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Spotify's upcoming overhaul of its royalties model marks a significant shift in the way the streaming giant compensates artists, aiming to funnel more earnings towards more popular artists, labels, and distributors while taking a firm stance against streaming fraud. This new model, detailed by Billboard, incorporates several key changes that could significantly impact the music industry landscape.

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Understanding Spotify's New Royalties Model

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1. Streaming Thresholds

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Under the new system, tracks need to surpass a streaming threshold of 1,000 plays within a 12-month period to qualify for royalties. This move is designed to ensure that only tracks that achieve a minimal level of listener engagement contribute to and benefit from the royalty pool. Spotify's intention here is to redistribute royalties from less popular tracks to those that meet this threshold, potentially increasing earnings for artists and labels whose music consistently attracts listeners.

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2. Fraud Penalties

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Spotify will introduce penalties for fraudulent streaming activity, charging labels and distributors 10 euros for each track that has 90% or more of its streams identified as fraudulent. This measure targets the manipulation of streaming numbers, a practice that undermines the fairness and integrity of royalty distribution. By imposing financial penalties, Spotify aims to deter fraudulent activities and ensure a more equitable distribution of royalties.

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3. Minimum Track Lengths

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The platform is also setting a minimum play-time length for non-music noise tracks to qualify for royalties. These tracks must now be at least two minutes long, and each play will count as one-fifth of a music track's stream. This adjustment addresses the issue of short, non-musical tracks being used to game the system, ensuring that royalties are more accurately allocated to musical content that meets a standard of listener engagement.

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Impact on Music Creators

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The new model is expected to affect more than two-thirds of Spotify's song catalog, primarily due to the vast amount of music uploaded that fails to attract significant listening. However, the redistribution of royalties is anticipated to shift only about 0.5% of Spotify's royalty pool towards more popular tracks. While this might seem minor, it represents a substantial amount in terms of actual dollars, potentially increasing earnings for artists and labels with higher streaming numbers.

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The music industry has largely welcomed these changes, recognizing the potential to curb streaming fraud and more fairly compensate artists and rights holders. However, concerns have been raised, especially within the independent distribution sector, about the potential for the anti-fraud measures to disproportionately affect small-scale distributors. These entities, often operating with thin margins and charging per upload, may find it challenging to monitor and prevent fraudulent streaming activities among their clients.

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Philip Kaplan, founder of DistroKid, has publicly objected to the penalty system, highlighting the difficulty in predicting whether a new client will engage in stream manipulation. This underscores the broader industry challenge of balancing the need to combat fraud with the risk of inadvertently penalizing legitimate distributors and artists.

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Looking Ahead

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As Spotify prepares to implement these changes in early 2024, the music community watches closely. While songwriters are not affected by the current iteration of the model, the evolving nature of streaming royalties suggests that ongoing adjustments may be necessary to address emerging challenges and ensure fair compensation for all music creators.

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In summary, Spotify's new royalties model represents a thoughtful attempt to refine how streaming revenue is distributed, prioritizing engagement and authenticity over sheer volume. However, its true impact will depend on the effectiveness of its implementation and the industry's ability to adapt to these changes.

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