UPDATE: Three members of Congress have written to Spotify co-founder and CEO Daniel Ek criticizing him over the company’s policy of promoting an artist’s music on its Discovery Mode platform in exchange for a royalty rate reduced. Among other notes, the letter asks Spotify to qualify these songs as paid content; the company announced the policywhich has come under heavy criticism, in 2020.
The letter, written on official Congressional letterhead and obtained by Variety, is dated March 26, 2022 and signed by Representatives Yvette D. Clarke (D-NY), Judy Chu (D-CA), and Tony Cardenas (D-CA) representing the Congressional Caucus on Multicultural Media; its authenticity was confirmed by a spokesperson for Rep. Clarke.
It states in part, “Choosing to accept reduced royalty payments is a serious risk for musicians, who would only benefit if Discovery Mode produced more total streams for an artist across their entire catalog, not just the track covered by the program. And if two competing artists both sign up their new track for the program, any benefit could be nullified, meaning the only profit goes to your company’s bottom line. For artists from diverse backgrounds, who often struggle to access capital, the assumption that they now have to pay to be found by new consumers on Spotify is a particularly serious problem.
“We request Spotify to publish, on a monthly basis, the name of each track entered into the program and the agreed royalty reduction,” the letter continues. “Without that transparency, you’re asking artists to make a blind choice, and that’s a classic prisoner’s dilemma.”
Last July, House Judiciary Committee Chairman Rep. Jerry Nadler (D-NY) and Courts, Intellectual Property and Internet Subcommittee Chairman Rep. Hank Johnson Jr. (D -GA) have written to Ek asking for more information about the policy, expressing concern that it “could spark a ‘race to the bottom’ in which artists and labels feel pressured to accept lower royalties as a way necessary to break through an extremely crowded and competitive musical environment”.
To be fair, the program is essentially no different from traditional brick-and-mortar promotional campaigns in which record labels pay retailers for in-store placement of their CDs and vinyl; and unlike those programs, Spotify is at least upfront about the upfront royalty payment aspect of Discovery Mode. The company points out that the program does not require any upfront cost, although it is still a method by which artists or labels pay for better placement, with random results.
Contacted by Variety, a Spotify spokesperson said: “Artist and label teams have told Spotify for years that they want more agency to reach new listeners and drive meaningful connections on our platform – the Discovery mode, in its initial phase, offers exactly that. We have been transparent about the use of Discovery Mode and the associated business considerations for our users and partners by publicly discussing this test in numerous forums and describing its use in the user experience. Overall, the response to Discovery Mode from our listeners and partners has been incredibly positive, and we will continue to be transparent about how it works.
Philip Kaplan, CEO of independent distributor Distrokid, is among executives and performers praising the program on the Company Websitesaying “Discovery Mode is a revolutionary music marketing tool because it requires no upfront budget. Discovery Mode allows independent artists of all skill levels to reach new fans in a whole new way.
The March 26 letter also accuses the company of a lack of transparency for consumers in discovery mode.
“As far as consumers are concerned, they too deserve transparency,” he continues. “Spotify fails to tell consumers that they are listening to paid content when it provides them with songs in discovery mode. We believe there is no meaningful distinction between paying a lower royalty rate and accepting payment for placement on the service.In fact, Spotify tells listeners that its Radio feature offers “continuous music based on your personal tastes and no ads if you’re a Premium member.”
“Based on our understanding of the program, this appears to make Discovery Mode a straightforward example of deceptive native advertising, which preys on unwitting consumers, and has been a recent area of federal enforcement activity. Trade Commission Discovery Mode program looks identical to deceptive native advertising like undisclosed promotional tweets from paid social media influencers or poorly described sponsored search results.
On his website, Spotify touts Discovery Mode as “a marketing tool designed to help you find new listeners when it matters most to you.” However, he was criticized by the media and the artist community for many of the reasons outlined in the letter above. Music Business Worldwide published a lengthy critique of the policy last year, calling it a “pay for influence tool.”
The letter comes during a difficult time for Spotify, which faced heavy criticism for hosting Joe Rogan’s controversial podcast earlier this year in a $200 million deal, and was tracked by the company’s decision to sponsor the Barcelona soccer team in a $300 million deal. The nine-figure deals come at a time when the company, along with Amazon, Google and Pandora, has spent millions in an effort to reduce the fee it pays music publishers and, by extension, songwriters.
The text of the new letter appears in full below:
Dear Mr Ek:
We are writing to you as co-chairs of the Congressional Multicultural Media Caucus to share our concerns with Spotify’s approach to consumer transparency and disclaimers. Your company’s questionable approach was publicly exposed by a recent scandal and your company’s decision to add “content notice flags” to podcast episodes about the COVID-19 pandemic that include misinformation, like the Joe Rogan podcast.
As you well know, the recent episode led to a confrontation between your company and a number of iconic artists, including Neil Young and India.Arie. The New York Times reported that it was “the latest strain in the company’s complex and often troubled relationship with artists”. We think one of your new music promotion programs, Discovery Mode, is another troubling move by your company that sacrifices honesty in the name of profit.
As reported in the press and on your website, Discovery Mode gives artists and copyright owners an increased push of consumer-listed songs on algorithmic plays, including streams through Spotify’s Radio and Autoplay formats. , in exchange for reduced royalty payments for the platform’s use of these sound recordings. However, we understand that your program is unfair to both artists and consumers because, again, it lacks transparency.
Choosing to accept reduced royalty payments is a serious risk for musicians, who would only benefit if Discovery Mode produced more total streams for an artist across their entire catalog, not just the track covered by the program. And if two competing artists both sign up their new track for the program, any benefit could be nullified, meaning the only profit goes to your company’s bottom line. For artists from diverse backgrounds, who often struggle to access capital, the assumption that they now have to pay to be found by new consumers on Spotify is a particularly serious problem.
We require Spotify to publish, on a monthly basis, the name of each track entered into the program and the agreed royalty discount. Without that transparency, you’re asking artists to make a blind choice, and that’s a classic prisoner’s dilemma.
As for consumers, they too deserve transparency. Spotify doesn’t tell consumers they’re listening to paid content when it provides them with songs in discovery mode. We believe there is no meaningful distinction between paying a lower royalty rate and accepting payment for placement on the service. In fact, Spotify tells listeners that its Radio feature offers “continuous music based on your personal tastes and no ads if you’re a Premium member.”
Based on our understanding of the program, this appears to make Discovery Mode a straightforward example of deceptive native advertising, which preys on unwitting consumers, and has been a recent area of enforcement activity by the Federal Trade Commission. The Discovery Mode program appears identical to deceptive native advertising, such as undisclosed promotional tweets from paid social media influencers or poorly described sponsored search results.
We seek information from your company to determine if Discovery Mode violates the fundamental principle of truth in advertising that “it is misleading to mislead consumers about the commercial nature of content.” and visible. iii Among the factors considered under this standard is whether the disclosure is visible and unavoidable, and nothing we see on your website or any interface of your service meets to these criteria. Why isn’t Spotify following these federal guidelines, put in place to protect consumers?
We would appreciate a response to the concerns raised in this letter and the question above to help inform our caucus priorities for the year. We also invite you to join us in promoting a fairer media landscape and, in that spirit, we ask that you seriously ask yourself if Discovery Mode is misleading consumers and undervaluing independent artists.
Sign,
Yvette D. Clarke Judy Chu Tony Cárdenas Congressman Congressman Congressman
