Spotify Has Royalty Changes—IMPALA Has Serious Questions

Spotify is making changes to how it pays royalties—but that raises lots of questions for independent artists and musicians. The IMPALA executive board is asking them.

The Independent Music Companies Association (IMPALA) board is seeking answers to these questions after gathering views from members in 32 countries across the European music market. IMPALA thanks Spotify for its continuous engagement with the independent sector on streaming reforms since IMPALA launched its own streaming proposals.

The IMPALA board says it welcomes the proposals from Spotify to limit dilution in the royalty pool from ‘functional’ content, and also to apply financial penalties for fraudulent activity—as long as there are checks and balances in place. With regards to the threshold for which tracks are not remunerated, the IMPALA board agrees with the aim of tackling revenue dilution, but opposes Spotify’s application as a ‘blunt instrument’ that demonetizes repertoire altogether to the benefit of more popular tracks.

The data for any change must show that smaller and less established labels and artists do not lose out in the new structure, nor should it impact deep catalogue repertoire, smaller territories, specialist genres, or longer tracks.

“IMPALA shares the view of streaming companies that the model created by Spotify in 2008 needs to be rethought,” adds Mark Kitcatt, Chair of IMPALA’s Streaming Reform Group.

“We see myriad possibilities for changes which will inspire creators and fans, and lead to substantial growth for all, in every market. let’s also open the debate to include the revenue re-allocation proposals IMPALA has made and the opportunities we outline to use Spotify’s framework to open up wholly new revenue and connection opportunities for creators.”

To that end, the IMPALA board has laid out a series of questions that they believe should guide discussions with Spotify about its royalty changes.

Further Debate & Safeguards

1. Can Spotify suspend the implementation of these new policies to accommodate further debate?
2. How does Spotify justify the earnings from one artist’s streams being allocated to another artist? Are safeguards possible to prevent the new minimum threshold from creating a two-tier system that disproportionately affects smaller and emerging artists and countries, as well as deep catalogue repertoire?
3. When flagrant artificial streaming is detected, what level of data and proof will Spotify provide and in what time period, to substantiate decisions to apply fines? Can Spotify’s decision be challenged?

Royalty Threshold — Adjustments & Alternatives

1. Can an ‘opt-in’ system be added as a safety net, so that some artists, labels, and albums affected can be whitelisted for payment by Spotify based on their past performance? (Many artists and labels who were getting micro payments will no longer get them, and those earnings will go to other artists?)
2. How will longer tracks be accommodated so they don’t lose out? Can this be based on listening time and not number of streams?
3. Alternatively, could artists who don’t earn anything for the first 1,000 streams of a track receive double compensation for streams beyond that threshold, until 2,000 streams are met? That would give artists a chance to get back the revenues that are due for the first 1,000 streams.
4. Are ‘dynamic thresholds’ possible, adjusting the threshold based on market size and Spotify’s market penetration in a given territory or language group? If not, does this imply that Spotify’s market penetration is uniformly high across all regions, negating the necessity for adaptive threshold measures?
5. Could an escrow system be applied? For example, can a track’s earnings from the first 1,000 streams go into escrow until the artist meets the threshold?
6. Counting any minimum stream requirements across an artist’s full repertoire rather than breaking it down by tracks would also have a softer impact—can that be considered?
7. What about other approaches altogether that are shared across all artists and rightsholders, such as upload or storage fees or other mechanisms to weed out bad actors and tackle misuses of the open platform concept?

Transparency & Data

1. Transparency in any royalty changes is vital to assess whether the reform’s effects have been fair and equitable. IMPALA wants Spotify to provide data on how these proposed changes to the royalty structure will impact artists and labels, particularly on these issues:
2. an aggregated anonymized per artist basis on who will benefit and who will lose out.
3. an aggregated anonymized per label basis on who will benefit and who will lose out.
4. on a per country basis.
5. the proportion of tracks that earned before that will stop earning, and the number of artists that earned before and will stop earning?
6. the shift between catalogue repertoire and new releases.
7. how will the changes result in an extra $1B over the next five years—can this calculation be shared?
8. How will Spotify guarantee the transparency and fairness of its algorithms in determining whether a track meets the specified thresholds?

Impact on Discovery

1. Does Spotify anticipate a change in release dates if labels need to adjust, to ensure a track has the best chances possible to meet the royalty threshold’s conditions?
2. Has Spotify assessed the impact on discoverability and competition for attention linked to new releases?
3. What is the incentive for labels to keep all their repertoire on Spotify and continue to supply all new material?

Impact on Smaller Artists, Markets, & Diversity

1. What are Spotify’s concrete plans to support diversity and local artists in regions which don’t have a Spotify contact point, or where fans pay the same rate as other markets but the per track payout can be as little as half as much?
2. Instead of ploughing all the money generated by the new system up the chain, would Spotify consider dedicating a proportion to boost diversity, or applying the artist growth model?
3. Has Spotify considered the potential mental health impact on artists whose repertoire could be qualified as a failure under the new system?

Boosting Value Further

1. Will Spotify consider other moves? What about stopping remuneration altogether for functional content (not just for tracks less than 2 minutes) and addressing other features that dilute value such as Discovery Mode?
2. Will Spotify also increase its subscription prices further?
3. The recent increase is welcome, but can Spotify commit to price increases which at least follow inflation?

Regulation & Policy Updates

1. Has the proposal been discussed with any regulators?
2. How will potential anti-competitive outcomes be prevented?
3. There are situations where labels have contracts and a legal obligation to pay out per stream. Under the new threshold, Spotify would not be paying on those streams, rather diverting the money to other artists and tracks that meet the threshold. What happens if a label’s contracts don’t allow them to sign up?
4. We understand the reform is presented as a policy and that licensees may decide to renew their deal to continue their relationship with the platform. We assume Spotify is still able to take on suggestions for the threshold and how it works?
5. Will the independent sector be involved in the decision-making process when Spotify’s policy is reviewed and up for modification?