors formed “a global task force aimed at eradicating streaming fraud” in June. And when Deezer announced a new partnership with Universal Music Group in September, Michael Nash, UMG’s executive vp and chief digital officer, promised that “fraud and gaming, which serves only to deprive artists their due compensation, will be aggressively addressed.”
Lisa is celebrating in style! The rapper’s “Money” is the first K-pop track by a solo artist to reach 1 billion streams on Spotify, and the BLACKPINK superstar had some fun when she received her plate-shaped plaque. In a video posted to Spotify’s Instagram account on Wednesday (Nov. 15), Lisa opens her plaque in Paris, noting that […]
Under Spotify’s new royalties model, the platform will financially penalize labels or distributors when it finds that more than 90% of streams on a song are fraudulent, charging 10 euros per offending track, according to several music distribution executives.
The service’s current remedies will also remain in effect — removing fake streams from the system so they don’t impact payouts or charts, pulling the track off editorial playlists, and possibly striking them from the platform altogether. The fees racked up by labels or distributors will be charged against future royalties.
Like the rest of Spotify’s new model, which also affects how the lowest-streaming acts and non-music noise tracks earn royalties, the new fraud rule will impact music’s steadily growing “long tail” of tracks that don’t get played much. In this case, it’s simple math: Big artists trying to boost their numbers are unlikely to hit that 90% threshold for fraudulent streams since they already have an established audience that will listen to them. Any act with a fair number of legitimate streams would need a huge amount of fraud to trigger a penalty.
This means companies that have built hands-off, high-volume distribution businesses with small margins, charging a small fee per upload — the three biggest are DistroKid, TuneCore and CD Baby — likely have the most to lose under the new rules. They have huge batches of new music uploading daily, and that means it’s hard to know who is doing the uploading.
Even so, Tunecore welcomed news of Spotify’s change. “In order to effectively prevent bad actors from diluting the royalty pool for real artists with real fans, all companies need to be a part of the solution,” says Andreea Gleeson, the company’s CEO. “We also have been engaged in a deep dialogue with all our DSP partners, including Spotify, to actively deploy anti-fraud measures that encourage content providers to make the proper investments to actually fight fraud. We are fully aligned with the measures that Spotify is implementing.” (Tunecore’s parent company, Believe, has a history of publicly supporting Spotify initiatives, including Discovery Mode, which is unanimously opposed by the major labels.)
“It’s a positive incremental step to take, but it’s incremental — you could see a service doing something much more drastic,” adds another senior executive. “It sends a good signal to the marketplace about intentions.”
On the other hand, 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. (Both DistroKid and Tunecore are members of the coalition.)
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.” And the entity best able to monitor for fraudulent activity is Spotify itself. In this line of thinking, then, Spotify would be penalizing distributors for something that they didn’t do, can’t predict, and can’t spot as quickly as the streamer itself.
Kaplan declined to comment. Spotify also declined to comment.
There is little public data on the prevalence of fraud and where it tends to occur. The most comprehensive study that’s widely available was carried out recently by the Centre national de la musique (CNM), a French government organization, which found that “more than 80% of the fraud” detected by Deezer and Spotify in France in 2021 was “at the long tail level.”
These acts are unlikely to be associated with a major record company, as the big labels focus primarily on the top releases: Odds are that many of the tracks involved in the fraud are there purely for that purpose — a bad actor uploads white noise or junk audio expressly to pump up plays with bots and attempt to extract royalties from the streaming ecosystem.
Assuming that the 80% rule — or some semblance of it — holds more broadly across countries and streaming services, Spotify’s new penalty system functions as “a direct shot at distributors that are just way overpopulating platforms with a lot of nonsense,” says another music executive with experience fighting fraud. In this view, Spotify is pushing distributors to look more closely at what it is they are distributing.
“Being penalized should create an environment where the distributors will invest more to make sure that their business is cleaner,” says Ty Baisden, who manages Brent Faiyaz, among others.
It remains notoriously hard to determine where streaming manipulation actually comes from.
“Distributors might say it’s the [fault of the] labels,” Ludovic Pouilly, senior vp of institutional and music industry relations at Deezer, told Billboard earlier this year. “The labels might say it’s the management. And artists themselves might tell you it’s the competition who’s trying to negatively impact their reputation.”
