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Spotify’s Discovery Mode under query by Congress: The issues and actions

Spotify CEO and Chairman Daniel Ek has received a letter from Congress signed by Jerry Nadler (Chair, Judiciary Committee) and Henry Johnson, Jr. (Chair, Sub-Committee on Courts, Intellectual Property, and the Internet). The letter questions the working and purpose of Spotify’s relatively new “Discovery Mode,” a promotional tool offered to recording artists and record labels which influences which songs get onto listener playlists.

What Is Discovery Mode?

Introduced last fall, Discovery Mode is an artist promotional tool. It operates behind the scenes of Discover Weekly, Release Radar, and other personalized playlists offered to Spotify consumers. Discovery Mode is an input system through which artists and labels can submit track recommendations; those recommendations get placed into the complex behind-the-scenes algorithms which determine what individual listeners hear.

If you imagine Spotify as a radio station, playlists like Discover Weekly and Release Radar (and dozens of other personalized playlists) can be imagined as DJs. They “decide” (via artificial intelligence) what songs are programmed into Spotify-owned personalized playlists.

The aspect of this which has attracted congressional interest is a business arrangement whereby artists and labels receive lower royalty payments for streams resulting from placement of their recommendations into the Spotify algorithms. It’s important to keep in mind that the artist/label selections do not get directly placed into playlists; they become part of a signal system in Spotify’s AI technology, resulting in a greater likelihood of getting into auto-generated playlists.

Spotify laid this out publicly in November, HERE. On that page Spotify illustrates how Discovery Mode recommendations from artists and labels fit into a larger AI system of “signals” which produces a user’s playlist:

Why Discovery Mode Might Be Problematic

In a word: Payola. Payola in radio refers to the business practice of paying stations or DJs to play a song or an artist. Because U.S. radio is regulated by the federal  government, payola is subject to disclosure rules — a station must inform listeners when a song’s airtime is bought. Various loopholes exist to avoid this rule.

In the Judiciary Committee letter to Spotify, Nadler and Johnson do not mention payola as such, but are definitely worried about the promotional rate paid for potential exposure:

 

“Discovery Mode appears to allow artists and record labels to identify particular songs that they would like to prioritize in Spotify’s algorithmic recommendations in exchange for agreeing to be paid a lower, “promotional” royalty rate for those prioritized streams.”

 

The two chairmen envision a cascading deterioration of music value:

 

“This may set in motion a “race to the bottom” in which artists and labels feel compelled to accept lower royalties as a necessary way to break through an extremely crowded and competitive music environment.  Depending on how the program is implemented, there is a further concern that accepting lower rates for this boost in Spotify’s algorithm  may not even guarantee more airplay if virtually all commercial artists are also doing the same.”

 

Note the interesting use of the word “airplay.”

The letter asks for responses to five questions:

  1. Does Spotify intend to make this pilot program a permanent one, and if so, when does it anticipate that it will begin?
  2. What types of safeguards will be in place to ensure that a large volume of boosts under the Discovery Mode program do not end up cancelling each other out or otherwise resulting in a race to the bottom where the only practical way to get recommended is to accept a reduced royalty?
  3. In general, how will Spotify calculate the reduced, “promotional” royalty rate that an artist or record label will need to accept to use the Discovery Mode program?  Is this calculation the same for all artists and labels?
  4. How will artists and record labels be able to measure the impact of the program on their streams, including which streams are served directly from participating in the Discovery Mode program?
  5. What, if any, means of redress will be offered to artists to recover lost royalties in the event that they determine participation in the program has not yielded increased streams?

Spotify has until June 16 to furnish a response. Complete letter below and HERE.

The Letter

Daniel Ek
Founder, Chief Executive Officer, and
Chairman of the Board of Directors
Spotify Technology S.A.
42-44 avenue de la Gare
LU-1610 Luxembourg

Dear Mr. Ek,

We write regarding the new “Discovery Mode” feature that Spotify has begun pilot testing on its Radio and Autoplay features.   Although public details are limited, Discovery Mode appears to allow artists and record labels to identify particular songs that they would like to prioritize in Spotify’s algorithmic recommendations in exchange for agreeing to be paid a lower, “promotional” royalty rate for those prioritized streams.  This may set in motion a “race to the bottom” in which artists and labels feel compelled to accept lower royalties as a necessary way to break through an extremely crowded and competitive music environment.  Depending on how the program is implemented, there is a further concern that accepting lower rates for this boost in Spotify’s algorithm  may not even guarantee more airplay if virtually all commercial artists are also doing the same.

At a time when the global pandemic has devastated incomes for musicians and other performers, without a clear path back to pre-pandemic levels,  any plan that could ultimately lead to further cut pay for working artists and ultimately potentially less consumer choice raises significant policy issues.  This is particularly true under Spotify’s current model, where artists’ returns are already low, with Spotify reporting to pay artists less than a cent per song streamed (estimated in the $.003 to $.005 range) and Spotify has challenged an administrative ruling setting a higher royalty rate for songwriters.   Core copyright industries like music play an integral role in the U.S. economy, and the vitality of the industry is undermined when artists’ hard work is undervalued.  Such a race to the bottom threatens to weaken the core goal of copyright and intellectual property—incentivizing creativity by offering a fair return on one’s work.

To better understand the design and proposed implementation of the Discovery Mode tool and the impact that it will have on artists, we ask that you provide additional information in response to the following questions:

1. Does Spotify intend to make this pilot program a permanent one, and if so, when does it anticipate that it will begin?

2. What types of safeguards will be in place to ensure that a large volume of boosts under the Discovery Mode program do not end up cancelling each other out or otherwise resulting in a race to the bottom where the only practical way to get recommended is to accept a reduced royalty?

3. In general, how will Spotify calculate the reduced, “promotional” royalty rate that an artist or record label will need to accept to use the Discovery Mode program?  Is this calculation the same for all artists and labels?

4. How will artists and record labels be able to measure the impact of the program on their streams, including which streams are served directly from participating in the Discovery Mode program?

5. What, if any, means of redress will be offered to artists to recover lost royalties in the event that they determine participation in the program has not yielded increased streams?

Thank you for your attention to this matter, and we look forward to your response by no later than June 16, 2021.  Should you have any questions in the meantime, please feel free to contact a member of our staff.

.

Brad Hill

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