How the Music Business Can Crack Down on Spotify Streaming Fraud – Rolling Stone
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How the Music Business Can Actually Crack Down on Streaming Fraud

The music business is fighting streaming fraud with a pointless new “Code.” It won’t work — but these ideas will

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A pointless new "Code" pledging to fight music streaming fraud likely won't have any effect. Here's how to actually address the issue.

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“Consensus is the process of abandoning all beliefs, principles, values, and policies in search of something in which no-one believes, but to which no-one objects; the process of avoiding the very issues that have to be solved, merely because you cannot get agreement on the way ahead.”

This quote didn’t come from a particular friend of music. It’s from Margaret Thatcher — the free-market–loving British prime minister (1979-1990) who happened to authorize some of the severest cuts in arts funding the U.K. has ever seen. Still, the point stands. And if you needed further evidence to back it up, the modern music industry has just provided it in abundance.

On June 20th, a powerful group of industry organizations — including the three major labels plus publishing groups owned by Universal, Sony and Warner — inked a “Code of Best Practice” designed to tackle the blight of “fake streams” in the modern music business.

Fake streams, in a nutshell, cover any instance — whether for monetary or industry/charting benefit — whereby one party pays another party to rack up illegitimate plays of an artist’s music. This is often achieved via “stream farms,” where banks of devices all running services like Spotify continually play the music of the paying party in order to boost their play counts (and, as a consequence, boost their chart position, market share, royalty payouts, or simply their perceived industry “hotness”).

Problem being, if you actually dig into the industry’s new, 21-point Code — also undersigned by the likes of Spotify and Amazon Music — it doesn’t really pledge to do very much at all. I’ll save you the pain of its toothless proposals here, but they essentially amount to this: “None of us are happy about streaming fraud, but considering that it could benefit any given one of us at any time, let’s not hold each other’s feet to the fire too harshly. Instead, here’s a general list of reasons why we all agree, in principal, that stream fraud is a bad thing and what, in an ideal world, we might vaguely do about it.”

The Code includes some imprecise promises by the streaming services to monitor and crack down on illegal streaming activity (which they already do), plus some even more imprecise pledges by the labels to share information whenever they spot suspicious goings-on (which they already do).

You can read more on the Code’s tragically limp set of proposals here, but its powerlessness is ultimately summed up by a single sentence: “This Code is not legally binding and does not create any contractual or pre-contractual obligations under any law or legal system.”

Rather than gripe and moan — which I could do all day, considering that stream fraud is literally ripping off artists who deserve to earn more from these platforms — it’s perhaps more useful to look at what was actually missing from the code; the proposals it could have contained that would have made a real, material difference to the problem. And, make no mistake, this is a very serious problem: Stream fraud could be taking $300 million a year out of the pockets of deserving artists and labels, according to recent music-biz insider estimates.

Here are some ideas…

1. Specific industry-wide investment in stream-farm crackdowns
A simple, practical policy, for starters. The three major record companies jointly generated more than $13 billion in revenues last year. They could commit to a specific and collaborative level of financing to fund both the investigation of stream farms, and subsequent litigation against their operators.

This idea is briefly nodded towards in the Code, where it mentions that rights-holders will “undertake as part of their industry-level anti-piracy and content protection operations reasonable investigations to identify stream manipulation.” Yet this doesn’t go anywhere near far enough. A shared financial undertaking is conspicuous by its absence.

This wouldn’t be an oddity for the music business. In 2018, for example, U.K.-based performance licensing group PPL donated £1.58 million of its members’ money to the BPI (British Phonographic Industry) for its anti-piracy activities – worth 0.6 percent of the body’s total collections on behalf of labels and artists. Other global music markets follow a similar model. Yet if the worldwide business is serious about recapturing and/or quashing that $300 million lost to streaming fraud, a bigger fiscal commitment, worldwide, should be earmarked. (A similar financial commitment would also ideally be required from the likes of Spotify to hire and further empower internal anti-fraud teams.)

Last month, the German youth TV platform Y-Kollektiv interviewed a self-confessed streaming fraudster who claimed his services were being used by some of the biggest artists in the market. The man, clad in a balaclava and gloves (plus some fetching Ray Bans) to hide his identity claimed to be generating over €100,000 a month, thanks to his ability to either operate or, more worryingly, gain access to between 150,000 to 250,000 streaming accounts.

So, you know, let’s start there.

 

2. Instant chart penalties for any artist engaging in stream fraud
The music industry treats its artists with kid gloves, and it’s right to do so — they’re by far its most valuable asset.

Example: This week, Universal Music Group CEO, Sir Lucian Grainge, vowed to deliver “answers” to his company’s artists regarding a 2008 fire which saw a bunch of original master tapes go up in flames — despite him (A) not even being CEO when the fire happened; (B) no one really noticing any of the masters were missing until the New York Times wrote about it this month; and (C) the fire not having any apparent impact whatsoever on Universal’s own valuation, and therefore its shareholders.

My guess? Grainge wrote this memo because he knows that, for a global modern record company, an upset Elton John or an upset Eminem is likely a much bigger problem than a pile of culturally historic tapes caught aflame.

