Spotify Technology SA SPOT is set to implement significant changes to its royalty model in first quarter (Q1) 2024, with the most controversial change being the introduction of a new minimum annual threshold of 1,000 streams before any track will generate royalties on the platform.
Spotify's rationale behind this change is to address the issue of low-earning tracks, aiming to "demonetize" songs that earn less than five cents per month on average, Music Business Worldwide reported.
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Currently, achieving five cents in recorded music royalties on Spotify in the US typically requires around 200 plays.
Spotify believes that implementing the 1,000-play threshold will redirect tens of millions of dollars annually from the 0.5% of tracks that fall into this low-earning category to the other 99.5% of tracks that perform better.
"This targets those royalty payouts whose value is being destroyed by being turned into fractional payments — pennies or nickels," one source close to the conversations between Spotify and music rightsholders told Music Business Worldwide.
"Often, these micro-payments aren’t even reaching human beings; aggregators frequently require a minimum level of [paid-out streaming royalties] before they allow indie artists to withdraw the money," the source added.
"We’re talking about tracks [whose royalties] aren’t hitting those minimum levels, leaving their Spotify royalty payouts sitting idle in bank accounts."
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