Spotify’s Monetization Threshold
Spotify has decided to implement a monetization threshold similar to the way Youtube does.
Currently, in order for a track to qualify for monetization the stream has to last longer than 30 seconds. By early next year, that’s set to change. Tracks won’t be monetized unless they cross a threshold of a target number of annual streams. Spotify has declined to specify the number of streams an artist must reach to qualify but Music Business Worldwide cited an inside source as saying “[the threshold] is designed to [demonetize] a population of tracks that today, on average, earn less than five cents per month”. So the threshold could be somewhere around 204 streams annually, but that’s unconfirmed. Note, that this is the vast majority of releases distributed by DIY artists.
Spotify additionally plans to begin penalizing digital distributors with financial fines when tracks are caught engaging in streaming fraud which forces them to enact zero tolerance policies.
Why Is Spotify Implementing a Monetization Threshold?
To explain, I’m going to get a bit technical so I need y’all to bear with me.
Spotify generates revenue from ads and subscriptions.
Let’s say that’s $1,428.
Spotify takes 30% of that revenue for operating costs. The remaining $1,000 becomes the royalty pool that pays all music rights holders on Spotify. We’re talking the owners of the master recordings and the publishing. They all share the same $1,000 pie.
Payment is determined by their percentage of the total number of streams and NOT a per-stream rate.
70 out of 100 streams is 70% of the total number resulting in a payment of $700, which is 70% of $1,000.
70 out of 100 streams equals 70%, but so does:
- 700 out of 1,000 streams
- 7,000 out of 10,000 streams
- And 7 million out of 10 million streams
Which means that with a $1,000 royalty pool, you’d get paid the same $700 for 7 million streams as you would for 70. The only way to earn more isn’t to simply get more streams, it’s to get more streams than everybody else.
Artist for artist, track for track, a digital distributor like Tunecore will not generate enough streams to compete with a major label. But, we’re not talking about artist for artist or track for track. We’re talking about digital distributors pumping out 1K artists for every 1 artist from major labels or 1,000 releases for every one release from a major label.
Collectively, year over year, digital distributors are accounting for larger and larger percentages of the total number of streams. This reduces, not only the revenue of major labels, but their leverage in licensing negotiations with Spotify and other DSPs. This is the leverage that they’re wielding right now to coerce Spotify and other platforms into ensuring that they maintain it by implementing these thresholds.
