Friday, April 19, 2024

Spotify & Deezer Add Monetization Thresholds: What Are The Facts?

Spotify and Deezer, in collaboration with Universal Music Group, have chosen to implement monetization thresholds that will decimate the royalties of the vast majority of DIY artists. Spotify, allegedly beginning at the start of next year, will only pay royalties for tracks with over a number of streams annually that has yet to be disclosed. Deezer, will effectively restrict artists from earning royalties from catalogs that fail to generate at least 1,000 streams monthly from at least 500 listeners. 

In the case of Deezer, there are artists with followings that fail to reach the threshold due to the lack of popularity of the platform itself. With Spotify, the threshold is applied per track where each individual track will need to generate, what’s speculated to be, at least 200 streams annually. Artists will not be able to qualify by distributing more releases where they’d be able to reach the thresholds by committee. 

There’s a lot being said to justify the decision and manipulate discourse so let’s cut through the noise and find the facts.

Facts!

Universal Music was unhappy with royalty payouts from streaming, despite the company posting historic increases in revenue. Their displeasure drove them to work with DSPs to develop what they called an “Artist-Centric” system. This is in contrast to “User-Centric” a different model. User-Centric would have an individual subscriber’s subscription fee go to the artists whose music they streamed. If I listen to your music 90% of the time, you’d get $9 from my $10 subscription fee. Artistic-Centric would have the full $10 I pay to stream your music go to the likes of Taylor Swift. This would be done simply because your music doesn’t happen to be as popular as Taylor Swift’s.

Artist-Centric Takes Royalties Away From Artists

It is a mischaracterization to say that Spotify and Deezer plan to demonetize the music of artists. The music isn’t being demonetized. What’s happening is that they’re declining to pay the royalties the music generates to artists below a certain threshold. You can look to Podcasts to see what demonetization looks like. Spotify doesn’t run any ads before or during Podcasts. Spotify users don’t need a Premium subscription to stream Podcasts on-demand or download episodes for offline playback.

Podcasts, are demonetized. The music below Deezer’s and Spotify’s thresholds won’t be demonetized, their royalties just won’t be given to the artists who earned them.

This doesn’t Benefit Spotify

Spotify states that the impacted releases account for about 0.5% of its annual revenue. Grossing about $3 billion per quarter this year, the revenue generated by each artist could collectively add up to over $47 million annually – Spotify keeps 30% of revenue for its operating costs so only 70% goes into the royalty pool. What each artist earns from streams doesn’t impact Spotify at all. With no financial incentive, why would Spotify do this?

Well it turns out back in July, UMG signed a new licensing agreement with Spotify. On an earnings call Sir Lucian Grainge – head of UMG – cited Spotify agreeing to adopt parts of their “Artist-centric” system as part of the deal. UMG wants more money and taking the royalties of smaller artists would add $47 million to the royalty pool.

There’s No Justification That is Just

The artists impacted by these decisions haven’t done anything wrong. I know artists that would be impacted by this. They haven’t infringed on anyone’s copyright. They haven’t engaged in streaming fraud. They spent their time and money to record songs, advertise, pay influencers, etc. and it just so happens that their music is unpopular, but every donut shop shouldn’t have to be Dunk n’ Donuts to be paid for the donuts they sell. 

They’re Doing This to Improve User Experience?

Universal Music Group claims users are being served bad music creating a poor user experience. People choose what they want to stream on Spotify and Deezer. The algorithms are configured to serve more of the music that generates a positive response. Users hear the music they choose to hear, or the music their actions indicate that they enjoy. There has been no mention of cancelations due to poor user experience and Spotify’s subscriber rate continues to soar. This contradicts the argument that users are being served music they don’t want. 

Let’s imagine users are actually being served music they don’t want. Why not empower the users by allowing them to restrict the music they’re served? Right now, a user can only restrict a song from an individual playlist which means it can pop up on every other playlist. If I don’t want to hear any music from Cardi B, ever, there is no way for me to ban it. If it’s about the user experience, let the users choose. 

