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Fraudulent Streaming is on the Rise – But Solutions Exist (Music Biz 2022)

At a Music Biz panel on Tuesday (May 10), streaming professionals offered ideas for how to solve the bot issue plaguing the industry - including by eliminating pro-rata streams.

You can find all of Billboard‘s Music Biz 2022 coverage here

In the world of music industry conferences, panel discussions have historically been a useful, practical forum to both sound alarm bells about problems – everything from peer-to-peer piracy to strained vinyl manufacturing capacity – and propose solutions. At a panel hosted by the 2022 edition of Music Biz in Nashville on Tuesday, a new issue rose to prominence: Fraudulent streaming, or the practice of using bots or other illegal means to create often-massive numbers of streams.

When Pandora first experienced an initial surge of fraudulent streaming activity, it received 10 million logins a day from bot accounts that amounted to half a billion requests and “a large, large fraction of spins…nearly equaling” the number of actual requests received from humans, said panelist George White, svp of music licensing at SiriusXM.

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Although fraudulent streams are nothing new, the frequency of questionable activity picked up in recent years. “We’ve found it increased over COVID,” said Matthew Eccles, senior vp & general counsel at Napster, who also appeared on the panel. That’s problematic for all stakeholders: Artists, labels and publishers want to be properly compensated for the number of times their music was legitimately streamed. Brands shouldn’t have to pay for advertising played on illegitimate listens. Distributors don’t want their clients to game the system. And streaming services targeted by fraudsters have an obligation to run clean operations that remunerate everyone correctly.

There are huge financial implications here. As Billboard reported on May 3, 2.5% of ad-supported streams and 1.2% of subscription streams from the Merlin Network, which handles digital licensing for numerous indie labels and distributors, didn’t qualify as “fans listening to music they love” in February. Misallocating even a mid-single-digit share of streaming royalties would re-route hundreds of millions of dollars in a global market worth $12.3 billion in 2021, according to the IFPI.

The problem appears to be emanating from everywhere, according to the panelists. Fraudsters’ ability to use VPN networks to mask their location means the streams appear to come from around the world, not just countries like the U.S. with relatively high royalty rates. White noted that the war in Ukraine didn’t result in a drop in fraudulent activity, indicating any disruption to Russian fraudsters was quickly absorbed by competing fraudsters in other countries.

“What that suggests to me is the fact that maybe at the time, Russia was one of the more economical choices, but others have popped up to fill the void,” said panelist Morgan Hayduk, co-CEO of Beatdapp, a Canadian company that makes audit and fraud detection software for labels and streaming companies. “There are lots of places around the world you can buy illicit activity. And there are lots of ways that you can deploy it to look like it’s coming from other markets. And that’s reflected in the data we see.”

“This is a near-infinite resource,” added White. “If you want to spend money on it, the resource is there.”

Of course, there’s a financial benefit to receiving credit for an inordinate amount of streaming activity, but there are numerous reasons why a person would buy illegal streams. People might feel pressured to buy fraudulent streams “just to be in the arms race,” said panelist Michael Pelczynski, vp of strategy at SoundCloud. Just as an athlete might take performance-enhancing drugs only to keep up with their peers, artists might feel that competing honestly puts them at a disadvantage.

There are non-financial motivations to buying streams in large quantities, too. Fraud can happen “anywhere there’s a chart to manipulate,” said White, which would give an artist visibility or bragging rights that can offer career momentum. Or an artist simply wants enough of an uplift to gain somebody’s attention or trip an algorithm and end up on a streaming service’s playlist.

One thing that could alleviate the problem is changing how royalties are paid. Subscription services pay rights holders on a pro-rata basis: All subscription fees are pooled and divvied up according to tracks’ share of total streams. That means a portion of any given subscriber’s fees will end up in the pockets of artists they don’t listen to. “It’s one of the pitfalls of the pro-rata model,” said Pelczynski. Since March 2021, SoundCloud has employed a user-centric model for independent artists that pays royalties from an individual subscriber’s fees. For major and independent labels, however, the pro-rata method remains the standard at SoundCloud and other platforms.

In the meantime, companies will have to find deterrents and punishments to alleviate the problem. Infringing artists will be removed from services and distributors’ catalogs. However, aggressive fraudsters would try to work around those roadblocks by resubmitting their content to other distributors. Non-music tracks – streamed purely for royalties, not for chart position or career advancement – are especially problematic because their generic song titles are easily changed in attempting to avoid capture.

Ultimately, the music industry needs the kind of cooperation that brought the panelists together in the first place. White said industry working groups should help share knowledge and best practices, while Hayduk suggested distributors and labels share data sets to maximize the effectiveness of the machine learning used in fraud detection since streaming fraud is essentially data manipulation. In that spirit, said Hayduk, “If you think you’re sitting on something valuable, raise your hand.”