Sir Lucian Grainge’s royalty payout letter was a ‘hallelujah moment’ for streaming’s anti-fraud movement. – Music Business Worldwide

The following MBW op/ed comes from Nick Dunn (pictured inset), founder and CEO of UK-based distributor and marketing services company, Horus Music. Horus, which was established in 2006, has worked with over 30,000 artists and labels to date. It recently inked a partnership with Beatbread to offer its clients access to capital.

When Sir Lucian Grainge’s note to his staff was published in Music Business Worldwide (January 11) last week, it felt like a hallelujah moment.

For some time now problems within the music streaming royalty model have plagued our industry. But in the face of these problems, companies and organizations have either buried their heads in the sand or, like us, have had to work in isolation to try to deal with a global problem.

It’s a welcome relief that one of the industry’s most senior and respected individuals has now highlighted the issues of streaming malpractice and seems determined and focused to do something about it.

We and others like us no longer feel alone in this fight.

At Horus Music we work with a range of independent artists and labels, as well as fellow distribution companies via our white label service ‘My Client Zone’. We pride ourselves on having multiple business models that allow us to have something for everyone.

A small percentage of our clients sign up to us without the desire to build any type of close business relationship. Typically indie artists, they pay us a simple subscription fee, and then gain 100% of their generated royalty income from streaming platforms.

This ‘DIY upload’ model is now common in the industry and very popular. But it also provides our company with many of our daily challenges, because we pride ourselves on rigorously checking client uploads for red flags. Why? Because when this material goes unchecked by aggregators, it opens the door for rampant commercial abuse.

“Unlike legitimately successful indie artists, these creators are not interested in engaging and building a fanbase – but they do have the ability, at an industrial level, to use multiple IP addresses and user accounts to manipulate streaming’s ‘pro rata’ pay-out system to their advantage.”

First I need to say that there are many great independent artists around the globe producing amazing music. And the ‘DIY’ distribution subscription model really benefits them; hardworking artists can earn thousands of dollars going the ‘DIY’ route, without the traditional support of any record label.

Sadly, there is also a small minority of users of the model who produce poorly-made music, that is often short in duration (the dreaded 31-second tracks), takes little skill to create, and uses a repetitive motif. Unlike legitimately successful indie artists, these creators are not interested in engaging and building a fanbase – but they do have the ability, at an industrial level, to use multiple IP addresses and user accounts to manipulate streaming’s ‘pro rata’ pay-out system to their advantage. They often gain substantial incomes.

In the early days of Horus – before we’d worked out how schemes like this were done – we saw, from our own company’s analytics, these types of scam artists were easily earning USD $10,000 and substantially more each month from streaming platforms.

“Once Horus began catching this content and then uncovering – and foiling – individuals who’d been providing fake documentation, our team began receiving death threats. We quickly realized this meant one thing: The people behind many of these releases were gangs.”

We soon stopped accepting any content that we believed was solely being produced for artificial streaming purposes. But the problem didn’t stop there. There were other types of ‘scam’ artists: For example, those deliberately using unlicensed samples that are hard to detect. Once again, the tell-tale signs are the same: They make little effort to engage with a real fan base and then manipulate streaming platforms for their gain.

As we became more sophisticated in rooting out ‘artists’ with immoral schemes to suck money from streaming services, things got sinister: We discovered that when we did our own identification checks on the individuals providing this type of content, the documentation provided was fake.

Technology for the robust automated checking of identification still isn’t commonplace around the world, but it exists. (Ask anyone who’s used a legit crypto site, for example – they often have to upload photos, passport details etc. in order to be verified and permitted on a platform.)

“this meant the music industry en masse was helping unethical individuals, and criminal gangs, to gain a new type of illegitimate income. Or to launder their money. Or both.”

Things got worse. Once Horus began catching this content and then uncovering – and foiling – individuals who’d been providing fake documentation, our team began receiving death threats. We quickly realized this meant one thing: The people behind many of these releases were gangs.

And under the ‘pro rata’ streaming royalty system, that also meant the music industry – en masse – was helping unethical individuals, and criminal gangs, to gain a new type of illegitimate income. Or to launder their money. Or both.

Over the last couple of years, Horus has been at pains to engage with the wider music industry to help stop this abuse. We know that we are not the only ‘DIY’ distribution company in the world to be targeted – and that our competitors have also been victims.

Disappointingly, we also have evidence that, once identified and rejected by a company like ours, these music-streaming scammers are bouncing from distributor to distributor, enabling them to continue their lucrative schemes. With no global coordination in the music business to fight these practices, these people can continue to siphon vast sums of money from streaming services without being stopped.

“With no global coordination in the music business to fight these practices, these people can continue to siphon vast sums of money from streaming services without being stopped.”

I have called my own trade association multiple times on this topic. They have alternately told me at various points that they don’t understand the issue, or say they have no other members that have raised similar concerns.

My argument has always been that we need a roundtable discussion with all distribution companies – large and small, major and indie – and we all need to be honest about our experiences, in order to stop this. Sadly, that is yet to happen.

One potential solution: we could, as a global industry, develop a worldwide database of individuals found to be abusing the streaming system and then stop them from moving from one distribution company to another. I appreciate there are legal (privacy) challenges in creating such a database. But we need to find solutions, whatever they may be, and have a can-do attitude to tackle this blight upon our business.

The streaming platforms themselves are also obviously part of the problem.

From our experience these services are, in general, less than willing to have a meaningful discussion about streaming scams, and don’t share enough information. Each platform also seems to have a very different criteria about what it considers fraudulent. We understand that certain criteria must be kept secret to stop people trying to “beat the system”, but it’s another frustrating barrier to the ultimate goal: Stopping stream fraud.

“Unlike other platforms who give us NO information, Spotify to its credit has provided a simple tool that at least helps us to police this issue.”

That being said, Spotify does provide us with a wonderful report that lists all content they deem to be abusing their system. We use that to automatically remove content from all of the other platforms. This isn’t perfect: Sometimes genuine content gets flagged – content that has built popularity not via shady automated services and fake platform users, but by real marketing.

It’s a hard balance to get right. But unlike other platforms who give us NO information, Spotify to its credit has provided a simple tool that at least helps us to police this issue – and make a small dent in a much larger problem.

I once had lunch with some senior individuals from one of the major record companies and outlined these problems to them. I told them they had more power than us to stop the scamming/stream fraud issue – especially when it comes to demanding anti-fraud tools / a review of elements of the ‘pro rata’ payout model as part of their licensing agreements with large streaming platforms. They told me, understandably, that they didn’t see it as their problem – because their artists didn’t engage in fraudulent streams.

However, they didn’t see the bigger picture. The global royalty payout pot for all legitimate rightsholders in music – be it artists, labels, distributors, songwriters, producers, publishers etc. – is being reduced by artificial streaming.

“When Sir Lucian wrote what he did in his note this month – not just from his perspective, but industry-wide too – it was, for us, long-awaited and welcome news.”

Stopping the individuals and gangs that are successful in abusing the current streaming business model is essential to ensure that today’s real artists get the money they deserve for their music. It’s that simple.

When Sir Lucian wrote what he did in his note this month – not just from his perspective, but industry-wide too – it was, for us, long-awaited and welcome news.

Maybe now, finally, we can work towards an industry consensus on this urgent threat. Maybe now real change is coming to help all genuine, hardworking artists.Music Business Worldwide