Another thing cited in the Universal Music Group earnings call about the new deal with Spotify was

Better aligning the relationship between artists and fans by promoting greater discovery and promotion of real artists

They don’t care about what users want to hear. They want Spotify and all other streaming platforms to force their music down the ears of listeners, no matter if they like it or not. No streaming threshold gets to decide what a “real artist” is and certainly not one designed by a record company that gave a damn algorithm a recording contract for 20 albums.

Universal Music Group Wants to Reward Real Artists with Real Fanbases

Universal claims Artist Centric is about rewarding artists with “real fanbases” but the plan makes the support of individual fans irrelevant. If an artist has 10 fans streaming their 10 song album once per month they’d be entitled to zero dollars in royalties because they wouldn’t meet Spotify’s threshold.

The Royalty Pool

All the music on streaming platforms contribute to the royalty pool. This is why they’ve chosen to not pay royalties instead of demonetizing tracks. If a user can avoid ads by streaming demonetized tracks less ad revenue is generated which shrinks the royalty pool. A user that can stream demonetized tracks offline and on-demand can avoid needing to become a Premium user where they’d have to pay for a subscription. This, again, shrinks the royalty pool.

There are reportedly 100,000 new tracks uploaded to Spotify per day. Every person behind those tracks has family members, friends, and even small pockets of fans that begrudgingly head to Spotify to show their support. This brings new users to the ecosystem where they can be exposed to ads and upstreamed to Premium. Understand that the popularity of Facebook, Twitter, and Instagram was driven by people and their personal connections with family and friends. Celebrities didn’t bring people, they got followed by people that were already there. The relationship a user forms with a few unpopular tracks they discover could be what drives them to keep their subscription.

Universal Music Group says the sound of rain isn’t music and shouldn’t receive a cut of the royalty pool. Again, they’re not saying demonetized, they’re saying the creators shouldn’t be paid. Deezer isn’t restricting what they’re now classifying as “functional music” they plan to replace it with their own which will be monetized but won’t share in the royalty pool. Additionally, I find it odd for Universal Music Group to take issue with the sound of rain receiving royalties, considering they signed an algorithm that generates tracks using the sound of rain.

This is Not Quality Control

Spotify has a built in quality control mechanism, it’s called their algorithm. Tracks nobody streams don’t get recommended, they don’t pop up on editorial or algorithmic playlists. If an artist had no listeners they’d generate no streams and consequently, no royalties. There would be no need for any action to prevent discovery.

Spotify is not requiring artists submit an application to be added to the platform. There’s no screening, no filtering system. All of the music they’d take royalties from would still be on the platform generating the same number of streams as they were before the threshold. The creators just wouldn’t get paid.

Youtube Has a Monetization Threshold

Youtube and Meta have monetization thresholds so why is it such a problem for Spotify and Deezer to have one? Well, nobody pays to get their content on Youtube, Facebook, Instagram, or TikTok. They also don’t restrict access to the content where users have to have a subscription to view. I can go and watch any video on Youtube or Instagram on-demand with no restrictions. I can rewind, I can fast forward, and I can skip videos an unlimited number of times. 

Spotify requires users pay a monthly fee for the ability to stream tracks on-demand, access them offline, and limits how often tracks can be skipped. They sell access to all music on the platform as a bundle and pays based on what gets used.

Digital distributor payment thresholds 

Another argument being made is that digital distributors impose payment thresholds where artists have to make a certain amount in order to receive a payment. Here’s what digital distributors do, let’s say the payment threshold is $50. If you earn $30 this month and $30 again next month, you’ve earned $60 combined and qualify to be paid your $60. They’re comparing that to a system where you’d lose your $30 each month simply because you failed to earn at least $50. The money wouldn’t be held until you earned $50, it would taken away entirely.

What Universal Music Group is having streaming platforms do is find the smallest guy in the room, turn him upside down, empty his pockets, and take his lunch money to split with the Lacrosse Team. This showcases how none of these companies care about doing the right thing. Black Lives Matter flags, LGBTQ flags, they’d be hanging a Confederate Flag tomorrow if that’s where their subscription revenue was coming from.

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