Spotify Has Officially Updated Its Royalty Model — What’s Next?
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Spotify’s recent update to its royalty payout structure has sparked discussions across the music industry. The new payment model, which will be implemented in 2024, is expected to have a significant financial impact on labels, artists, and DIY distributors. A recent report by guest author Jeff Price provides a comprehensive breakdown of the changes and their potential implications.
One of the key changes in Spotify’s new payout model is the introduction of a 1,000-stream minimum payment. This means that artists and labels will only receive royalties if their recordings have been streamed more than 1,000 times in a year. This shift is expected to disproportionately affect DIY distributors and independent artists, as they tend to have fewer streams compared to major label acts.
According to the report, DIY distributors like Distrokid, Tunecore, and CD Baby are projected to face a high rate of ineligibility, with 20-25% of their total streams not qualifying for royalties. This means that a significant amount of money will be taken from developing artists and handed over to major labels. For example, if we consider Tunecore’s previous royalties, as much as $600 million could potentially be lost from the pockets of Tunecore artists.
The major labels, particularly Universal Music Group (UMG), are expected to benefit from Spotify’s changes. The report suggests that UMG’s revenue share could increase by 2.4% each month, compared to 1.4% for Sony Music Entertainment (SME) and 0.6% for Warner Music Group (WMG). This could result in a significant revenue transfer of approximately $4 million per month.
The changes in Spotify’s royalty model not only impact the distribution of royalties but also raise questions about the platform’s future growth. Major labels may be able to offset any potential decline in revenue caused by a slowdown in Spotify subscription growth. The report also highlights other potential headwinds, such as inflation and consumer demand, which could be mitigated by Spotify’s recent price increases and royalty changes.
Overall, the report suggests that Spotify’s updated royalty model marks the beginning of a broader revenue transfer away from developing artists, smaller labels, and DIY distributors. While major labels stand to gain, the market share and revenue of the DIY sector are at risk of significant erosion.
As we await the implementation of Spotify’s new payment model in 2024, the music industry will closely monitor its impact and examine alternative platforms for artists and labels. The changes raise important questions about fairness, sustainability, and the future dynamics of the streaming landscape.