On top of that, there are also plenty of third-party marketing companies that artists hire thinking they’re implementing legitimate streaming campaigns, but are actually just paying bot-farms to generate plays instead. This makes any attempt to assign responsibility for streaming fraud on a large scale fraught. “How are you going to hold a label or distributor responsible for something that they can’t control at all?” asks an independent label founder.
To that end, several distribution executives said they would try to shift any fraud-related penalties they incur on to whoever uploaded the music that was tied to fake streams. “Our plan is to pass on the fee to the accounts and the releases where it occurred to the best of our ability,” says one distribution executive.
This offers its own challenges. If a fraudster already has money running through the distributors’ system due to previous streaming activity, or a legitimate bank account on file, the distributor might be able to claw back the penalty money it now owes Spotify when it learns of fraud. But if the fraudster recently signed up to the distributor, that might not be so easy.
The biggest takeaway from Spotify’s new policy may be that it demonstrates how much the conversation around fraud has shifted in less than a year. In 2022, no one would talk about it; in 2023, everyone is suddenly eager to tackle the problem — and to broadcast their efforts in a public manner.
“Nobody’s immune” to streaming fraud, Christine Barnum, chief revenue officer at the distributor CD Baby, told Billboard in April. “So people are finally having the realization, ‘Yeah, this is a problem.’”
TikTok launched a new feature on Tuesday (Nov. 14) that allows users to easily save music they find on the platform to Spotify, Amazon Music or Apple Music for future listening. This will presumably reduce friction between the apps, helping translate interest on TikTok into streaming activity at a time when the music industry has been concerned that the relationship is weakening.
“TikTok is already the world’s most powerful platform for music discovery and promotion, which helps artists connect with our global community to drive engagement with their music,” Ole Obermann, TikTok’s global head of music business development, said in a statement. The new feature “takes this process a step further, creating a direct link between discovery on TikTok and consumption on a music streaming service, making it easier than ever for music fans to enjoy the full length song on the music streaming service of their choice, thereby generating even greater value for artists and rights holders.”
This “Add to Music App” will be available to users in the United States and the United Kingdom. TikTok started testing the integration earlier this year with Apple Music.
When TikTok initially came to prominence more than four years ago, virality on the app often appeared directly correlated with a jump in streams. But that link appeared to weaken as the app ballooned in popularity. The top 10 TikTok tracks in the United States were streamed far less in 2022 than they were in 2021, according to data from Luminate. And the top 10 songs on the app in 2021 were streamed far less than they were in 2020.
“For a while it was like, ‘All you gotta do is get a song going on TikTok, and it’s outta here!’” a major label executive told Billboard last year. But “it’s not a guarantee anymore” that a song will become a hit, the executive said.
Some sounds appear to thrive on TikTok but never catch fire on streaming services, where they actually generate money for the music industry. Labels will surely be excited if the “Add to Music App” helps strengthen the connection between TikTok activity and clicks on Spotify.
In the past, Spotify and TikTok have sometimes seemed at odds, competing for user attention and influence over the music industry. During the former’s Stream On event in March, for example, Gustav Soderstrom, Spotify’s co-president, took a subtle jab that seemed aimed at TikTok: “Discoveries on Spotify, unlike many other platforms, give creators so much more than just a fleeting moment of viral fame,” he said.
This sentiment was echoed at the same event by Sulinna Ong, Spotify’s global head of editorial, who noted that “there’s a disconnect between where music is being teased and where music is actually being streamed. The most powerful time to reach fans is when they’ve chosen to engage with music, like when they open up Spotify.”
But despite past poking and prodding, the two platforms now appear happy to work together. “We want to create less work to get to the audio you love,” Sten Garmark, Spotify’s global head of consumer experience, said in a statement. “That means being everywhere our users are and creating seamless ways to save songs to Spotify to enjoy when and how they choose to listen.”
Karolina Joynathsing, the director of business development for Amazon Music, used similar language in her own statement. “Some of the best parts of being a music lover are those serendipitous moments when you discover a new song or artist that you connect with instantly,” Joynathsing said. “At Amazon Music, we’re looking to make it easier to convert those moments into enduring fandom,” leading to the adoption of the Add to Music app.
TikTok plans to roll out the new feature in additional markets in the coming months.
Music companies’ third-quarter earnings reports have so far been full of good news and positive trends. Subscription and streaming growth continue to drive revenues for record labels and publishers. Live entertainment continues its post-pandemic expansion. Margins are healthy. Overall, these have been solid report cards for the state of the music business.
