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First-Ever Public Disclosure: Spotify Unveils Payments and Contributions to Japan’s Music Industry in Annual Report

2024.5.30

#MUSIC

Spotify ‘s Annual Report Releases Japan Data for the First Time

The 2023 edition of Spotify’s annual “Loud & Clear ” report has been released.

“Loud & Clear” is an annual report that has been published since 2021, summarizing payments and contributions to artists, labels, distributors (streaming services), music publishers, and others. For the first time in this release, country-specific data has also been disclosed. Data concerning Germany, Canada, France, Brazil, Italy, and Japan are included in the announcement.

It has been revealed that royalties generated by Japanese artists on Spotify in 2023 exceeded 20 billion yen. This figure represents an increase of over 1800% since the year following Spotify’s launch in Japan in 2017, reflecting the expansion of the streaming market overall. Additionally, it was disclosed that approximately half of these royalties are generated by international listeners, and about 60% come from indie artists and labels. Furthermore, the total amount paid by Spotify to the music industry in 2023 reached 9 billion dollars (equivalent to approximately 1.395 trillion yen at an exchange rate of 1 dollar = 155 yen).

In 2023, Japanese artists were discovered or played by first-time listeners on Spotify more than 2.7 billion times. Lamp, a band that continues to attract global attention with two songs ranking in the top 5 most played Japanese songs from the 2000s on Spotify in 2023, mentioned in an interview with Spotify that the widespread adoption of streaming services has allowed them to “live off music alone” and has made it easier for indie artists to be active. The interviews, conducted with Ayumu Imazu, Furui Riho, imase, Kan Sano, Michael Kaneko, and Lamp, are published on Spotify’s dedicated page “Spotify Japan — For the Record,” with excerpts also available on YouTube.

Understanding the Purpose of the New Royalty System Policy

Meanwhile, Spotify has implemented a new policy regarding its royalty system starting April 2024. Only tracks that meet the requirements, such as more than 1,000 plays in the past 12 months, are now eligible for royalty accrual.

From April 2024 onwards, only tracks that have reached a threshold of 1,000 streams or more within the past 12 months will be included in the calculation of the royalty pool for recorded music.
Furthermore, to qualify, a minimum number of unique listeners is required for each track, preventing users from artificially inflating play counts to gain eligibility. The specifics of the required minimum number are not disclosed to prevent further manipulation by malicious actors.
Spotify aims to ensure transparency in its policies, allowing artists to accurately understand the mechanisms and timing of royalty generation on the platform as much as possible.

Songs eligible for monetization – from Spotify

As background, the explanation includes the fact that many artists are not receiving royalties because they cannot exceed the minimum withdrawal amounts set by their labels/distributors (typically ranging from $2 to $50 per withdrawal) or the withdrawal fees at banks (usually ranging from $1 to $20 per withdrawal). Additionally, it’s noted that many artists are not receiving their royalties because the amounts are too small to remember. Royalties generated by tracks with fewer than 1,000 streams per year average $0.03 per month, but this amounts to a total of $40 million annually. The purpose of the policy change is to redistribute this sum by reallocating it to tracks with over 1,000 streams per year, increasing the amount reaching artists.

It’s stated that tracks meeting the aforementioned criteria on Spotify account for 99.5% of the total streams. Furthermore, since this policy change functions to redistribute royalties to artists who haven’t been paid previously, the total amount paid by Spotify to artists remains unchanged.

The new policy also addresses manipulated streaming and fraudulent revenue systems using noise tracks (including natural sounds, mechanical sounds, sound effects, silence, etc.). For the former, charges are billed to the content provider, while for the latter, criteria such as a track length of over 2 minutes are provided as royalty standards for noise track genres.

Looking Ahead: The Future of Streaming Services in the Music Industry after 15 Years

However, disputes regarding Spotify and copyright regularly arise.

In November 2023, amidst amendments to copyright laws in South America’s Uruguay, Spotify announced it might halt its service in the country in early 2024, citing the possibility of additional payments to rights holders making the business unsustainable. However, in December of the same year, concerns regarding the amendments were clarified, leading to the continuation of Spotify’s service in 2024.

In May 2024, the Mechanical Licensing Collective (MLC), a nonprofit designated by the U.S. Copyright Office, filed a lawsuit against Spotify. The MLC claims that the reclassification of paid plans due to the addition of audiobook listening will decrease royalty rates for music publishers and songwriters, seeking compensation. Concurrently, the National Music Publishers’ Association (NMPA) alleges Spotify’s unauthorized use of works without proper licenses. Concerns and warnings have also been expressed about a “remix” feature reported by The Wall Street Journal, allowing users to speed up, mash up, or edit tracks.

Spotify, which originated in Sweden in 2008 and expanded its service to Japan in 2016, currently operates in over 200 countries and regions. It has been steadily increasing its presence in Japan as a streaming service, launching programs like “RADAR: Early Noise” to announce and support emerging artists.

As a revolutionary global service that has brought significant changes to the structure of the music industry, legal tensions may arise in countries where it operates. While there may be moments of contention with established practices, it is hoped that rather than disrupting the industry, Spotify will play a role in supporting the growth of music industries worldwide by listening to various perspectives, actively disclosing information, and contributing positively.

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