Piddling royalties have been artists’ main contention with Spotify for over a decade now. In late October, amidst a pandemic that devastated the touring income of all artists, the newly formed Union of Musicians and Allied Workers—including members of Galaxie 500, Downtown Boys, Speedy Ortiz, and more—launched a petition with thousands of signatories, seeking “Justice at Spotify.” Their asks include the adoption of a user-centric payment model, increased transparency, the elimination of any pre-existing payola, and a stipulation that the company pay at least one cent per stream. “Our demand is that this model be adjusted so that artists can be paid fairly. If Spotify’s model can’t pay artists fairly, it shouldn’t exist,” their statement reads.
Days later, Spotify announced a new tool for artists that addresses royalties, though not by increasing them. Dubbed Discovery Mode, the feature will let artists opt into a “promotional royalty rate”—one that is less than the normal rate—for specific songs. In exchange, those songs will receive amplified visibility on some of listeners’ algorithmically generated playlists, with the promo rate applying only to boosted streams.
Artists and music fans did not take kindly to the announcement, decrying what they saw as greed on Spotify’s part. Portishead co-founder and film composer Geoff Barrow likened the company to right-wingers like Donald Trump, while grime producer Mr. Mitch compared Discovery Mode to Facebook’s promoted posts. Various online commentators, including UMAW, used the same word to describe the new tool: payola.
Payola was originally coined to describe the cash bribes and other “gifts” that record labels would give to music stores, radio programmers, and DJs in exchange for exaggerated sales reports or preferential airtime. Congress made it a misdemeanor offense in 1960, after President Eisenhower called it an issue of “public morality,” but the practice continued in the following decades under different guises. Instead of dealing with radio stations directly, labels turned to independent promoters to act as middlemen, able to disperse funds with plausible deniability. The specter of payola has emerged several times in the 60 years since, most notably in 2005, when a New York state probe led to each of the major label groups paying millions of dollars in settlements but avoiding criminal charges. A recent Rolling Stone report indicates that these kinds of practices continue to this day, though the major labels continue to insist that no legal wrongdoing has taken place.
As such, Spotify’s Discovery Mode is not technically payola, because payola laws passed under the Communications Act Amendments of 1960 only apply to terrestrial radio stations. Still, it’s hard not to view Discovery Mode as the latest iteration of a century-old practice: Record labels and rights holders make a financial sacrifice—to the benefit of the platforms that promote their music—in an effort to increase their likelihood of success.
Pay-for-play is not a new concept in the streaming world, either. In the early internet radio days, would-be Pandora competitors Jango and Last.fm offered bands guaranteed plays in exchange for cash. Unofficial payola on Spotify has persisted for years, much like influencers elsewhere: Independent playlisters accept money in return for placement of songs. But Discovery Mode is the first time Spotify has officially embraced pay-for-play, with the algorithmic aspect of the tool further complicating things. Instead of forking over money to curry favor with powerful individuals, you’re forsaking a portion of your earnings in exchange for better chances with the algorithm. You’ll never know how or why it decides to show your song; it just does.
“What was really important was that we wanted to be accessible to artists at any stage of their career. It won’t require any budget upfront,” Spotify’s product marketing lead Charleton Lamb told Music Ally following the announcement. “The model is accessible, democratic, it’s more fair. You don’t have to pony up cash.”
That last bit is true: For a long time, payola was mostly limited to the upper echelons of the music industry, where major labels and other monied interests have the most sway. Both Lamb’s quote and Spotify’s press release explicitly frame the tool as beneficial to up-and-comers, which it very well could be (“We believe this new service will unlock more discoveries than ever before,” states the release). But the proliferation of payola once made it an unavoidable practice for big record companies seeking competitive results; similarly, widespread use of Discovery Mode could make it hard for artists at all levels to feel like they can afford to opt out if they want to stay competitive, especially if they already find their streaming income inconsequential. The tool also could become a headache for artists with royalty deals whose labels decide to abuse the function and thus reduce the artist’s rate of recoupment. (Spotify is leaving the matter to artists, managers, and labels to sort out among themselves, according to Music Ally.)
Spotify’s announcement reiterates several times that Discovery Mode is in “testing,” referring to the feature as an “experiment” that will be reserved for the Radio and Autoplay functions before moving to other areas of the streaming service. Depending on the music industry’s response, the tool could change or even be done away with altogether; Spotify nixed its direct upload program—which would let artists circumvent distributors in favor of putting music on Spotify directly—after experiencing pushback from the major labels, which also operate distribution companies. The company has not specified how much lower the “promotional” rate will be, or whether songs promoted via Discovery Mode will be demarcated in any way. In 2017, Spotify dabbled with allowing labels to pay for “sponsored songs” to appear on the app, but these inclusions were separate from normal playlists and marked clearly as sponsored content.
So why do all of this? Because Spotify needs the money. The company’s ad sales were reportedly down even before the pandemic, and its third-quarter premium-subscription revenue came in below projected targets. With a substantial chunk of its revenue paid out to record labels, it is no surprise that Spotify has invested so heavily in the podcast sector. Finding new ways to justify reducing the royalty rate, and therefore reducing their financial obligations to rights holders, may help Spotify on its road to being profitable for the first time.
Originally Appeared on Pitchfork