Spotify says new model will shift $1B to ‘working artists’ in 5 years

Spotify is making major changes that it says will shift $1 billion in royalty payments over the next five years to ‘legitimate’ artists and rightsholders.

Spotify has confirmed to multiple media outlets that it is in final-stage talks with labels and other stakeholders on changes that will be implemented in Q1 of next year.

Taken together, the changes are designed to shift royalties from streams that many see as drains on the royalty pool and distribute the funds to ‘legitimate’ artists and labels.

The increased royalties will reportedly come from three new policies.

1. Adding a minimum length that each non-music ‘noise’ track must play to generate royalties. [Some other streamers are pledging to not pay for noise tracks and/or to replace them with their own royalty-free versions.]
2. Implementation of a minimum annual stream threshold before a track starts generating royalties. That should de-monetize tracks that previously took up 0.5% or about $40 million of Spotify’s annual royalty pool, according to MBW calculations.
3. Fines for labels and distributors involved in uploading fraudulent tracks.

The moves follow similar changes and experiments at Deezer, SoundCloud, and Tidal.

What’s Different?

The confirmed leaks describing Spotify’s plans do not include something seen in most other user-centric models: weighting some streams – for example, from a user’s saved tracks – more than others, like those from an algorithmically created playlist. If true, that would be a major difference and not go as far as UMG and the other major labels have been pushing for.

What Does All This Mean For Artists?

For many artists, exactly how an industry-wide shift to artist-centric payments will affect them is unclear for two reasons. Implementation and calculations appear to differ for each streamer service, including some like Apple Music, who have not shared their intentions, and because the independent music community appears to have been left out of the negotiations.

But some of music’s smartest observers are concerned about the impact these changes will have on longtail artists and independent music

“Right now, streams and revenue are effectively synonymous, but by this time next year, they will mean very different things, writes Mark Mulligan of MIDiA. “The majority of artists direct artists will no longer be paid for their contribution to the value of the $11.99 subscription. The c.10% of consumption they will generate will disappear from the streaming revenue map. They will be othered, their revenue becoming a new black box for the biggest artists to share between themselves. Which means that, hey presto, all that annoying artists direct market share suddenly gets reallocated to everyone else. Market share erosion? What market share erosion?”

Bruce Houghton is the Founder and Editor of Hypebot, a Senior Advisor at Bandsintown, President of the Skyline Artists Agency, and a Berklee College Of Music professor.