Among the companies to report thus far are Universal Music Group, Sony Music, Spotify, Believe, Sphere Entertainment Co., MSG Entertainment, HYBE and SiriusXM. Next week’s earnings reports will come from Warner Music Group (Nov. 16) and Tencent Music Entertainment (Nov. 14). German concert promoter CTS Eventim will report on Nov. 21.
Here are seven items from the earnings releases to date that stood out and deserve more attention.
Universal Music Group struck out against “merchants of garbage.” During Universal Music Group’s Oct. 26 earnings call, chairman and CEO Lucian Grainge got a lot of attention when he bemoaned the “merchants of garbage” — creators of low-value functional music such as generic mood music and nature sounds — that want to be on equal royalty terms at streaming platforms as such UMG artists as Taylor Swift, The Beatles and The Rolling Stones. Grainge’s memorable turn of phrase came in defense of UMG’s artist-centric royalty scheme crafted in partnership with French music streaming service Deezer. “Sorry, I can’t really think of another word for content that no one really actually wants to listen to,” Grainge said.
Spotify’s price increase gave a much-needed uplift to subscription revenues. The price for an individual Spotify subscription in the U.S. was $9.99 from 2011 to July 2023. The price hike to $10.99 in roughly 50 markets may have arrived later than its competitors, but it came just when Spotify needed a boost. Spotify’s premium average revenue per user dropped 6% year over year (1% at constant currency) mainly because the company had a larger share of family plans compared to the prior-year, CFO Paul Vogel said during the July 25 earnings call. Early returns from the price increase in the U.S., U.K. and dozens of other markets helped offset those losses. Because Spotify’s number of subscribers increased 16% year over year to 226 million, subscription revenue grew 10% year over year (16% at constant currency) to 2.9 billion euros ($3.1 billion). With three full months of a price increase in the fourth quarter and considering the price increase covered about 75% of Spotify’s revenue base, the company expects the price increase to provide “a positive, mid-single digit” benefit (excluding foreign exchange) in the fourth quarter, said Vogel.
No company lowered guidance, and some have raised guidance. Sony Music raised guidance for revenue and adjusted operating income before depreciation and amortization by 5% and 4%, respectively. Reservoir Media raised guidance for fiscal 2024 revenue and adjusted EBITDA by 10% each. It’s one thing for a company to meet expectations it had previously laid out to investors. But raising previously released expectations is something else altogether — a sign the future will be better than expected. It’s usually a benefit to the stock price, too. The share price is the present value of future cash flows. When an estimate for future cash flows takes a sudden jump, that changes the financial model used to calculate the share price.
Consumers aren’t slowing their spending on live music. In August, concerns arose that a resumption of student loan payments, paused to help people struggling during the pandemic, would take a bite out of pocketbooks and cause music fans to pull back on the record amounts they were spending on live entertainment. Three months later, there is no indication that consumers are slowing down, according to Live Nation. “We’re seeing no sign of weaknesses,” said president and CFO Joe Berchtold, noting that Ticketmaster’s October sales in North American were up double-digits year over year. “We’re not seeing any pullback in any way from a club to a stadium tour from Milan to Argentina right now,” added president and CEO Michael Rapino.
SM Entertainment has big plans for its new publishing subsidiary, Kreation Music Rights. The K-pop stalwart has been “aggressively recruiting global writers” and plans to have 80 of them under contract this year, CEO Jang Cheol Hyuk said during the Nov. 8 earnings call. SM Entertainment is pursuing collaborations with both domestic and international publishers and plans to recruit foreign writers “who wish to advance into K-pop by establishing overseas subsidiaries,” Jiang said.
Radio advertising continues to struggle — but the clouds may be starting to part. iHeartMedia’s October revenues were down 8% and the company expects its fourth-quarter revenue excluding political revenue to be down in the mid-single digit percent year over year. The fourth quarter will be iHeartMedia’s strongest quarter of the year “but will be weaker than we originally anticipated due to some dampening of advertising demand which coincided with the uncertainty caused by the recent geopolitical events,” CEO Bob Pittman said during Thursday’s earnings call. That said, iHeartMedia’s digital business “is sort of in recovery mode,” said Pittman, and the company is “seeing the pieces falling into place” for radio’s recovery as most advertisers expect to be “back in growth mode…and spending to support that” in 2024.
