The $10 Million+ Streaming Fraud Plot Thickens — Spotify Says It Paid Out Less Than 1% of the Royalties

Spotify says it paid out less than 1% of the $10 million or more in royalties associated with an alleged streaming fraud scheme — raising questions about which platform(s) failed to flag the billions of plays at hand. Photo Credit: Alexander Shatov

The plot is thickening in the alleged $10 million+ royalties fraud scheme that came to light earlier this month – Spotify, today’s most popular music streaming platform, claims it paid out less than 1% of the total. The streaming giant, which reported 626 million monthly active users for Q2 2024, disclosed that decidedly significant information to DMN. As our readers already know, a North Carolina-based musician named Michael Smith was indicted closer to September’s start on charges stemming from an alleged AI- and bot-powered fake stream operation that generated millions in royalties.

Though Smith is the sole defendant at present, he didn’t act alone. With the indictment having mentioned (albeit not by name) two co-conspirators, the individuals were quickly found to be Boomy CEO Alex Mitchell and Indiehitmaker founder Bram Bessoff. (Both share writing credits with Smith on thousands of works.)

ADA-partnered Boomy’s involvement with the alleged crime – or at least the involvement of its CEO – is important on multiple levels. Currently, it’s unclear precisely where the generative AI music platform stands with Warner Music/ADA and how the episode will unfold from here.

Also unclear is exactly how Smith, who’s listed as the writer of over 200,000 works in the MLC database, managed to execute the alleged scheme across the better part of a decade (per the indictment) before being discovered.

Running with that point, questions remain not only on the distribution side, but in terms of the timing of the alleged scheme’s identification and streaming services’ role in evidently failing to flag the involved works. Beginning on the scheme-identification front, the indictment says the following of how the mechanical payments were purportedly “halted” by the MLC: “In or about March and April 2023, the MLC halted royalty payments to MICHAEL SMITH, the defendant, and confronted SMITH about his fraud. In response, SMITH and representatives acting on his behalf repeatedly lied to the MLC in an attempt to obtain the royalty payments.”

Previously, when DMN reached out to the MLC for further comment, the organization opted against elaborating and instead directed us to an already-issued statement from CEO Kris Ahrend.

Just to reiterate, that statement reads: “The DOJ indictment shines a light on the serious problem of streaming fraud for the music industry. As the DOJ recognized, The MLC identified and challenged the alleged misconduct, and withheld payment of the associated mechanical royalties, which further validates the importance of The MLC’s ongoing efforts to combat fraud and protect songwriters.”

Now, though, new comments from Spotify are spurring scrutiny of the established timetable – and about a possible breakdown in communications between today’s largest music streaming service and the government-appointed entity to which it forwards mechanicals.At the top level, the situation certainly wasn’t helped by the frayed professional relationship between Spotify and the MLC, which are still embroiled in a high-stakes legal battle over alleged unpaid royalties. According to Spotify, it was extremely successful in identifying and putting a stop to Smith’s alleged scheme on its own platform.

“Spotify invests heavily in automated and manual reviews to prevent, detect, and mitigate the impact of artificial streaming on our platform,” a Spotify spokesperson told DMN. “In this case, it appears that our preventative measures worked and limited the royalties Smith was able to game from Spotify to approximately $60,000 of the $10,000,000 noted in the indictment.

“As Spotify typically accounts for around 50% of streamshare, this shows how effective we are at limiting the impact of artificial streaming on our platform,” the spokesperson concluded.

What the response doesn’t specify is when exactly Spotify learned of the alleged fake streams at hand. But judging by the relatively small royalties the platform says it paid Smith, the finding looks to have come early on.Far from giving us answers, that point actually raises even more questions – including about how the alleged scheme was allowed to proceed, seemingly raking in millions upon millions of dollars in royalties, after today’s on-demand streaming leader was so prompt in identifying the fraud.

More pressingly, assuming Spotify’s representation is true, that means the $10 million or so in royalties – per the indictment, the defendant in a February of 2024 email boasted about scoring even more than that, at $12 million, from four billion plays – had to derive from streams on competing platforms.

Returning once more to the indictment, the legal text notes at its start: “From approximately 2017, up to and including 2024, MICHAEL SMITH, the defendant, orchestrated a scheme to steal millions of dollars of musical royalties by fraudulently inflating music streams on digital streaming platforms (the ‘Streaming Platforms’), such as Amazon Music, Apple Music, Spotify, and YouTube Music.”

“Such as” doesn’t mean “limited to,” but we’re in the process of contacting Apple Music, Amazon Music, and YouTube Music to get a better idea of how the alleged multimillion-dollar – and multibillion-stream – scheme might have failed to catch the attention of today’s leading non-Spotify streaming players.