Spotify and forced flashbacks of payola

Since the 1930’s, the music industry has battled payola, or the illegal practice of “pay-for-play” between record labels and radio stations, designed to influence airplay. While the last major round of lawsuits concluded in the mid 2000’s, it appears the sector has had nostalgia for the surrounding drama and have identified their new target: Spotify.

Last month, the music streaming service unveiled its latest tool — a self-serve advertising platform enabling rightsholders to very prominently highlight new releases through display advertising. The tool is open to anyone who wants it and clearly identifies if a user is being served a paid promotion. Nonetheless, journalists, artists and industry pundits immediately alleged that this encourages behavior reminiscent of large labels sending suitcases of cash to DJs to include songs in radio playlists. The price tag of Spotify’s service — minimum $5,000 spend at $0.55 cost per click — appears to be a major driver of these allegations.

We think this conclusion is flawed. Throughout the various iterations of payola (from direct payments in cash to direct payments in gifts and ‘substances’ to indirect payments via promoters), the two core problems with the practice of paying for airtime have been: a) the lack of equal access + b) the lack of disclosure to consumers. A rightsholder needed to reach the decision makers at the radio stations and convince them to omit disclosing that their playlisting motivations were skewed by payments. The cost of the practice, in isolation, is not the issue.

Spotify’s advertising tool is a natural, and fully appropriate, evolution of its product. The ads may indeed be too expensive for individual artists or rightsholders without big budgets, but the marketplace is available to all and adheres to standard digital advertising practices for labeling screen real estate as sponsored. We believe critics are simply running out of other datapoints to complain about Spotify, as music streaming now definitively accounts for ~80% of total industry revenue.