The Spotify “fake artist” scandal that broke last week has been a real head scratcher. Did they really save that much money? I mean they paid billions out to rights holders, but NYTimes puts the “savings” on fake songs at $3 million dollars? Was it worth it? Especially considering the public relations damage it does to the brand.
Certainly the most likely explanation is that this is just a bonehead move, a crony favor for a fellow Swedish music tech company that appears to represent most of these songs.
But we should consider two alternate theories:
The lower songwriter royalties paid on these tracks may end up as evidence of “free market” rates before the Copyright Royalty Board that sets rates for songwriters. Yes,songwriter royalty rates in US are not just set, they are capped by the US government! The CRB is bound to consider free market rates. If they consider these rigged rates as free market ALL songwriters would get lower royalties. While this may seem like a “bankshot” this exact scenario has played out twice before. The most recent was when the indie label licensing group Merlin, cut a deal with non-interactive streamers. This deal guaranteed a lower rate for more spins for Merlin licensed tracks. A kind of reverse payola. This effectively lowered the per spin rate, non-interactive broadcasters then took this deal to the CRB as evidence and the CRB used it to lower rates. This likely cost rights holders: $1 billion dollars in lost royalties.
This could be used in exactly the same way.
The second theory is a little harder to explain, but basically songwriter spin rates, vary from month to month. They are capped by the federal government at 10.5% of streaming service revenue. And the formula per spin is simply 10.5% of rev divided by the total number of spins, pro-rated based on popularity of a song. So if you somehow increase the number of spins using “fake” tracks wouldn’t you reduce royalties across the board by a small but significant amount?