Spotify royalty model changes have HUGE impact

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Spotify is implementing significant changes to its royalty model, marking the most substantial update since its inception in 2008. The key elements of these updates include at least 2 updates which will have a huge impact on the industrial scene.

The impact of these changes on independent artists is expected to be mixed. While some may benefit from the reallocation of funds (the bigger acts) to the larger portion of the royalty pool, many independent artists struggling to make a living from streaming could (‘will’ is a better word) see their earnings decrease even further.

Here are the key elements in the royalty model changes:

Minimum Stream Threshold: Spotify will now demonetize tracks that receive under 1000 plays annually. This is set to impact over half of all songs on the platform, as only 37.5 million tracks have surpassed 1000 streams historically. The objective is to redistribute tens of millions of dollars from the 0.5% of artists receiving under 1000 streams annually to the other 99.5% of the royalty pool. This is the main issue with the new rules as this will heavily impact every small band which often do not reach this threshold per track. The result might well be the end of albums on the platform and instead a full fold back to singles and EPs.
Anti-Fraud Measures: New penalties will be imposed on distributors and labels facilitating fraudulent streams, addressing an issue that accounts for an estimated 3% to 10% of all Spotify streams. This is a change which will be applauded by many. However, it will also mean that every label has to guard that its artists do not to go on a fraudulent streaming stampede.
Rules for Functional Content: Tracks classified as “functional” content, such as white noise and environmental sounds, will now require a longer playtime before generating royalties. This change aims to address the practice of splitting sounds into numerous short tracks to gain royalties. This means a certain handicap of course for all the noise labels around, because this will for sure impact them more than any other music scene.

The smaller bands on Spotify will have no benefit at all from these changes

Spotify’s decision to demonetize less popular tracks, while controversial, will predominantly affect tracks earning less than $5 annually from streaming payouts, which are typically too small for artists to withdraw from their distributors. However, it theoretically also means that a 10-track album with 999 streams per track will get 0 revenue while having generated 9,999 streams in total.

Spotify isn’t the only platform revising its royalty model; other services like Deezer and Apple Music are also making changes “to support sustainability for artists and labels”. The overall impact of Spotify’s new model will depend on how artists and labels adapt and how the streaming market evolves.

How to adapt to the new rules of Spotify?

Spotify’s recent changes to its royalty model, particularly the introduction of a minimum stream threshold for earning royalties, could potentially influence artists’ release strategies. Here’s how:

Focus on Fewer, Higher-Quality Releases: Artists might prioritize releasing fewer tracks but with higher potential to surpass the 1000 stream threshold, focusing on quality over quantity. Not a bad thing indeed.
Shift Towards Singles and EPs: There could be a trend towards releasing singles or EPs instead of full albums. This approach allows artists to concentrate their promotional efforts on fewer tracks, increasing the likelihood of each track reaching the necessary streaming numbers. But this also means an endless stream of promotional mailouts regarding the increased number of releases.
Increased Marketing Efforts: Artists may invest more in marketing and promotion to ensure their tracks reach the minimum streaming numbers, especially for new or lesser-known artists who might struggle to hit the 1000 stream mark.
Strategic Release Timing: Artists might become more strategic about when they release their music, aligning releases with peak listening times or promotional events to maximize streaming numbers. But with this also comes the problem of too many releases at the same time.

Key for artists will be to increase the followers count on their Spotify accounts, in order to profit from the organic ‘Release Radar’ promotion.

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