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Is Spotify’s Pay-for-Play Scheme Genius, Troublesome, or Both?

Spotify has announced a new tool called Discovery Mode, which will allow labels and artists to directly prioritize songs in users’ Autoplay and Radio feeds. Extremely compelling, but we might want to consider the unintended consequences…

By Paul Marszalek

In an effort to better service artists and labels, Spotify is offering Discovery Mode allowing songs to be prioritized in users’ Autoplay and Radio feeds. In exchange for this service, artists and labels take a haircut on the royalty rate.

It’s genius on a number of levels: Spotify finds a way to help artists and labels promote new projects while simultaneously lowering its own costs. Still working to get be profitable, Spotify has lost roughly $500 million so far this year. Sounds like a lot, but they’re getting close to break-even. With royalties the biggest cost center, every .00331 cents counts.

Artists and labels can benefit from Discovery Mode as well. They get research. If a song isn’t cutting it, the track can be dropped from Discovery Mode. The savings that can be had — from early artist development to simply picking singles – could be game-changing for some.

Worth remembering is that artists and labels get this service with nothing out of pocket. In fact, they’re still actually getting paid, albeit at a reduced rate.

Thus, Discovery Mode is a win for everyone. Almost.

There are several unintended consequences that could occur if the tool is not rolled out in a controlled, transparent manner.

Lost in the Discovery Mode equation is, notably, the subscriber. If Spotify is benefiting from the placement of certain songs in terms of reduced cost, and the labels aren’t paying either, then who is? It is the subscriber. To this point, the subscribers believe they are getting some sort of semi-organic feed of music based purely on personal taste. That’s never really been the case, but it’s what most people think.

Moving forward, Autoplay and Radio feeds will be interrupted by something akin to paid content. The word payola is already being used to describe Discovery Mode. It is worth noting that this is not payola, since the public’s airwaves are not involved. However, if any kind of pay-for-play notion permeates Spotify’s brand, it will prove to be a negative at the subscriber level — unless there’s transparency.

Paid content is marked as such in the print/text world, and should also be the case here. Or, to look at it another way, paying subscribers should be able to either opt out, or pay a reduced monthly — sort of like the Hulu cheapo subscription that includes limited commercial interruptions. For Spotify’s ad-model subscribers? All bets are off – Discovery Mode should be fine for them.

Spotify needs to protect their paying subscribers. Failing to do so would suggest that the company has confused who the customer really is. Remember that labels own pieces of Spotify – they’re not the customer.

There are still other issues that could crop up – depending on how widespread the practice becomes.

The most obvious is that the tool could further the race to the bottom on royalty rates. If, for example, Discovery Mode programs four or five songs per hour, that’s four or five songs from non-participating artists that get knocked from the stream. Those artists may increasingly feel pressure to participate in the scheme.

Following on that, with no out of pocket costs to the artist or label, the incentive to participate might be almost too great.

For example, the laptop on which I am writing this post is also a recording “studio” that houses a lot of original work. I have no fans and certainly no chance of ever breaking out in the music business. Lack of talent aside, there are just too many obstacles in the way. However, with Discovery Mode, I could be in business overnight. Royalties might be tiny, but I’d essentially be crazy not to participate.

From this standpoint, Discovery Mode democratizes access to hundreds of millions of people. I could block better artists from getting played and I’d interrupt subscribers’ feeds with possibly sub-par product — and I’d get paid to do so!

Rather than actually release my crummy music on the world, perhaps I’ll instead start a label and do microscopic development deals with artists. Plug them all into Discovery Mode, and let the research pour in. Kick the losers to the curb while making revenue even on the bad stuff. The ability to almost completely zero out artist development costs is too tempting. Why waste the time and money?

Since the streaming model kicked in, many labels have gone into something of a “throw it against the wall and see what sticks” mode. Discovery Mode supersizes that potential.

For those in the radio business, who are inundated by label reps with “streaming data” to convince programmers of a song’s worthiness, that already sketchy data becomes useless in a Discovery Mode world. How many of those streams were paid for? All of them?

Lastly, it can be argued that Discovery Mode is named exactly wrong. It’s not really a discovery when something is forced upon you, but we’ll let this slide.

The success or failure of the tool ultimately depends on how aggressively Spotify wants to reduce its royalty costs. The company needs to tread carefully.

Discovery Mode has incredible potential, from helping artists tee up new works to democratizing the platform itself. But when the neighborhood butcher gets caught with his thumb on the scale, word gets out.

Unintended consequences of an opaque, poorly conceived rollout could have lasting effects on the brand.

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