A change in Spotify’s royalty payments could be a problem for hip-hop

A new Spotify feature that allows labels and artists to take a lower per-stream payment in exchange for an algorithmic boost through its “autoplay” and “discover” features could have a disproportionate impact on hip-hop artists.

Many of these artists’ careers are born from social media and viral singles, with record labels signing them to contracts with sizable and recoupable advances. Streaming revenue, especially during a pandemic that has eliminated the live music business, is an increasingly vital part of an artist’s income, and those payments potentially could be reduced under the new formula for royalty payments.

“I feel that there is a danger that smaller artists may lose again as those are the ones who need the royalty money the most and possibly cannot afford to opt for a [formula] which pays them a lesser rate,” said Navjosh Singh, founder and editor of HipHop-N-More. “Especially when there is already an argument that the current payout rates are not favorable.”

Spotify is the world’s largest music streaming service with over 144 million paying subscribers. During the COVID-19 pandemic, as touring and live music revenue shrunk to almost zero, some artists are demanding a bigger share of Spotify’s reported $7.4 billion in revenue.

And it is artists in the beginning stages of their careers who, while needing the algorithmic boost to put their music in front of more listeners, can’t easily give up a portion of what already is a paltry royalty rate.

“Now they’re letting the public know that they can manipulate the algorithm whenever they want?” said Michael “Mic Anthony” Thomas, a member of unsigned Delaware rap trio Cypher Clique, whose most recent project, Things Went Left, debuted at No. 16 on the iTunes hip-hop charts in August. “[This is] watering down music as a whole but specifically Black music. Sadly our culture loves attention, so the product in our face may end up being who paid for the attention.”

“I think hip-hop will be the most affected genre by this situation since it’s the biggest genre in the world,” said Thomas. “The labels know what type of artists they can take advantage of.”

On average, Spotify pays $3.18 per 1,000 streams. In its July quarterly letter to shareholders, Spotify revealed that 90% of all streams are attributed to 43,000 of the 20 million artists on the platform.

But encouraging artists and labels to take lower payouts in exchange for more prominence on the platform resembles payola, an illegal but still common practice to increase the presence of certain music on radio stations despite intense scrutiny back in the early 2000s.

“Spotify’s new ‘two-sided marketplace’ is payola,” said Brian Zisook, co-founder and vice president of content operations and artist services for Audiomack, a rival music streaming service founded in 2012. “Spotify will save money, and their major label partners will abuse this tool.”

Spotify did not respond to emails requesting comment for this article.

And it isn’t just the changes to algorithms that present challenges for hip-hop artists. Rap music, and the labels behind the genre, rely heavily on playlists to drive streams and build artist careers. Playlists such as Spotify’s RapCaviar, with its 13 million followers, can quickly boost a song’s profile. A Billboard interview with RapCaviar’s head of curation, Carl Chery, said that the playlist had driven some 7 billion streams over its five-year history.

The dirty little secret of playlists, particularly user-generated ones, is that acts are paying to be included.

“Typically, it’s digital marketing departments [at record labels] who have budgets and handle pay-for-placement drivers such as playlist placements,” said Michelle McDevitt, owner of Audible Treats, one of the leading hip-hop publicity agencies.

The chances of upcoming or unknown artists getting on the huge company-owned playlists such as RapCaviar are slim. The new formula, in which acts take less money to influence the algorithm, may, in theory, level the playing field, albeit at a cost to the artist.

“There are too many releases every week, and the editors at Spotify are getting bombarded with pitches for potential placements on some of their influential playlists like RapCaviar, New Music Friday,” said Singh. “This is probably their way of saying, ‘Hey, we don’t think this is a good fit for this playlist at the moment, but you can push the song more by enlisting in our new program in return for a lower royalty rate.’ ”

It’s no mistake that RapCaviar is dominated, mostly, by artists you already know well. Of the top 50 songs listed on RapCaviar on Nov. 23, only one artist, BRS Kash, has less than 2 million monthly listeners on the platform. Record labels pour significant marketing dollars into partnering with Spotify through programs like Marquee to push priority artists and releases on the platform, ensuring that their priorities are top of mind when key playlists are curated.

If the music industry moves more overtly toward a pay-to-play structure, it will be more difficult for many new artists to make money. Back in 2018, indie darlings Brockhampton signed a $15 million deal with Sony. The same year, Lil Pump signed a reported $8 million deal with Warner Bros. The information typically left out of these stories is that the bulk of that money, especially for rap artists, usually comes in the form of an advance, essentially a loan from the record label that the company recoups from streaming revenue. This payment method became more prominent for hip-hop artists as the genre’s dominance in streaming grew on its way to becoming the most popular streaming genre.

“It will now take artists who are signed to record deals that paid out an advance even longer to recoup on that advance,” said Zisook.

But some in the industry see these changes as a positive development that allows for the building of a new artist’s career in a more affordable way.

“I believe it will allow more new artists to flourish and be discovered on the platform,” said Manny Strawter, a music manager who has worked with Travis Scott, XXXTentacion and others. “As a manager of new and established talent, it is difficult for new artists to get noticed when 40,000 new songs are being uploaded to DSPs [digital service providers] daily.”

The digitization of music and the lower barrier to entry for artists have made the actual investment in a new artist a venture that makes more financial sense, he said.

“DSPs allow you to have a noninvasive approach to listeners and acquire fans in a practical, low-cost, large-scale way,” Strawter said. “We used to have to press up CDs and promotional [materials] that were a sunken cost, and the results were incalculable.”