The market for catalog acquisitions isn’t slowing down. Reservoir Media CEO Golnar Khosrowshahi said catalog prices aren’t contracting despite higher interest rates. “We’re still seeing a lot of demand for assets and continued infusion of new capital within the competitive set,” she said during Tuesday’s earnings call. “And that is certainly fueling the demand. The pipeline is robust. And it ranges in size from large to a lot of smaller deals.” Reservoir Media hasn’t been suffering from sticker shock, though. Acquisitions in the Middle East-North Africa market — such as some catalog of Saudi Arabian label Mashrex in June — provide the company with good value, Khosrowshahi added. “If we’re looking at a market here that is somewhat saturated with a lot of capital in the marketplace, and we’re able to execute [deals in MENA] at these lower multiples, that makes it just that much more attractive to us.”
Even if Spotify’s new royalty model won’t pay artists’ whose tracks don’t hit 1,000 streams in a year, songwriters will still earn money from those plays — for now, at least.
As Billboard reported last month, Spotify is planning to implement three changes to its royalty model early next year that would affect the lowest-streaming acts, non-music noise tracks and distributors and labels committing fraud. Under this new scheme, more than two-thirds of the tracks uploaded to that platform will be eligible to receive royalties — but that, notably, that will only impact about 0.5% of the royalty pool.
Nevertheless, this has sparked debate around the music community, with some questioning the ethics of not paying artists for whatever streams they garnered simply because they were not popular enough. Others supported the plan, citing the paltry sums an artist would be making for under 1,000 annual streams anyway (which amounts to about five cents). Many also believe this new rule could provide alleviate the issue of the royalty pool being divided among the exponentially-growing number of songs on Spotify’s platform, which likely dilutes the amount of money flowing to career artists.
But this change to Spotify’s royalty model does not affect songwriters and publishers payments at all, a source close to the company confirmed to Billboard. It just affects those who are involved in the master recording copyright.
For the uninitiated, there are two copyrights associated with every song released: the underlying musical work (often also called the “composition” or “song”) copyright, which protects the lyrics and melodies written by songwriters, and the master recording (also called the “sound recording”) copyright, which protects the artists’ one specific recording of that musical work.
In the United States, the royalty rates that songwriters and publishers can charge for the composition side of things are controlled by a government entity known as the Copyright Royalty Board. Every five years, the statutory rate structure for songwriters and publishers is renegotiated with the National Music Publishers’ Association (NMPA) as well as Nashville Songwriters Association International (NSAI) and other groups and individuals who represent the music industry’s fight to raise rates. (Other territories often base their publishing royalty rates off of those set in the U.S.)
Not everyone agrees on what specific rate structure they want, which has led to some infighting, but they all unite behind one principle: songwriters should earn more money. In fact, publishing earns just a fraction what the recorded music side does on streaming overall, the rates are far from equal. Many in the music business wish the current Copyright Royalty Board system could be abolished, freeing songwriters and publishers to negotiate rates in a free market without government interference, but this is unlikely to change, given it would require an act of Congress to overhaul an over one hundred year old law and services, many of which are owned by some of the world’s largest technology companies, would certainly lobby against it.
Those whose interests lie on the recording side, like record labels, get to negotiate directly with streaming services to set their royalty structure. This is why the streaming payment system can be experimented with in the ways seen now through Spotify’s recent changes, as well as Deezer’s new “artist-centric” payment plan, created with UMG. Overall, the publishing side of the business is handcuffed to whatever the current ruling says.
The system of streaming royalty payments for publishers and songwriters for 2023-2027 (also known as “phonorecords IV” “phono IV” or “CRB IV”), the current five year period, has already been set. National Music Publishers’ Association president and CEO David Israelite says it is possible that the next five year period, phono V, could be reconfigured to more closely mirror what is happening on the master recording side but that determination process won’t begin until about early 2026.
“We will have the benefit of watching how this plays out for a while before we ever have to address it, but it’s way too early to speculate what we might do,” says Israelite. Still, he adds, “it is horrible that we are locked in the statutory rate structure where we have no flexibility other than these five year windows but that is our situation… It’s a very different conversation than one company sitting down with another company and agreeing what they want to do [like it happens on the master side]. We are asking a court through litigation or an agreement to set a structure that applies to everyone and to build consensus around that. It’s much harder to change.”