U.K. Professor of Competition Policy Pens Open Letter to Spotify CEO Over New “Discriminatory” Royalties Program

Spotify recently announced a change to its royalties program that will aim to redistribute a small percentage of the platform’s royalties budget to what some call “real artists” with “real fanbases.” One part of the plan is to only pay royalties on songs that are streamed a minimum of 1,000 times per year. The goal is to free up 0.5% of the royalty pool that was going to either smaller groups or what Spotify claims are “fraudulent” artists.

The new model is “designed to [demonetize] a population of tracks that today, on average, earn less than five cents per month,” according to a report from Music Business Worldwide. But, there is some concern over the discriminatory and anti-competitive nature of the program. Professor of Competition Policy at Norwich Business School at the University of East Anglia, Amelia Fletcher, recently penned an open letter to the CEO of Spotify, Daniel Ek, calling out the modified royalties model for its obliviousness and lack of competitive spirit.

“I write in my dual capacity as a competition policy expert, who has been heavily involved in the development of digital platform regulation in the UK and EU, and also as a long-time creator and champion of independent and DIY music and co-founder of a small indie label,” Fletcher began her letter.

According to Spotify, the platform “exists to connect creators with fans, and empower creators to live off of their art.” But, Fletcher posits that the new model is “intrinsically unfair,” “anticompetitive,” and “seriously risks constituting an abuse of dominance under UK and EU competition law.”

Fletcher continued by stating Spotify already has a monopoly on the music streaming market. According to Fletcher, music streaming makes up 75% of the revenue from recorded music. Spotify has 226 million subscribers and more than 574 million active listeners. In comparison, Apple Music only has 88 million subscribers as of 2023.

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Working to get discovered on Spotify is like running the gauntlet of being a modern musician, and Fletcher claimed Spotify is a “bottleneck” or a “gatekeeper” when it comes to music discovery by streaming listeners. Breaking through the charts on Spotify marks a new artist being well on their way to success.

But, this new model could make it harder for new artists to get discovered and make money off of their music. “[W]hile the proposed demonetisation might seem like a small change to Spotify’s policies, I would argue that it is akin to Amazon simply deciding not to pay the many small traders that account for the last 0.5% of its revenues,” Fletcher continued. “It is not only discriminatory and exploitative of music creators, but also creates an unlevel playing field in the market for music creation.

“[I]f a precedent is established here, there is nothing to stop the 0.5% cut-off point increasing over time,” wrote Fletcher. She then quoted Universal Music Group, who stated that the new model will “reward real artists with real fanbases for the platform engagement they drive.”

This does not sit well with Fletcher, or potentially with emerging artists who haven’t yet found their “real fanbase.” Fletcher then claimed that the model is “clearly discriminatory” against grassroots artists and groups, culturally significant musical artists, and emerging groups, individuals, and labels. She also argued that the model is “exploitative and reflects the huge discrepancy in bargaining power between Spotify and these smaller business users.”

Additionally, Fletcher posits that these changes “will effectively and artificially increase their barriers to entry and expansion, limiting the potential for new and innovative music to emerge outside of the established mainstream.” Some listeners may find no fault with a music industry saturated with Taylor Swift, Beyoncé, or any other mainstream artist. But, for those who seek burgeoning musical talent, new and innovative music is still desperately needed.

Fletcher concluded her letter with a suggestion for Spotify. “If Spotify were serious about wanting to ‘reward real artists with real fanbases for the platform engagement they drive’, it could simply adopt a user-centric payment system,” she wrote. “Under this system, each user’s subscription revenue is split proportionally between the tracks they themselves listen to. This would provide a simple solution to that apparent objective. It would also reduce the potential for streaming fraud. The fact that this option has been repeatedly rejected suggests this is not the true rationale for the proposed change.”

Photo by Noam Galai/Getty Images for Spotify