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Experiences with Spotify's New Policy

Spotify has introduced a new deterrent to combat artificial streaming, effective April 1, 2024, charging labels and distributors per track when flagrant artificial streaming is detected on their content.

 

Musician unions, like the Musicians' Union (MU) and other industry bodies, have expressed mixed reactions to Spotify's new anti-fraud measures, particularly the "artificial stream fees." While these measures are aimed at deterring fraudulent streaming, they could also impose financial penalties on artists, labels, and distributors found guilty of such activity.

 

The Musicians' Union has generally welcomed efforts to combat fraud and bring more transparency to the platform, aligning with their ongoing campaigns for fairer compensation for artists. They see the move as beneficial in curbing practices like "stream farms" that manipulate play counts, which unfairly impact the earnings of honest artists.

 

However, there are concerns raised by the Musician Unions that legitimate artists, especially smaller and independent ones, might be penalized if their music is mistakenly flagged as fraudulent. The hope is that Spotify's enhanced fraud detection technologies will help avoid these issues and create a fairer environment for all artists.

 

Recently it became evident that the labels and distributors/aggregators back-charge the musicians contributing the content. Especially Indie musicians (non-labelled) are being directly confronted with significant penalties once Spotify detects artifical streaming activities. The distributors/aggregators charge between 10.- € and as high as 45.- €/artificial stream. This may sum up to several hundrets of penalties per month easily, while Spotify is paying only fractions of a €/stream themselves. The discrepancy between the penalties and payouts is up to 15.000x.

 

Some cases were reported where, in response to a menacing fake stream altert from Spotify, a distributor (AMUSE in that case) has removed the entire catalogue who were accused of fake streams - all arbitrary, without proof and any rights that normally exist in a constitutional state. The consequences of this could be significant for the victims of this practice, as this means having your livelihood flushed down the drain as the distributor wipes clean the entire catalog due to a potentially false fraudulent stream alert.

 

The Spotify policy claims, for example, to charge penalties or withhold royalties for streams found to be artificially generated. Spotify can even remove tracks from playlists or the playlists entirely in severe cases. However, according to information provided by Spotify's artist support team and the aggregators, the musicians are held responsible to ensure that their tracks are not placed on fraudulent playlists generating artificial streams. This is a responsibility that artists are barely able to take since it is not under their control, at least to a large extent. On the Spotify for Artists page, only a subset of playlists are listed - hence, the accused artist is even not empowered to check playlists for botted activities, even if they would invest the time and effort.

 

Some aggregators suggest to use an "artist tool" to check if playlists are botted or not:

 

https://www.artist.tools/?emailContactId=dGDZK5oXhnaivbZyr

 

Now, the question is why Spotify is not doing what they claim in their policy thereby ensuring a clean platform rather holding musicians responsible to ensure their content is not placed on fraudulent playlists?

 

Upon request at the artist team support, Spotify was not willing to disclose any details on how the artificial streams are being identified - that is a secret of the company, they said. Hence, there is no transparency on how Spotify is identifying these artificial streams. Moreover, no proof is provided to the distributors/aggregators nor to the musicians - a parking violation or speed limit violation has more proof and transparency!

 

An aggregator based in Germany shared the following criteria and information on the backgrounds upon request:

  1. Number of streams within the last time;
  2. Number of users streaming the album
  3. Total number of streams/total number of users streaming the track
  4. Number of tracks on the album
  5. Number of “short” tracks on the album;
  6. Number of “short streams”;
  7. Territorial activity

Based on these parameters, the store recognizes artificial streams (unnatural streams) and then does not take them into account for the credits and penalizes them if they exceed 90% of the total streams in a month.

 

For example, it may be sufficient to play tracks in a continuous loop for several days or to purchase plays via various providers. From this point onwards, we no longer have the option of demanding payment of the artificial streams from Spotify or having penalties reversed.

 

The aggregators completely rely on Spotify's data as they are not enabled to cross-check. With that nobody seems to be able to control what Spotify is claiming in terms of artificial streams.

