Monday, April 22, 2024

Spotify’s Threshold Is A Fee 🤔

It’s being speculated that Spotify plans to charge artists the monetary equivalent of 1,000 streams per track to be eligible for monetization. Each song has to generate at least 1,000 streams in a calendar year in order to qualify. Spotify’s threshold translates to a fee artists must pay per track to receive compensation.

Quick Run Down

  • Spotify’s Threshold will charge artists the revenue generated by their first 1,000 streams for every song before each song can qualify for monetization.
  • The rule will result in over $40 million dollars owed to over 80% of artists uploading music to Spotify being reallocated to major labels.
  • This will take 0.5% of revenue generated by indie artists and give it to artists already getting 95.5% of their revenue.
  • Major labels and major indie labels will now be paid 100% of the revenue pool.

Currently, 1,000 streams is about $3. If true, every artist will have to pay the first $3 earned by every song, every year they fail to meet Spotify’s threshold. Unlike AT&T, these minutes don’t rollover. 

If you generate 999 streams in a year you’ve failed to reach Spotify’s threshold. The following year, the clock resets to zero and you’ll need to try to generate 1,000 streams all over again. For example:

999 Streams in year 1 = $0 

1000 Streams in year 2 + 999 streams from year 1 = $0 

Getting 1200 streams in year 2 + 999 from year 1 = $2,199 streams

You earn $0.60 for the 200 streams you got over 1,000 

An artist with 20 songs that each generate 999 streams annually – collectively over 19K streams – would be charged $60 annually in the form of 100% of their royalties. 

Some are saying Spotify plans to demonetize tracks but that’s not accurate. Youtube and Facebook have monetization thresholds and demonetize content under their thresholds. They make money by running ads on content. If your content doesn’t meet the threshold, they don’t run ads on it. That’s what makes it demonetized. There’s no money paid because no money is made. 

Spotify isn’t imposing a monetization threshold because they’re not demonetizing the music. My old releases wouldn’t qualify for monetization but if you streamed my 20 song album, you’d get ads sandwiched in between those songs. If you were on mobile and went to play a particular song on-demand, you’d be required to upgrade to Premium. Premium users can download my songs for offline playback as a perk of their paid subscription. Spotify’s threshold would allow them to leverage my music to upstream users to its Premium tier while robbing me of compensation. 

It’s like those old talent showcases where you had to sell 10, $10 tickets to perform  which was really just a covert way of charging you $100. Instead of 10 tickets, it’s 1,000 streams. 

How Spotify Makes Money

Spotify makes its money by charging users for ownership level access to music. Period. All of the music on the platform. You pay $10 per month and you get unlimited access to their entire music library. That’s the value proposition. You can stream it on-demand, download it for offline playback, and avoid being interrupted by ads. Free users see advertisements that generate revenue for the platform. 

Demonetizing songs would create a library of tracks Spotify users could access for free without being interrupted by ads or having to pay for a subscription. It would take money out of the revenue pool and be counterproductive to the point of the fee. If artists under the threshold were to remove their music it would lead to fragmentation. Users would have to go to Youtube for some songs and Soundcloud for others. That would take away from the value of a Spotify Subscription and lead to cancelations and fewer users upgrading. It wouldn’t make sense to pay to access an unlimited library of music if the library is limited. 

The necessity of having the music available on the platform and monetizing it works for the argument that its creators deserve compensation. They can’t, as my mother would say “Talk out the side of their mouth” and say the music has no value while choosing to monetize it because of the value it holds.  

Under the current system streaming platforms have, the more artists releasing music and generating streams, the less every artist will make. A major concern of major labels is their eroding marketshare which is directly impacted by the amount of artists and releases being distributed to Spotify. Universal Music Group in particular has been pressuring, not only Spotify, but all streaming platforms to impose restrictions that will prevent the number of artists and releases coming from digital distributors from impacting their revenue.

Spotify can’t force more people to subscribe. They can only raise the price of a subscription but so high before their current subscribers cancel. And, they can’t force advertisers to spend more money. More artists releasing music drives the royalties of all artists down. 

What this Spotify threshold does is turn artists and their releases into a revenue source. The more music artists release to Spotify – provided it fails to qualify for a payment -the more money Spotify and all qualifying artists make. 

I know an artist with 75 songs on Spotify. If each of those songs generates 999 streams that’s over 75K streams annually equaling about $225 annually. He’d be paid exactly ZERO dollars for those streams. His $225 would go to paying a fee for his music to exist on the platform. A fee that would get pooled and split between Spotify and all qualifying artists. Qualifying artists that already get 99.5% of Spotify’s revenue. Spotify plans to take the 0.5% of revenue generated by it’s lowest earning artists – which is likely over 80% of artists uploading music to Spotify – and give it to the artists already paid 99.5% of its revenue. 

The reason… Simply so they have more money. 

That is the core issue. It’s not about the level of difficulty in generating 1,000 streams. It’s not about whether artists deserve to be paid more. It’s about whether it’s right to take from those that make the least, to give to those that make the most. It’s about the transfer of wealth from music’s poverty class, to its elite wealthy class 

With the goal being to make sure a particular segment of artists continue to see the largest profit, it’s a moving target. There will come a point where there will be so many artists crossing the threshold of 1,000 streams that the threshold will need to be risen for that segment of artists to continue to earn the most. This would seem to be just a starting point where we could see this go to a threshold of 10,000 streams or more. 


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