Fraud groups take billions of dollars a year out of the music industry through fake streams, a streaming technology company has warned.

At least 10% of all song streams are fraudulent, and this takes between $2bn and $3bn (£1.6bn and £2.4bn) out of the global music industry each year according to Beatdapp, the streaming fraud detection platform.

Global streaming jumped by a third last year with 7.1 trillion song streams recorded in 2023, according to the latest figures published by Luminate, the music data provider.

The revenue from streaming was $19.3bn in the same year, according to the International Federation of the Phonographic Industry, which represents the global recording industry.

Streaming makes up more than two thirds of the industry‘s revenue, the research found.

Andrew Batey and Morgan Hayduk, the co-chief executives of Beatdapp, said that all stakeholders in the digital music supply chain lose money to fraud because it is taking from the pool of money, generated through subscription fees and advertising revenue, that gets paid out based on streaming plays.

Fraud groups work by pretending to be artists, uploading millions of songs onto streaming services and playing them from fake accounts or from real accounts using stolen account details.

By doing so, they collect royalty payments that would have otherwise gone to those who hold the rights to songs by real artists.

Batey and Hayduk said Beatdapp, which works with the Universal Music Group label and the streaming service Napster, tracks streams by measuring a range of different metrics given to them by streaming companies to identify streaming habits and detect fraudulent ones.

“No one notices that a few pennies are going to this song and a few pennies are going to that song but, in aggregate, they can steal billions of dollars,” they said.

“That money would have gone to real artists that would have been used to pay out managers and agents and lawyers, labels, distributors. But instead it’s syphoned off and it goes to professional scammers who are just stealing from the industry.”

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Streaming services have introduced fines and other changes to royalty payment models in a bid to deter fraud. At the start of the year, Spotify introduced a fine for labels and distributors when “flagrant artificial streaming” was detected on content they released on the platform.

Phil Kear, assistant secretary general at the Musicians’ Union, said that fraud could be addressed by a change to the model used by streaming services.

A “user-centric” accounting model would mean that a listener’s monthly subscription fee is distributed between the artists they listen to.

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“Currently the 99% of the monthly fee paid by someone who listens exclusively to heavy metal will end up being allocated to Taylor Swift, Ed Sheeran, Dua Lipa tracks and into the pockets of the major labels,” he said.

“User-centric would not only mean that the money went to the artists that someone listened to, but would also put an immediate stop to bot streaming: The pirates already need to pay £10 for each account, they currently make money by skewing the distribution so they get more than £10 back, but with user-centric they’d never make more than they spent.”