Spotify has just announced a major change to how it distributes royalties. Specifically, this new model specifically targets new and emerging artists.
So, what is this change all about? Are you going to be impacted, and should you be worried? In this guide, we’ll cover everything you need to know about Spotify’s New Royalty Model – let’s dive in 👇
1. What has Spotify Officially Announced?
First and foremost, it’s important to note that Spotify has not yet announced anything officially. The news of the royalty model change was broken by Music Business Worldwide. This news was based on discussions Spotify has been having with various music rights holders and record companies.
So – what Spotify’s New Royalty Model is all about?
Practically, Spotify aims to implement 3 major changes to its royalty model, all starting in Q1 of 2024:
- A track will now need to get a minimum annual streaming total of 1,000 plays before triggering royalties.
- Labels and distributors will now be penalized when uploading fraudulent tracks to Spotify.
- Non-music tracks will now need to reach a minimum amount of play time before triggering royalties.
Change #2 specifically targets tracks that have been artificially streamed (through “streaming farms” or even newly developed AI bots). Previously, when Spotify detected this, the track was taken down – but there were no fines. This will change in Q1 2024, when the distributors will get financially penalized for every fraudulent track uploaded.
Change #3 on the other hand targets playlists featuring white noise, binaural beats and other types of “non-music” often aimed at helping people focus or fall asleep. Currently, many of these playlists (often consisting of a single sound) are split into multiple short tracks, each generating their own royalties. Spotify aims at changing the threshold for generating royalties for such tracks from 30 seconds all the way to 4 minutes.
But by far the change garnering the most controversy is the 1,000-stream royalty trigger…
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2. The 1,000-streams Minimum Threshold
At the core of these changes is Spotify’s intention to withhold any royalty payments to tracks generating less then 1,000 streams per year.
But why is Spotify doing this? And who will benefit?
The main reason Spotify is doing this is to demonetize a large chunk of tracks that don’t generate any substantial revenue. Let’s look at a quick example 👇
Say you upload a track in 2020, and over its 3-years existence, it has garnered an average of 700 streams each year. By recent estimations, this track would have generated around USD 2.1, or 70 cents annually.
Currently, Spotify will pay out these royalties to distributors (such as Distrokid or Tunecore). However, much of these royalties are never collected by artists because they are so minuscule. In addition, distributors often set a minimum of royalties you need to amass before being able to withdraw.
So, while this might all sound insignificant, sources estimate that these micro-royalties could pile up to tens of millions of dollars every year for Spotify. And these tens of millions of dollars could be re-allocated to more “legitimate” artists.
So, is Spotify right to implement such a change…?
3. The Pros and Cons of Spotify’s New Royalty Model
This announced change has attracted a considerable amount of controversy online, with popular YouTuber Anthony Fantano describing it as “Spotify screwing over musicians even more then they have in the past”.
The main argument many have put forward is that this simply is a redistribution of revenue – but from the poor to the rich.
In their eyes, shouldn’t we be supporting smaller artists more, and not less? Does it make sense to take away their small streaming revenue to give it to artists already generating millions of streams monthly?
There is also a question of morality around this topic. Should Spotify have the right to decide who gets your streaming money, and how much? Shouldn’t 1 stream earn the same amount, no matter if it’s the first of your track or the millionth?
On the other hand, many have argued that Spotify is and remains a private company, and hence is entitled to make the changes it wants to its platform. Additionally, you can understand Spotify’s will to simplify their royalty’s model. How many artists are truly going to cash-in their 57 cents check?
4. What Does this Mean for You as an Artist?
So, how should you take this news if you are an emerging artist?
In short, nothing really changes for you.
By requiring a minimum number of streams, Spotify is almost raising the bar for the quality of tracks. If you upload something that doesn’t reach the level of other tracks in the genre, then you won’t generate streams, and therefore royalties. So, the goal still remains to release the best music you can!
However, this change by Spotify also reinforces the importance of marketing your music correctly.
Too many artists focus all their time on writing and recording music. But that’s only half the work. Promotion is the other 50% that will actually get your track heard. Getting on popular playlists with Groover, using the waterfall strategy and working on your artist branding are all key aspects to make your next release a success!
What do you think of this change? What are the pros and cons that you see? Let us know in the comments down below 👇