Spotify (SPOT) is rejecting a report that claims that artists can get rich from royalties by posting a 30-second song and replaying the song for 24 hours. Spotify CEO Daniel Ek denied the report, writing on X "that's not quite how our royalty system works." Yahoo Finance Senior Reporter Alexandra Canal discusses Spotify's royalty structure and the challenges AI poses for the entertainment industry.

Video Transcript

RACHELLE AKUFFO: All right, shifting gears to Spotify. It's responding to a report that claims artists could make thousands in royalties simply by posting a 30-second song and replaying it for 24 hours. Now, the CEO of Spotify, Daniel Ek, said that isn't possible, adding, quote, "that's not how our royalty system works."

Now, according to the JP Morgan analysis, a 30 second song on loop could yield $1,200 a month in royalties. Here to tell us more is Yahoo Finance's senior reporter Alexandra Canal. And, Allie, I've been seeing this making the rounds on social media this morning.

ALEXANDRA CANAL: Yes, Rachelle. And this was a back and forth exchange on X, the platform formerly known as Twitter. And it comes at a time where royalty payments have become top in mind for artists. And we've seen companies like Universal Music group, for example, change their Royalty structure to really reward artists that are having a boost in songs from users specifically. As you mentioned, CEO Daniel Ek denying that JPM analysis, saying that's simply not how the royalty payout structure works at Spotify, and there's a few reasons why.

Number one is that Spotify does not pay out streaming earnings to rights holders in real time. In addition to that, Spotify has said that its systems regularly detect and remove artificial streams before payouts reach significant levels. That being said, though, another user called out the 30-second cut off for receiving payouts and said that that's had a significant impact on the music industry since songs are now becoming shorter and shorter. Ek did admit that is a new phenomenon that we're seeing. But, still, the most popular songs are around four minutes in length.

Now, when we talk about artificial streams, that goes hand in hand with AI-generated music, which is another issue that Spotify has been dealing with recently. JP Morgan estimated that up to 10% of all streams are artificial, which has increased users efforts to essentially take advantage of the royalty system that's currently in place. Ek has said that AI leads to legitimate concerns, and there is a tricky balancing act when it comes to protecting artists as much as possible, but also making sure that you're not stifling innovation, because sometimes I can actually innovate certain songs. So that is the balance that we're seeing across the entertainment industry, not just with Spotify, but with writers and actors. That's really the crux of the issue that this double strike in Hollywood is hinging on. So we're seeing AI play out in many different ways in entertainment and media.

RACHELLE AKUFFO: And certainly seeing some of these companies trying to play catch up. I'm sure they didn't know that people would be just flooding a lot of these platforms with some of this music. So who knows?

We'll keep an eye on that. Appreciate you giving us that update. Alexandra Canal there for us.