This level of artist power must be why the record companies have flat-out refused to put their acts in the crosshairs of their anti-fraud Code of Conduct. But here’s the thing: According to our German friend the fraudster (see video above), his biggest clients are artist managers — the closest and most trusted members of an artist’s team.

The record companies could ensure that, should any artist get busted using dodgy stream farms to goose numbers — whether the fault lies with their manager, their label or the artist themselves — the act in question suffers a penalty in the charts. For example, you could rule that any artist caught engaging in stream fraud would automatically see the week-one “sales equivalent” chart tally for their next three releases cut in half around the world. Boom.

This is entirely within the labels’ power, plus it would neuter much of the non-financial reason for both signed and unsigned artists turning to fake streams to boost their profile. There’s also precedent: If a professional baseball, basketball, or soccer team breaks corporate rules for their betterment in a league table — perhaps by ignoring spending limits during a transfer window, or bringing the game into disrepute with financial irregularity — what would you expect to happen to them? They’d be docked points, relegated, or frozen out of lucrative play-offs/finals/cup competitions.

The same should apply in music. Without public repercussions, why wouldn’t artists scrabble in any way they can — legit or otherwise — to climb the ladder towards the superstar one-percent?

3. Instant employment penalties for any label staff members engaging in stream fraud
The major labels made a wishy-washy commitment in the Code to “undertake reasonably appropriate and proportionate actions where there is reasonable evidence of stream manipulation,” but, again, this simply isn’t any kind of real-world solution. The Code should instead have required all three major labels to openly and publicly commit to specific repercussions for any staff members caught using stream farms. This, combined with a solid commitment to share details of internal stream fraud, would make all label employees think twice about considering dastardly actions in the pursuit of a higher chart position.

Interestingly, behind closed doors, this is already happening to a degree. I just got hold of a recent internal memo from Sony Music, which outlines the following new company policy (underscores my own).

“Sony Music Entertainment prohibits stream manipulation by its employees or any third parties acting on the company’s behalf. This includes the use of third-party individuals and companies that engage in stream manipulation practices, including offering such services for a fee. Sony Music Entertainment employees should not engage in stream manipulation and should not facilitate, enable or encourage, directly or indirectly, stream manipulation by third parties, including recording artists and/or their representatives. This prohibition also applies to manipulation of other metrics on streaming services (e.g., follower/subscriber counts and reposting of musical recordings) that register false support for recordings or artists.”

Although this policy is bereft of specific employment consequences, it at least shows a major record company demonstrating a willingness to clear their own house before pointing fingers elsewhere.

4. Public display of the provenance of recordings
There is extra tension over how to tackle “stream fraud” because of a deep suspicion amongst the largest record companies that Spotify — in particular — is using tactics to water down the amount of money labels receive from the service.

Although unproven, the record companies have, behind the scenes, repeatedly suggested that Spotify relies on material from so-called “fake artists” to drive down its costs. It does so, suggest the labels, by filling popular mood and activity playlists with music by anonymized artists which costs less, in royalty percentage terms, than the labels’ catalogs. With billions of “fake artist” plays clocked up via these playlists, goes the logic, Spotify reduces the overall market share of established record companies (and non-fake artists), thus saving itself money. And predictable industry bitterness ensues.

The music industry could rid itself of a lot of this bad feeling and mistrust by demanding that streaming services agree to display, in full, the company name and location of the rights-owner of a piece of music. For the major labels’ material, this is pretty much already in place. Click on a Kanye West album on Spotify, scroll down, and you’ll see: “(P) Getting Out Our Dreams II LLC, Distributed by Def Jam, a division of UMG (Universal Music Group).”

However, with the so-called “fake” artists, there is none of this information — just a repetition of the artist’s name in each case, or alternatively a “record label” name which does not exist in any form elsewhere when you search for it in Google. If Spotify et al. are committed to naming the dominant rights-holding company in each case (i.e., the firm to which it pays out recorded music royalties), it would increase industry transparency, improve relations with the labels, and create a more united front against streaming fraud.

5. A move to use-centric rather than service-centric licensing
I won’t bore you with this too much, because I’ve already written about it at length for Rolling Stone here. But, in short: Stream fraudsters looking to make profit, rather than simply  inflating an artist’s profile, can do so by using individual Premium streaming accounts.

This is because, technically speaking, after you pay $9.99 for your monthly Spotify subscription, if you stream your own/owned music enough times — and if you’re smart enough not to be detected — you can make more than $9.99 back in royalties. In turn, this is because all audio music streaming services still operate a “service-centric” licensing model, whereby royalties are paid according to an artist’s share of global platform-wide streams each month: Get X percent of total plays across the service, and you’ll get X percent amount of total royalties.

A “user-centric” system means that artists/rights-holders are only paid a percentage of what each individual subscriber plays each month; i.e. if they play nothing but their own music after paying their $9.99, they could only ever receive back their $9.99 (minus Spotify’s operating and profit costs).

Some say this system will be more expensive to implement, resulting in smaller royalties across the platforms. Yet to quote the CEO of BMG, Hartwig Masuch, who is in favor of the change: “For me, it is simply a question of fairness. Some services may like to say it won’t make too much difference, but that does not matter as much as being able to tell artists, ‘This system is fair, and this is how it works.’”

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis and jobs since 2015. He writes a weekly column for Rolling Stone.

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