Spotify's Upcoming Royalty Model Changes to Generate $1 Billion for Artists: Here's What to Know

Spotify is restructuring its royalty model to boost revenue for emerging and established artists, anticipating an additional $1 billion injection into the music industry over the next five years.

The Swedish streaming giant aims to direct more funds toward popular artists, record labels, and distributors while addressing issues such as streaming fraud.

How Will It Work?

The three-fold approach, outlined in a recent blog post (Nov. 21), focuses on enhancing platform hygiene, ensuring fair distribution of payments, and combating challenges that, while affecting only a small percentage of total streams, have prompted Spotify to project an additional $1 billion in revenue for artists, according to Billboard.

The new Spotify royalty model, set to impact over two-thirds of Spotify's song catalog, aims to prioritize more popular tracks and reduce the impact on less frequently streamed songs. The anticipated shift in Spotify's royalty pool is approximately 0.5%, translating to around $46 million out of the total $9.27 billion paid in royalties in 2022.

The audio streaming company announced in its blog: "Starting in early 2024, tracks must have reached at least 1,000 streams in the previous 12 months to generate recorded royalties. "Spotify will not make additional money under this model. There is no change to the size of the music royalty pool being paid out to rights holders from Spotify; we will simply use the tens of millions of dollars annually to increase the payments to all eligible tracks, rather than spreading it out into $0.03 payments."

Industry figures have welcomed the changes, with Denis Ladegaillerie, founder and CEO of Believe, expressing support for Spotify's initiative to eliminate artificial streaming and noise. He emphasizes the importance of creating more benefits for up-and-coming artists and applauds ongoing dialogue on the development.

Fighting Artificial Streaming

Additionally, starting in Q1 2024, Spotify plans to implement measures to actively deter artificial streaming. The platform will charge labels and distributors per track when detecting "flagrant artificial streaming." This move is aimed at disincentivizing bad actors from uploading content that diverts funds from legitimate artists.

"These charges will support our continued efforts to keep the industry and platform free of artificial activity," Spotify stated in its blog.

To counter attempts to "game the system with noise," Spotify will increase the minimum track length for functional noise recordings to two minutes, ensuring eligibility for royalties. This step aims to prevent exploitation by bad actors who artificially shorten tracks to maximize royalty-bearing streams, per TechCrunch.

The platform also plans to collaborate with licensors to value noise streams at a fraction of the value of music streams in the coming months.

Spotify reportedly intends to launch its updated royalty model in the upcoming year. However, there is currently no specific date announced for the rollout.