Spotify’s proposal to reform streaming – The view from IMPALA members and the questions to be asked

Original post:

Brussels, 7 December 2023

Gathering views from members in 32 countries across the whole European music market including the EU, EFTA, UK and beyond, the IMPALA executive board has put forward a list of questions for Spotify on their plans for reforming the streaming market. IMPALA’s aim is to assist Spotify in reforming its system, in a way that benefits the independent community, including the artists of today and tomorrow.

The IMPALA board thanks Spotify for their continuous engagement with the independent sector on streaming reform since IMPALA launched its own streaming proposals nearly three years ago, and especially in recent weeks. Highlighting a number of questions which the independent sector feels are important, the board underlined that streaming services play a vital role in today’s music industry. They added that they need them to be healthy and profitable, and in a position to increase payments, tackle manipulation and address the massive influx of content as well as misuses of the open platform system.

The IMPALA board 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. 

As regards the threshold for which tracks are not remunerated, the IMPALA board agrees with the aim of tackling revenue dilution, but opposes the principle of a “blunt instrument” that demonetises repertoire altogether to the benefit of more popular tracks. They feel that the data for any change must show that smaller and less established labels and artists do not lose out, as well as deep catalogue repertoire and of course smaller territories, specialist genres and longer tracks.

In line with this approach, the IMPALA board set out the following questions that they believe should guide ongoing discussion with Spotify, and also set principles for other platforms:

1. Enabling further debate to ensure safeguards

  • Can Spotify suspend the implementation of these new policies to accommodate further debate?
  • How do 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? 
  • 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 decisions be challenged? 

2. Royalty threshold – adjustments and alternatives to a “blunt instrument”

  • 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 the past performance (as many artists and labels who were getting micro payments will no longer get them, and those earnings will go to other artists)?
  • How will longer tracks be accommodated so they don’t lose out? Can this be based on listening time and not number of streams?
  • Alternatively, could artists who don’t earn anything for the first 1000 streams of a track receive double compensation for streams beyond that threshold, until 2000 streams are met? This would give artists a chance to get back the revenues they are due for the first 1000 streams.
  • 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?
  • 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?
  • 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?
  • 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?

3. Transparency & data

  • Transparency is vital to assess whether the reform’s effects are fair and equitable. Can Spotify provide data on how the proposed changes will impact artists and labels, particularly on:
  • an aggregated anonymised per artist basis (major, independent, country, genre) on who will benefit and who will lose out.
  • an aggregated anonymised per label basis (major, independent, country, genre) on who will benefit and who will lose out.
  • on a per country basis.
  • the proportion of tracks that earned before that will stop earning, and the number of artists that earned before and will stop earning?
  • the shift between catalogue repertoire and new releases.
  • how will the changes result in an extra $1bn over the next five years – can details of this calculation be shared?

4. IMPALA’s proposals for streaming reform 

  • What are Spotify’s views on the proposals outlined in IMPALA’s plan* on how to change allocation of revenues? 
  • Can these also be integrated into the reform efforts? 
  • This includes the AIM artist growth model – a model more akin to progressive redistribution, or the pro-rata temporis suggestion to mitigate the iniquities of the streaming model’s treatment of longer music tracks, as well as proposals based on how active fans are, and opportunities to use Spotify’s framework to open entirely new and complementary revenue streams via fan participation. (See more below). 

5. Fairness of algorithms

  • How will Spotify guarantee the transparency and fairness of its algorithms in determining whether a track meets the specified thresholds?

6. Difference between recording and publishing

  • What is the justification for these measures applying to allocate revenues for the recording sector but not as regards music publishing rights? 

7. Impact on discovery

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

8. Impact on smaller artists, markets and diversity

  • What are Spotify’s concrete plans to support diversity and local artists, for example 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? 
  • 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? 
  • Has Spotify considered the potential mental health impact on artists whose repertoire could be qualified as a failure under the new system?

9. Boosting value further

  • To boost value further, 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? 
  • Will Spotify also increase its subscription prices further? 
  • The recent increase is welcome, but can Spotify commit to price increases which at least follow inflation?

10. Regulation and policy updates

  • Has the proposal been discussed with any regulators? 
  • How will potential anti-competitive outcomes be prevented? 
  • 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?
  • 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? 
  • Will the independent sector be involved in the decision-making process when Spotify’s policy is reviewed and up for modification? 

