A North Carolina man has pleaded guilty to federal charges in a scheme that exploited the economics of music streaming, defrauding platforms and fellow artists out of millions of dollars. Michael Smith, 52, of Cornelius, North Carolina, admitted to using artificial intelligence to generate thousands of songs and then artificially inflating their play counts using automated bots. The case, brought by prosecutors in New York’s Southern District, marks one of the first successful prosecutions of AI-related fraud within the rapidly evolving music industry.
The scheme, which ran from 2017 to 2024, centered on generating revenue from streaming services like Spotify, Apple Music and Amazon Music. These platforms compensate artists and rights holders based on the number of times their songs are played. Smith’s operation bypassed legitimate listeners, flooding the services with AI-created tracks and racking up billions of streams through automated means. This artificially inflated play count translated into substantial royalty payments directed to Smith, diverting funds from genuine artists.
AI-Generated Music and the Rise of Streaming Fraud
According to a statement from the Department of Justice, Smith generated “thousands of fake songs using artificial intelligence and then streamed those fake songs billions of times.” U.S. Attorney Jay Clayton emphasized the real-world impact of the fraud, stating, “While the songs and listeners were fake, the millions of dollars Smith stole was real. Millions of dollars in royalties that Smith diverted from real, deserving artists and rights holders.” The Justice Department detailed that Smith fraudulently obtained over $10 million in royalty payments, amassing as many as 661,440 streams daily, which yielded annual royalties of $1,027,128.
The case highlights a growing vulnerability within the music industry. Streaming services have become the dominant force in music consumption, but their payout models are often criticized for favoring high-volume streams over genuine engagement. This creates an incentive for fraudulent activity, and the advent of readily available AI tools has lowered the barrier to entry for such schemes. A recent report cited by The Guardian suggests that up to 70% of streams of AI-generated music on Deezer are fraudulent, underscoring the scale of the problem.
A New Era of Music Piracy?
This isn’t the first time the music industry has faced widespread copyright infringement. The Napster era of the early 2000s, which allowed for peer-to-peer file sharing, fundamentally disrupted the industry’s business model. However, the current challenge posed by AI-generated fraud is different. Napster involved the unauthorized distribution of existing copyrighted works. Smith’s scheme involved creating entirely new, albeit artificial, content to exploit the streaming ecosystem.
The rise of generative AI music is also raising questions about artistic authenticity and the value of human creativity. Companies like Suno, which allows users to create AI-generated songs with relative ease, are gaining popularity, with over 2 million subscribers. Billboard recently profiled Suno, noting that the platform generates approximately 7 million songs per day – equivalent to an entire streaming catalog every two weeks. While Suno’s CEO, Paul Sinclair, has expressed conflicted feelings about the potential impact of the technology, the sheer volume of AI-generated music is overwhelming the system.
The Industry Responds
Streaming services are beginning to take action. Spotify recently announced it removed 75 million spam tracks in the past year, a direct response to the influx of AI-generated and bot-driven content. However, the problem is proving difficult to contain, as fraudsters continually adapt their tactics. The French streaming service Deezer has reported that 97% of people are unable to distinguish between human-generated and AI-generated music, further complicating efforts to identify and remove fraudulent tracks.
Musicians and industry advocates are also pushing for stronger copyright protections and regulations surrounding AI-generated content. Earlier this year, the UK government abandoned plans to allow AI companies to use copyrighted works without permission, following strong opposition from artists like Elton John, Dua Lipa, and Paul McCartney. The reversal was hailed as a victory for creators, but the debate over AI and copyright is far from over.
Smith used “AI make the music AND the audience” and made $1.2m a year “for music no human ever actually listened to”. Musicians & the music industry now has to fight songs that don’t exist being listened to by people who don’t exist. 🤯https://t.co/qJq9q9q999
— Tuki (@tukifromkl) March 15, 2024
As one X user, @tukifromkl, succinctly place it, Smith’s scheme involved creating both the music and the audience with AI, generating substantial income from streams that never came from actual listeners.
Under the terms of his plea agreement, Smith faces up to five years in prison and is required to forfeit $8,091,843.64. Sentencing is scheduled for July. The case serves as a stark warning to others considering similar schemes and underscores the urgent need for the music industry and regulators to address the challenges posed by AI-driven fraud.
The legal proceedings against Smith are ongoing, and the full extent of the financial damage caused by his scheme is still being assessed. The industry will be watching closely as the case progresses, hoping it will deter future attempts to exploit the streaming ecosystem. The next step will be Smith’s sentencing in July, where the court will determine the appropriate punishment for his actions.
What are your thoughts on the growing threat of AI-generated fraud in the music industry? Share your comments below, and please share this article with your network to raise awareness about this important issue.
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