According to what’s publicly available, Spotify plans to change its streaming royalty payment model in early 2024. These changes would impact the performers with the lowest streaming counts, non-music noise tracks, distributors, and labels who commit fraud.
According to reports, discussions with independent labels and distributors, as well as the major record labels Universal Music Group, Sony Music Entertainment, and Warner Music Group, have been ongoing for weeks.
The new royalty structure adds new floors that will increase the pool for more well-known artistes and rights holders while maintaining the pro-rata structure of the current system.
The new minimum yearly stream threshold that a song must reach in order to begin receiving royalties will be the basis for measuring the effectiveness of this new Spotify payment scheme.
As per Music Business Worldwide (MBW), this will result in the demonetization of songs that were formerly entitled to 0.5% of Spotify’s royalty pool.
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When fraudulent activity on files that music distributors and labels have uploaded to Spotify is discovered, they will be penalized financially. Additionally, there is a minimum play-time duration that non-music noise tracks—like white noise or bird sounds—must meet in order to be eligible for royalties.
It is currently unknown what the precise benchmarks for these modifications will be, as well as how financial fines will be determined or applied.
In order to carry out the strategy, Spotify will need new agreements with the majority of record labels and distributors regarding the changes to the revenue structure; nevertheless, this does not require completely new license renewals. According to sources, modifications can be made, especially for these components. Furthermore, the major labels are likely to agree to the new terms because they stand to gain from them, even though they negotiate their Spotify contract renewals on different schedules.
How, therefore, would Afrobeats musicians profit from this new scheme?
Spotify created an Afrobeats-specific website earlier this year, estimating that streams from Afrobeats artistes would increase from 2 billion in 2017 to 13.5 billion in 2022. Since then, the business has kept adding new content to the website, along with some updated statistics. According to Spotify, “in 2022, revenues generated by Nigerian artistes from Spotify alone reached over 11,000,000,000 NGN,” with a 74% annual growth in these revenues. That is for streaming within Nigeria; Spotify’s statistic is for payments made for worldwide streaming of music by Nigerian artistes.”
It, therefore, seems Spotify will be paying significantly fewer royalties to Afrobeats musicians and other owners of music rights as of 2024 when the platform introduces a new payment scheme. Artists who represent shorter or less popular songs may not be greatly impacted by these changes, but those who have a large streaming following and a devoted fan base may see a decrease in royalties. According to MBW, Spotify plans to significantly alter its royalty distribution mechanism in Q1 2024 with the goal of giving “legitimate” artists and rightsholders $1 billion in royalty compensation over the next five years. Spotify has been discussing its plan for the new revenue model with a number of music rights holders.
The three notable modifications are:
Setting a minimum yearly stream requirement before a song on Spotify begins to earn royalties. It is anticipated that this action will demonetize songs that now bring in less than five cents a month.
imposing monetary fines on record labels and distributors of music when fraudulent activity is found on songs they have uploaded to Spotify.
Establishing a minimum playtime requirement for “noise” tracks that aren’t music in order to collect royalties.
Recently, Deezer and Universal Music Group unveiled their “artist-centric” royalties scheme, which is somewhat similar to Spotify’s modifications but also stands apart in several important ways.