Spotify, one of the leading streaming services, is making changes in the royalty model, according to "music business worldwide".
We will start seeing significant adjustments that will effect the music industry, digital distributors, and eventually independent artists.
When a giant music streaming company like Spotify is flapping its wings, their tidal waves are felt all over the industry.
But how will it affect independent artists and digital distributors?
Here’s some brief information about the upcoming changes that will take effect on January 1, 2024, and their predictable effect on Spotify's royalty pool and the music industry:
How will Spotify's upcoming changes in 2024, will impact the music industry?
Penalty digital distributors for bot streams
According to Spotify, they are working very hard to fight artificial streaming on their platform. That makes sense. No one likes paying large royalties for nothing, but in this new model, Spotify is rolling the responsibility, or some of it, to the different distributors.
They will have to take their share of responsibility for preventing bot streams; this will take special effort and more tech development from the distributors.
That seems fair, but small-sized distributors most likely won’t be able to afford the change and stay profitable over the long term.
Adding the additional penalties paid to Spotify will probably result in the larger distributors—like CDBABY, Ditto Music, or Distrokid—raising their artist fees in order to remain profitable while the smaller distributors close their doors, or, in other cases, rolling down the expanses to the artists.
A minimum of one thousand streams
For tracks to be eligible for royalties, they must have received at least 1,000 music streams within the preceding 12 months. Currently, Track starts generating royalties right away. This means that artists will not get paid for songs that you release if their song does not generate 1,000 plays in the first year. For indie artists reaching 1,000 streams and more, their won't be any changes in their recorded royalties.
Why was this change made?
Spoitfy is paying aggregators small fractions of payments that, in most cases, do not reach the artists.
The different digital distributors have a minimum payment threshold; Cdbaby, for example, has a minimum payout of $45, UnitedMastes payout is $50, and the rest of the aggregators have a lower minimum payout threshold. In most cases, the royalty payments end up in the different aggregators bank accounts, in some cases for years or forever.
These tiny music royalties (millions of dollars) will now be parked with Spotify, and the different aggregators will have less money parked in their bank accounts.
Like in the previous change mentioned above, this might cause the smaller distributors to shut down their businesses, and the bigger ones will have less competition. When there’s less competition, usually the end consumer is affected by the increase in prices.
Royalties for sound effects and white noise
The streaming revenue model was previously determined by Spotify, which counts a stream once a song has been listened to for a minimum track length of 30 seconds. Numerous users have posted a variety of SFX and noise recordings, such as whale sounds, nature sounds, or silence recordings, and they have made tens of millions of streaming royalties from these little sound effect snippets.
For musicians who have spent months crafting their tunes, this was unjust, and it’s an important positive change towards the “real” emerging and professional artists.
Users will need to listen for two minutes or longer starting in 2024 in order to generate recorded royalties. According to Spotify, this modification solely affects "white noise" recordings or functional noise recordings and will almost eliminate noise streams; songs or music will not be impacted. As a result, Spotify will be able to retain more of their earnings and have to pay white noise artists less royalties.
This is fantastic news for dedicated musicians that is supposed to forward royalty toward emerging and professional musicians because it will free all the money that royalty used to go into sound recordings back into the royalty pool. Hopefully, the new music royalty pool will be larger and will raise the royalties paid for hard-working geniune artists.
Spotify hasn't been very profitable over the past decade, and it’s understandable that they are making changes in order to increase profits.
That being said, Spotify did not mention if their new changes, which will end up paying less royalties for streaming, will be rolled back to the “geniune” hard-working artists or if they will increase Spotify’s profit line in their next reports.
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