IMPALA shares the view of streaming companies that the model created by Spotify in 2008 needs to be rethought. 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.* The first test for change must be that it is understood to be fair and reasonable by all participants. We look forward to Spotify’s responses to our questions and those posed by other groups and associations.

Mark Kitcatt, Chair of IMPALA’s streaming reform group and CEO of Everlasting Records and Popstock Distribuciones

Spotify is an essential partner to the independent community and a valued participant in IMPALA’s Friends programme. We share the same goal of fostering a fairer streaming ecosystem and agree that the level of content currently flooding Spotify’s open platform is unsustainable. IMPALA has raised concerns about revenue dilution and was among the first to call for an overhaul of how revenue is allocated. We welcome elements of the new proposal, and at the same time seek assurances and adjustments where there is risk of a disproportionate impact on smaller and emerging artists as well as smaller markets and of course catalogue as well as specialist genres, which are very important in the independent sector for both labels and artists.

Helen Smith, IMPALA’s Executive Chair

In smaller markets, where streaming platforms are yet to be fully established, we believe the threshold poses a significant threat to the growth of local talent. We encourage Spotify to apply dynamic thresholds to avoid inadvertently stifling the artistic, cultural and economic contribution of emerging musicians and smaller markets. We are sad to see the news of Spotify’s redundancies this week and hope that this won’t impact Spotify’s efforts to boost their presence in smaller territories.

Dario Draštata, IMPALA’s Chair and head of RUNDA, the pan-national association of independent labels in the Balkans

As market share leader in global streaming, the world’s music business looks to Spotify to lead the way in best practices, and music artist renumeration. Concerns have been raised about the impact of the recently confirmed blanket changes, so IMPALA welcomes the chance to continue to retrospectively refine these adaptations to everyone’s benefit and the continued success of Spotify and health of the independent community’s artists.

Dan Waite, Chair of IMPALA’s digital committee and CEO of Better Noise Music

IMPALA’s board looks forward to further dialogue with Spotify and other digital services, noting that the streaming ecosystem has yet to reach its full potential. Deezer and Spotify are setting things in motion with their proposals. It is imperative for open and constructive discussions to continue to sculpt a streaming landscape that boosts diversity and local markets, to the benefit of services, labels artists and music fans alike. The news on Monday regarding Spotify’s redundancies underlines the need to get the formula right.

*IMPALA’s streaming plan sets out various proposals to reform allocation of streaming revenue including:

a) Differentiation of rates – services may wish to explore any or all of the following:

  • Active Engagement Model – Encourage artists to stimulate active fan engagement by attaching  a premium value to tracks which the listener has sought out or reached by artist, track or album name, or where she has saved, “liked”, or pre-ordered an album or track, for example.
  • Artist Growth Model – Enabling artists to accelerate revenues to a sustainable level, support a broader diversity of emerging, and credible niche talent. The top tier streams would generate a bit less and bottom ones a bit more to help emerging and niche artists.
  • Fan Participation Model – Facilitate spaces within services for rightsholders to develop incremental revenues through direct relationships with fans, e.g. by offering access to extra tracks, better audio, and special features. 
  • Pro Rata Temporis Model – To deal with the value imbalance for long-form music content. An example could be to have a rate for the first 30 seconds to 5 minutes of a song, then further payments triggered at 5 minute intervals – but other options exist.

b) Revise master rights share for labels and artists upwards to cover risk and investment.

c) Thresholds to access monetisation mechanisms should not harm small labels or small markets.

See more on IMPALA’s streaming plan here (with infographic here and full plan here).

IMPALA was established in 2000 and now represents nearly 6000 independent music companies. 99% of Europe’s music companies are small, micro and medium businesses and self-releasing artists. Known as the independents, they are world leaders in terms of innovation and discovering new music and artists – they produce more than 80% of all new releases and account for 80% of the sector’s jobs. IMPALA’s mission is to grow the independent music sector sustainably, return more value to artists, promote diversity and entrepreneurship, improve political access, inspire change, and increase access to finance. IMPALA works on a range of key issues for its members, runs various award schemes and has a programme aimed at businesses who want to develop a strategic relationship with the independent sector – Friends of IMPALA.

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