 

While Spotify has received significant attention for its "artificial stream fees," it is not the only platform dealing with this issue. Artificial streaming, where streams are inflated using bots, scripts, or other automated methods, is a widespread problem across many music streaming services. Most platforms, including Spotify, Apple Music, Tidal, Deezer, and others, have policies in place to combat artificial streams and impose penalties on artists or distributors involved in such activities.

 

However, no reports about back-charging penalties to musicians have yet been reported for other platforms than Spotify. In the following section, a real case illustrates the full extend of how Spotify's new policy is affecting indie musicians.

 


Case study - Impact of Spotify's new policy

About 5 years ago, an upcoming indie musician, in the following referred to as Artist "X", selected a distributor located in Sweden in order to get his music on the rising streaming platforms and collect the revenue. For this service, the distributor charged him 60.- US-$/year, summing up to 300.- US-$ total within the last 5 years.

 

Artist "X" created a brand strategy, a marketing strategy and plan as well as a website strategy. Based upon these basic tools, he setup a website and social media accounts and filled them with content regularly. Moreover, Artist "X" was very active in creating and releasing his music on a regular basis, summing up in a catalog of nearly a hundred songs after 5 years. This gives an average of 1.7 releases/month.

 

Until end of Q4/2023, Artist "X" collected 2.3 Mio streams on the Spotify platform. Though many more streams were collected on other streaming platforms as well, we will focus on Spotify here. According to published average revenues of Spotify streams, though a rough estimate, the 2.3 Mio streams correspond to 4.600.- € (based upon average revenue as low as 0.002 €/stream as indicated in the financial statement). The official financial statement of the distributor at the end of 2023 indicated only 268.795 streams to be accumulated within the same 5 years period, corresponding to 11.7% of the total streams showing up on Spotify for Artists. Therefore, the real value of the accumulated 268k streams indicated in the financial statement was as low as 510.- €. The total payouts via the account were only 464.21 € within the 5 years period.

 

Hence, the distributor was apparently not collecting all streams indicated on the Spotify for Artists page (only approx. 12%), nor paying out what was collected (only 91%). Moreover, after Spotify's new policy was implemented in January 2024, the distributor was suddenly claiming that "artificial streaming activities" were noticed by Spotify and withdrawed - without notification and providing any proof - the entire catalog from all streaming platforms, not only Spotify. The remaining balance on the account (88.- €) was also refunded to Spotify, further deminishing the income across 5 years to only 288.19 €.

 

In conclusion, the mismatch between accumulated streams per Spotify for Artists page and payout behavior of the distributor combined with the new Policy of Spotify indicates that

  1. the anyway low payments are even not fully payed out to the Artist "X"
  2. the remaining account balance was refunded to Spotify without proof of mis-behavior or any rights of the musician
  3. the mismatch between streams indicated by Spotify and the distributor was never resolved though this was highlighted to the Distribution
  4. putting into perspective the fee of 300.- € for putting music onto the platform, the balance across the 5 years period is shifting to negative income 
  5. putting additionally into perspective the marketing / promotion efforts across the 5 years period (18.6k €), it is evident that the game is not gonna work out

The question is therefore - how should an indie musician like Artist "X" ever make a living out of publication of music as being claimed by Spotify? Obviously, reality illustrated in this case study shows that this remains an illusion. While it is advised to use other sources of income (live-events, merch etc.) still it is unacceptable that streaming is not contributing much to the net income of an emerging musician these days.

 


Financial Dilemma

Spotify started their business with little own capital, most of the money to finance the platform was brought in by investors like Blackrock, Coca Cola and a large music fond. The "blitzscaling" strategy Spotify implemented only assures success with scale, enforcing them to partner eraly on with the large record labels to host their catalog. To aquire new users, the pricing of a "premium account" needed to be attractively low which is due to the mindset of most "piracy-influenced" listeners that music basically needs to be "for free". 

