Spotify Technology SA (NYSE: 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.
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."