Spotify: How Royalties Will be Calculated Under Streaming Platform’s New Policy

In November 2023, Spotify unveiled a series of transformative policies aimed at fortifying its music royalty ecosystem for both emerging and professional artists. Set to roll out in early 2024, the monetization eligibility update introduces changes to how royalties are calculated, fostering transparency and channeling more revenue to artists. We explore the key aspects of this policy shift, answering important questions and shedding light on its potential impact.

1. Eligibility Threshold: Starting in 2024, for a track to be included in the recorded music royalty pool calculation, it must have garnered at least 1,000 streams in the preceding 12 months. This threshold ensures that only actively streamed tracks contribute to the overall royalty pool, aligning with Spotify’s commitment to transparency and fairness.

2. Increased Payouts: The change is poised to inject tens of millions of additional dollars annually into the pockets of eligible artists. Tracks with fewer than 1,000 annual streams, which historically generated an average of $0.03 per month, will now contribute their aggregate unclaimed funds to eligible tracks, resulting in a 0.5% increase in royalties for each.

3. Funding Source: The additional funds don’t come from an expansion of Spotify’s revenue; instead, they are redirected from the operational expenses and unclaimed royalties traditionally associated with tracks with under 1,000 annual streams. This change aims to eliminate wasted or forgotten funds and prioritize artists most dependent on streaming revenue.

4. No Profit for Spotify: It’s important to note that Spotify doesn’t profit from this change. The size of the royalty pool remains constant, with nearly 70% of every dollar earned from music still allocated to artists. The alteration lies in the allocation method, increasing payments to recordings that generate more substantial amounts.

5. Policy Implementation: The policy, though impactful, will not take effect immediately. Spotify is collaborating with licensing partners to finalize the plan and anticipates implementing it in early 2024. The exact timing will be shared once the details are confirmed.

6. Recording vs. Publishing Royalties: The eligibility calculation specifically applies to recording royalties, leaving publishing royalties unaffected. This distinction ensures that the change addresses the needs of artists within the recording sphere without altering the landscape for publishing royalties.

7. Royalty Calculation Under the New Policy: Under the updated policy, Spotify will calculate streamshare only for eligible tracks—those with a minimum of 1,000 streams in the past 12 months. This ensures that royalties are distributed based on the active popularity of tracks within the specified timeframe.

8. Track Eligibility Fluctuations: Tracks can transition in and out of eligibility based on changing popularity. Monthly evaluations will determine eligibility, providing a dynamic system that adapts to evolving listener preferences.

9. Disincentivizing Artificial Streaming: The policy introduces disincentives for artificial streaming practices, particularly high-volume schemes. By setting a minimum number of unique listeners for eligibility, Spotify prevents users from artificially inflating stream counts.

10. Artist Growth Strategies: Spotify encourages artists to utilize Spotify for Artists tools and resources to grow their fanbase. These include opportunities to tap into editorial playlists, personalized sets, and active streaming from listeners.

Spotify’s monetization eligibility policy represents a significant step toward fairness and transparency in the music streaming landscape. By redirecting unclaimed funds from less popular tracks to those that truly resonate with audiences, Spotify aims to empower artists and cultivate a thriving music ecosystem. As the implementation date approaches, artists can prepare to leverage these changes for their benefit.