 

Today, Spotify's margins are continuing to be under pressure as they pay out approx. 70% of their revenue to rights holders. Their margin was 25% in 2023, but dropped in second quarter 2024 to 20% according to their quarterly reports. Moreover, the financial world is now shifting their focus from growth to profitability, and this is happening across all industries, due to higher interest rates. Borrowing capital isn't cheap anymore and Spotify accumulated as much as 4 Billion US-$ of loans over the years, when profitability simply hasn't been on the cards. Only a few quarters since 2020 were generating a positive income, the majority of the quarters were generating operating losses. Recently, Spotify put cost-cutting actions into place like layoffs (approx. 1.600), reducing office space, closing Spotify Studios, multiple executive departures, and bumped subscription fees etc. And the company is apparently seeking for other options to optimize their financial situation by roling out their highly-criticized and picked-apart updated royalty payout structure.

 

Initially, Spotify's ultimate goal was to compensate as many artists as possible with a living wage - and they still continue promising this. However, the delicate financial situation of Spotify and its reliance on major labels on the one hand, investors and shareholders on the other hand, makes it pretty difficult for them to be profitable.

 

Hence, fighting against "artificial streams" and implementing arbitrary threshold values that can easily be manipulated according to Spotify's financial needs and maybe a well received argument generating new sources of cash streams. However, this strategy may turn out as a pretty short-sighted one, as Spotify is sawing at the branch it's sitting on - the constant flow of new content of approx. 9 Millions of indie musicians. Therefore, it may take some time but ultimately, Indie's could decide to stop uploading their valuable content to this platform and/or completely remove their catalogs.

 

The legal basis for the implementation of the new policies pretending to fight artificial streaming remains largely intransparent. It appears that platforms like Spotify (but also others) are largely non-regulated, uncontrolled nor supervised by any institution.

 

This Spotify policy established in April 2024 may turn out to be counter-productive for their own platform: Musicians, especially Indie musicians, contributing to a large portion of the content of the platform, may realize that their revenue are further reduced by the deducted artificial stream fees. This may lead, mid- to long-term, to Indie musicians turning away from the platform and no longer contributing their content and market it elsewhere or on a fairer platform.

  


Conclusions

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In summary, it appears that digital streaming providers, especially Spotify, struggle with mis-use of their platforms. Policies have been installed to fight against this. However, transparency is still lacking and the wrong and weakest party, the musician, is finally hold responsible to pay "the bill". Moreover, no proof is provided and the musicians put under general suspicion without any rights and possibility of objection.

 

Björn Ulvaeus (songwriter and musician, ABBA founder and CISAC president) recently stated in the GEMA / Goldmedia report 2022:

 

“If we accept that the song – or the creative work of any repertoire – is the foundation of our

creative industries, why do we then accept the near-invisibility of the creator in the commercial

value chain? These creators are where our creative industries start. Without their work, the global “creative sector”, worth billions of dollars, would just not exist.”

 

Moreover, the president of the European Composer & Songwriter Alliance (ECSA), Helienne Lindvall, stated in the ECSA report published July 2023:

 

"Music lovers can enjoy music at a very affordable price and streaming is booming for

record companies and streaming platforms. But this does not benefit songwriters and

musicians. We need to fix streaming. To do so, it must be put on the political agenda again

and again until we have a functioning industry that supports those delivering the core product: music."

 

Tobias Stenkjaer (ECSA Music Streaming Working Group Chair) contributed:

 

"In order to fix streaming and make it sustainable for music authors, we have to focus

on the bigger picture. This includes competition issues, the legal nature of a stream, and the current allocation of revenues per stream."

 

 

This Spotify policy established in April 2024 may turn out to be counter-productive for their own platform: Musicians, especially Indie musicians, contributing to a large portion of the content of the platform, may realize that their revenue are further reduced by the deducted artificial stream fees. This may lead, mid- to long-term, to Indie musicians turning away from the platform and no longer contributing their content and market it elsewhere or on a fairer platform.

 

Some Indie Bands like Anti-Social-Club and its Indie Label Dying Code Media already initiated their "Bye-Bye-Spotify" campaign by removing their content, leaving just the "Bye-Bye-Spotify" song on it and modifying their bio to call out Spotify's theft and asking listeners to help and consider canceling their subscription. This shows what damage may happen upon leaving the policy in place and transfering money from bottom to up.

 


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