The Labels Wrote AI Chart Rules. The Charts Don’t Pay Anyone.

Michael Smith is 54 and lives in Cornelius, North Carolina. In March 2026 he pleaded guilty to conspiracy to commit wire fraud in what prosecutors called the first criminal case built on artificially inflated music streaming. He ran thousands of bot accounts to generate fake plays, then turned to AI to build a catalog big enough to spread the activity across it. Prosecutors said the scheme produced billions of artificial streams and more than $8 million in royalties, and Smith agreed to forfeit $8,091,843.64. The indictment reproduces a calculation he made in 2017, before the AI, showing 1,040 accounts each capable of roughly 636 streams a day.

“Although the songs and listeners were fake, the millions of dollars Smith stole was real,” U.S. Attorney Jay Clayton said when the plea came in.

Four months later, the biggest record companies in the world announced a plan for AI-generated music on the charts. Sony, Universal, Warner, HYBE, BMG, Believe, Concord and a group of independent labels proposed that a recording qualify for the charts only if the AI service behind it was lawful and properly authorized, the track was substantially made by humans, and it showed no sign of stream manipulation. IFPI began rolling those principles out the next morning across the charts it runs in Latin America, the Middle East, Africa and Southeast Asia, and is working toward more than 20 more.

So the industry now has a rule about what can count as a chart hit. Spotify still does not publish every rule that decides whether a stream counts toward a payment. Chart rules decide what earns recognition. Payment rules decide what earns money.

Start with how the money moves, because “the royalty pool” makes it sound simpler than it is. Spotify does not pay a set rate per stream. It pools subscription and advertising revenue in each of more than 180 markets, keeps recording money separate from publishing money, then splits each pool by how much of that market’s listening a catalog took. Spotify pays whoever holds the rights, which can be a label, a distributor, a publisher, a collecting society, or an artist who kept their own masters. They pay artists and songwriters under whatever their agreements say. Spotify also says on its own site that artificial streams dilute the royalty pool when they go undetected, moving revenue from legitimate artists to bad actors. A stream caught in time earns nothing.

Smith’s activity was flagged more than once, and the scheme kept running. The indictment describes a distributor flagging his music twice in 2018 after abuse reports came in from multiple stores, and telling him it would come down. There is absolutely no fraud going on whatsoever, Smith wrote back. In March 2019 a streaming platform told a different distributor it believed Smith had committed fraud, held his money and pulled his music. Smith accused the platform of slandering him without proof and demanded reinstatement. The Mechanical Licensing Collective withheld his songwriting royalties and confronted him in 2023. He kept going until his arrest the following year.

Deezer publishes the most complete numbers on any of this. Roughly 90,000 fully AI-generated tracks a day came in during June, more than half of everything delivered on peak days, and fully synthetic music draws 1% to 3% of what people play there. Up to 85% of streams on those tracks were fraudulent in 2025, against 8% across the catalog as a whole. That counts streams Deezer flagged as fraudulent rather than money that left the pool, because Deezer detects those streams, demonetizes them and keeps them out of the royalty calculation.

Other services act on fraud too. Spotify says the artificial streams it detects earn no royalties, and it separately reported removing more than 75 million spammy tracks in a 12-month period. What I could not find from another major service is Deezer’s paired breakdown of attempted fraud and what gets removed before payment.

Spotify does publish its payment threshold, partly. A track earns nothing until it clears 1,000 streams in 12 months, a policy in force since April 2024. A second requirement sits on top of it. A track also has to reach a minimum number of unique listeners, and Spotify says on its own support page that it will not share that number publicly “to prevent further manipulation by bad actors.”

Spotify has a fair case for the threshold itself. When it introduced the rule, the company said tracks below the line earned an average of three cents a month, that 99.5% of all streams go to tracks above it, and that every one of those earns more as a result. That is a real argument for consolidating pennies into payments. It is a weaker one for keeping half the rule secret from the people it disqualifies.

Mark Kratter is challenging both the threshold and Spotify’s undisclosed stream filtering. An attorney and musician in Norwalk, Connecticut, he sued Spotify on June 3 over what his complaint calls “opaque rules and undisclosed filtering criteria that disproportionately harm independent artists.” He alleges Spotify changed how it counts a stream in March without telling anyone, and that his counted streams fell while listeners kept playing. His claims are unproven, Spotify denies them, and his dispute is about stream counting rather than AI tracks. He has also put out more than 1,900 recordings across four artist identities, a reminder that “independent artist” no longer sorts anyone cleanly.

I have watched a version of this before. For my research on algorithmic bias, I interviewed Black LGBTQ+ creators on TikTok about working inside a ranking system whose rules were never published to them. Two-thirds believed their work was being suppressed. They built coded language, strategic hashtags and careful posting times around a mechanism they could describe by its effects and never confirm. They wanted to be told the rule.

Chart position is worth something. It moves playlist placement, licensing interest and touring guarantees. What it does not do is release a payment, and the rules that release one were not on the table in July.

Spotify does not have to hand fraudsters a target. It could withhold the number and still tell a disqualified artist which rule applied. A platform managed something close to that with Smith. In 2019 one told his distributor what it suspected, held his money and pulled his music, and Smith wrote back demanding all of it be reinstated. He was told enough to argue. Mark Kratter is suing to find out how Spotify counted his streams, and he still cannot see which rule counted them out.