A Danish man collected $290,000 in royalties using bots to stream his own music! Artists took the case to the court and the man was sent to prison. Even though this case got caught, it was just one of the $2 Billion worth of fraud streams occurring each year. That's 10% of the entire $20 Billion annual royalty income in the music streaming market!

The interesting part is how this fraud occurs as a result of the design of the payout model. Streaming services like Spotify use a pro-rata royalty model. All the revenue generated from subscriptions and ads is pooled together and then divided among all the streams during a given period. This is where the problem lies!

If a platform earns $100 with 10,000 total streams in a month, each stream is worth 1 cent. An artist with 1,000 legitimate streams should earn $10. But if a fraudster adds 9,000 fake streams, the payout per stream drops to 0.5 cents. The honest artist now earns only $5 while the fraudster pockets $45!

As product builders, we must keep such cases in mind while designing our pricing models to prevent exploitation and ensure fairness. Today, the streaming services are solving this problem by monitoring suspicious activity, implementing AI to detect spikes. But still, imagine if 10% of your paycheck was being stolen every month!

Curious to know if you have interesting ideas to solve this problem!