Spotify Looks To Combat Streaming Fraud With Changes To Payout Policy

Spotify is allegedly looking to combat streaming fraud with a few key changes to its payout policy. Billboard reported that the leading music streaming platform has been in talks with major labels, distributors, and leading independent labels for weeks to reach an agreement on its new policy.

Because each label makes their own agreements with Spotify, the company needs to create policy changes that would be generally well-received by all the parties. This also means major labels may have a bigger seat at the table than independents. So what do these reported changes include, and will they be good for everybody with music on the platform or just the majors?

Spotify’s Reported Changes To Combat Streaming Fraud

Spotify proposed three primary changes to the payout policy. They are all meant to combat streaming fraud in most cases, but at least one of them may also hurt smaller creators just getting started. So let's start with that one.

A Threshold For Streaming Payouts

Spotify is reportedly wanting to create a minimum stream threshold for tracks to be eligible to earn money from the company. This threshold would free up as much as 0.5 percent of the royalties it pays out to artists. It also means that people just getting started may not get paid for their works on the platform for a while. 

This is admittedly a bigger issue in principle, since those tracks would likely only earl a few dollars anyway. A lot of distributors have minimum payout thresholds already (an entirely separate issue), so really this probably isn't going to be a big financial difference. But it does kind of suck to think that your art, no matter how small, is technically adding value to a platform and you're not seeing that return. 

It's kind of the same issue with things like YouTube Partner and Twitch partner requirements. There are perfectly reasonable explanation for why these platforms have them, but some are more reasonable than others and it can be a bit demoralizing for some.

When it comes to Spotify specifically, the platform has millions and millions of songs without any streams. In some cases, these are from fake artists. In some cases, they're from bots. In others, they're just from hobbyists who just put it up because, "Why not?" But the company believes creating a minimum threshold can combat streaming fraud.

Financial Penalties For Labels And Distributors When Fraudulent Activity Has Been Detected On Tracks They Uploaded

This is a big one, if it actually sticks. That's because the not-so-secret sauce for a fair number of songs was to simply juice the numbers. Fraudulent streaming practices are still rampant, with bot farms across the country generating fake streams for artists and ultimately decreasing the value of genuine consumption. 

And while most people are careful not to name names, you probably wouldn't be shocked to learn that major labels have been accused of this practice too on several different platforms. Sometimes that's through legitimate practices like running ads on YouTube, and sometimes it's through completely "black hat" tactics. 

But there are absolutely "labels" and other organizations out there generating fake streams for artists both fake and real. And even though it's common knowledge, it's not really slowing down. This is a major problem — one that would likely only stop with something like financial penalties or a complete ban from the platform. 

Before we can get too optimistic, though, we'll need a whole lot more information about these penalties. Like where they'll come from and how they'll be determined, how they'll be enforced, and if they'll lead to more money for legitimate streams. There's also the chance that some malicious parties could intentionally bot somebody else's songs or playlists. Artists frustratingly have no control over being put on playlists that generate fake streams, and it can seriously hurt their ability to reach real people. In this new system, it could also lead to financial penalties for innocent parties.

However, if Spotify can figure this out, there's a serious chance it leads to a reduction in fraudulent streams.

A Minimum Play Time Threshold For "Noise" (Non-Music) Tracks

A third way Spotify looks to combat streaming fraud is by implementing a "play time threshold" for noise tracks.

There's a legitimate use for things like white noise and soundscapes on Spotify. While the majority of audio consumption on the platform is typical music (followed by podcasts), plenty of users also turn to Spotify to help them with things like soothing sounds to focus, white noise to help fall asleep, urban sounds to provide ambience or other non-music tracks for utilitarian purposes. 

However, plenty of fraudsters have also started doing things like chopping up white noise into hundreds of tracks that are only a minute long and uploading them all as a long album. This means the short songs all rack up tons of streams, instead of something like one hour-long track of white noise generating one stream. 

In order to fight this particular version of streaming fraud, Spotify would create a threshold that these types of tracks need to surpass overall in order to start earning royalties. This would strongly disincentivize opportunistic jerks from trying to dilute the revenue pool and take a bigger share — because it would take a lot longer for those minute-long clips of white noise to each reach their individual play time threshold compared to a genuine noise track that lasts for a respectable amount of time. 

Plenty Of Questions Linger

There are plenty of questions around these proposals — including the overall legitimacy of the leaked claims, since Spotify hasn't officially announced anything. While they're ultimately designed to reduce the amount of money that goes to schemers and pay legitimate rights holders, we don't know enough about how much of this money will ultimately go to which parties. 

It's one of the most frustrating things about Spotify's streaming economics in general. Everybody is a little bit different because they had to piece together various agreements with rights holders. And no surprise, independents don't quite have the same representation as say, Universal Music Group. 

These changes are not really what a lot of artist advocates have been clamoring for. Particularly, a more artist and user-centric model that better compensates artists who have an overall smaller share of the stream pool but from a much more dedicated fan base. Especially since so much of Spotify's streams are programatic and algorithmic in nature.

And of course there are tons of questions around fining labels or distributors who put out tracks that have been found to violate streaming fraud terms. And since both the distributors and labels hold the money before it goes to the artists, there's also a world where those fees get passed along to artists.

But is it ultimately a step in the right direction? Probably. Something needs to be done about all of the nasty, albeit clever, ways people try to scam the system. It's a good first step, but a lot more needs to be done if we want to truly tackle issues facing music streaming platforms.