Is Spotify’s new pay-to-stream scheme icky?

Pay to play.
Pay to play.
Image: Reuters/Brendan McDermid
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Spotify has a controversial new policy.

Yesterday, the Swedish music streaming giant announced it would allow artists and labels to pay to give a song a boost in their recommendation algorithm. But instead of directly paying in cash for this amplification, music creators would take less money for streams of the promoted song, or what the company calls a “promotional recording royalty rate.”

Spotify says the new program is an experiment, and hasn’t specified exactly how much lower the streaming rate would be for promoted songs. The company notes the promotion will only be one of many factors that leads to a song’s recommendation, and the program will only be part of radio and autoplay formats (i.e. the songs that automatically play after you finish an album or playlist, like “RapCaviar” and “Today’s Top Hits“). It won’t yet be part of Spotify’s “Discover Weekly” or “Daily Mix,” the most desirable individualized playlists. All listens to promoted songs outside of radio and autoplay will receive the usual payment rate. If a promoted song is not succeeding with listeners, the algorithm will stop recommending it.

Spotify claims the new program’s reliance on reduced royalties, rather than direct payments, makes it “accessible to artists at any stage of their careers.” In other words, it won’t just benefit the artists with the most money behind them.

Many musicians are not buying it, calling the program a new version of “payola“—the illegal practice of paying radio stations money to play certain songs in order to make them hits. “This a form of payola or sponsored social media post,” said musician rights’ advocate and singer-songwriter David Lowery. “It is not necessarily illegal, but the tracks would need to be labeled.”

YouTuber and composer Adam Neely calls the program “payola, but way worse.” (Spotify did not immediately respond to questions about whether the promoted songs would be labeled. This story will be updated if Spotify answers.)

How you look at this program, in some ways, comes down to how you view advertising.

From an economist’s perspective, advertising is, most importantly, a way to expose people to a new product. For example, a new artist might feel they have a great new song, but they haven’t been able to get it in front of many listeners. Unfortunately for the artist, Spotify’s algorithm hasn’t been recommending the song very often because so few people have listened and it doesn’t share sonic features with many other songs (two important factors that impact recommendation). The new program offers that artist a better chance to get an audience. If the artist is right about their song’s appeal, they will have made new fans, and people will choose to listen to the artist independently. Spotify makes more money and the artist benefits. A win-win.

A critic of the program might ask: if Spotify really wants to help artists, why don’t they just ask them which songs are a priority and promote them, rather than make them pay for this privilege? Economic theory again suggests payment might not be an unreasonable tool for identifying promising songs. Paying for advertising is actually a signal that a product is of high quality, according to some economic models. If someone is willing to give up money to convince you to try their new product, that seller probably thinks they have a product you will love, and can turn you into a return customer. In the case of Spotify’s new program, accepting a lower streaming payment for promotion is a sign that an artist really believes in a song, and that the algorithm is missing something.

Yet that is the rosiest possible picture. The program can also be seen as a way for Spotify to benefit from big music labels’ desire to suck up all the streams and cement their status in the market. We know that companies like Coca-Cola and Pepsi, which sell already well-known products, spend billions on advertising every year. This spending is intended to make sure the giants maintain their dominance over newcomers. Major music labels like Sony and Universal may be able to afford to give their artist’s songs a bump, while the indies are barely getting by on the paltry royalties Spotify currently pays—artists receive between $0.003 and $0.005 per stream according to Digital Music News.