Spotify CEO Says ’30-Second’ Trick for Scamming Royalties Doesn’t Work

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Spotify CEO royalty scam

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Photo Credit: Imtiyaz Ali

Spotify CEO Daniel Ek denies a Wall Street analyst’s claims that Spotify’s royalty system can be gamed. Here’s the latest.

Financial analysts at JP Morgan estimated someone could make $1,200 a month in royalties by playing a track they owned for at least 30 seconds at a time—24 hours a day. But Spotify CEO Daniel Ek says that kind of rigging the system isn’t possible because that’s not how the system works.

“If that were true, my own playlist would just be ‘Daniel’s 30-second Jam’ on repeat!” Daniel Ek tweeted in response to the report. “But seriously, that’s not quite how our royalty system works. Concerns about the Spotify royalty system being gamed to launder money were raised last week after a Swedish investigative report found at least four criminal gang sources who described how they used the music service to launder money.

Spotify’s current system has two tiers of royalties and artists are paid out once per month. But how much an artist earns from Spotify for plays aren’t strictly based on the number of plays they received. Some differences such as how often their music is streamed or agreements an artist has with labels and distributors can change the payout rate. The payment model itself is pro rata, which means all the money generated for a month is put into a giant pool. It’s then divided up based on streams and those other factors.

This split is one reason why UMG and Deezer are experimenting with an alternative ‘artist centric’ payment model that aims to cut out ‘white-noise’ and auto-generated audio content. CEOs for the Big Three labels have been unhappy with just how often ‘white-noise’ receives payouts alongside legitimate artists.

“Addressing average revenue per user (ARPU) is only one component. First we must ensure that real artists with real fan bases are fairly compensated,” Grainge told Wall Street analysts during a UMG earnings report earlier this year. The new artist-centric deal struck with Deezer will see established artists gain an estimated 10% boost based on this new streaming payout model. Artists need a minimum of 1,000 streams per month and at least 500 different people streaming those tracks to qualify.

“There is no other industry where all content is valued the same, and it should be obvious to everyone that the sound of rain or a washing machine is not as valuable as a song from your favorite artist,” Deezer CEO Jeronimo Folgueira agreed during its press release. Part of cleaning up its service includes demonetizing tracks that are non-artist ambient noises—while supplying listeners with a suite of in-house ambient tracks that collect no royalties.