Politicians Hate Spotify’s Discovery Mode. Managers Love It — For Now
Members of Congress are worried about the long-term impacts of Spotify's new program, but artist teams see it as a tool to rise above the competition.
Last week, Spotify was on the receiving end of a scolding from several members of Congress. “We believe that one of your new music promotion programs, Discovery Mode, is another troubling move by your company that sacrifices honesty in the name of profit,” Representatives Yvette D. Clarke, Judy Chu, and Tony Cardenas wrote. The letter went on to say that the implications of Discovery Mode were “especially serious” “for artists of diverse backgrounds,” and that the program “preys on unwitting consumers” who aren’t aware that they are listening to a particular song because an artist effectively paid Spotify — by offering their music at a discounted royalty rate — to play it to them.
The government’s concern stood in stark contrast to the mostly rave reviews of this “new music promotion program” from 10 managers or indie label heads who have tested it and agreed to speak about their experiences last week on the condition of anonymity.
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“If Spotify’s mission is to prevent gatekeepers from stopping good music from making it to the top, Discovery Mode is definitely doing that,” says one manager. “We first started using it a year ago and saw incredible results,” adds an indie-label head. And one particularly effusive manager of a pop act called Discovery Mode “a brilliant tool, amazing for marketing music.”
It was notable that the managers who spoke for this story were almost uniformly unaware that Congress had Discovery Mode in its sights. Instead, they were gushing over being able to juice their artists’ streams as much as 200% to 300%.
The dissonance between the government’s apprehension and managers’ enthusiasm has been nearly constant during the brief and tumultuous life of this Spotify program. The streaming service announced Discovery Mode towards the end of 2020. If artists elect to participate in the program, their music enjoys higher priority in Spotify’s algorithm, which services music to passive listening initiatives like Spotify Radio and autoplay. The catch? Artists receive lower royalties on plays that come through this extra algorithmic exposure, and a fair number of artists are pretty unhappy about Spotify’s low royalty rates already.
“If People Are Getting Boosted, You Have to Compete”
Discovery Mode was immediately tagged as modern payola — by both its detractors and its supporters. (Streaming services are not regulated like the airwaves, where undisclosed payola is prohibited.) The Artists Rights Alliance decried “Spotify’s cynical decision to use this moment to launch a new pay-for-play scheme pressuring vulnerable artists and smaller labels to accept lower royalties in exchange for a boost on the company’s algorithms,” calling the initiative “exploitative and unfair.” In June, members of the House Judiciary Committee wrote to Spotify, concerned that Discovery Mode would “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.”
But others argued that “streaming payola” would be beneficial for those same “vulnerable artists,” replacing “a closed and secret system where the major record labels control access to audiences” with “a lottery for low-priced tickets to success.” In response to last week’s letter from Congress, Spotify said in a statement that “artist and label teams have told [us] for years that they want more agency in reaching new listeners and driving meaningful connections on our platform — Discovery Mode, in its early phase, delivers just that.”
The worries expressed by members of Congress and the Artists Rights Alliance, among others, stem in part from the belief that, once payola-like behavior becomes an option in a brutally competitive environment where everyone is looking for an edge, everyone is incentivized to participate — even if that widespread participation ultimately blunts any edge.
In the world of radio, for example, “overall, labels would be better if everyone cooperates” and refuses to pay for airplay, explains Gabriel Rossman, an associate professor at UCLA who has studied payola. “But at any given time, no matter what you’re doing, I have the incentive to pay. If you’re not paying a bribe and I am, then I get all the airplay. And if you’re paying bribes and I also pay a bribe, then at least I get some airplay.” The end result, according to Rossman, is that competitors bid up the price of radio spins to the point where it cancels out the promotional value of airplay.
Even some of the managers and label-heads who object to Discovery Mode have started to use it, which offers potential support for the “race to the bottom” theory. “I was advocating from the beginning that they shouldn’t do this at all — you’re poking a hole in a dam,” says one indie label leader. “But if people are getting boosted, you have to compete in that environment,” so he’s testing Discovery Mode for his acts. “It makes me uncomfortable,” he says.
“You’re Getting Streams You Otherwise Wouldn’t Have Gotten”
The gulf between managers on the one hand and music industry advocacy organizations and regulators on the other can be explained in part by their focus. The former see their job as helping their artists rise above the competition by any means necessary, and Discovery Mode is another tool in their arsenal; they are tending to just a few trees. The Artists Rights Alliance is looking at the impact on the whole industry, trying to figure out what will happen to the forest. “Some managers are taking advantage of the small number of users and seeing positive results,” says one industry veteran who is staunchly anti-Discovery Mode. “This was bound to happen because managers commission all revenue streams and can use Spotify as promotion for touring and merch sales.”
It’s not hard to find managers in the “positive results” camp. “We’ve had artists go from 5,000 streams a day to 100,000 streams a day,” one says. “We’ve seen hundreds of thousands of dollars of revenue created by it. We saw around six months of growth.”
A different label leader says several of his acts saw daily streams jump by a factor of two to three. “It’s been really awesome for pop and dance music,” according to a manager who watched acts already earning six-figure daily stream counts enjoy their numbers “double or close to double.” Another manager of a pop act that was earning even more daily streams saw a jump of a similar magnitude. And a third manager has seen sizable gains on songs that were already earning more than 500,000 streams a day.
The key to reaping benefits from Discovery Mode, according to one of the label-heads who has seen it positively impact hip-hop tracks, is to focus on songs “that are already performing well.” “It won’t enhance a record that’s not streaming,” the label-head adds. “Where it has an impact is viral records” or songs that listeners are already saving and adding to personal playlists. “If you’re running it effectively,” the executive says, “you’re going to make money no matter what.”
For that to happen, the jump in streams has to offset the decrease in revenue from those prioritized radio plays. A pair of managers saw 30% less revenue come through on Discovery Mode plays. But since streams nearly doubled when they put songs into the program, both managers view the tradeoff as worth it.
Some distributors and artists, including TuneCore and Terrace Martin, are named as supporters of Discovery Mode on Spotify’s website. But more than half a dozen members of the music industry who were enthusiastic about the program and wanted to shout its praises to the skies were not comfortable going on the record about it, describing the initiative as a “taboo” topic.
That’s not because they were aware of the letters Representatives had sent to Spotify, however. “You don’t want anybody to know that you’re doing a hack that might not be fully organic,” according to the hip-hop label leader. The jump in streams from Discovery Mode “is artificial,” adds another manager. (He still puts viral songs into the program, noting that it helps them “stay viral longer.”)
A third manager believes “it would hurt us if we went to major labels with these [boosted] numbers and they were like, ‘oh, Discovery Mode did this.'” He’s wary of even telling his pals about participating in the program. “When I started bringing this up to friends I trust, they were like, ‘that’s evil, I hate it,'” he says.
“This Is the Golden Age for This Right Now”
Keeping a secret from your friends is one thing. More troubling, perhaps, is that some Discovery Mode users are beginning to get a sense that the impact of the program is diminishing. This is hard to prove, since each manager or label can only make judgements based on their own limited experiences. The one organization with a big data set to study and a good sense of Discovery’s Mode’s effectiveness — in terms of influencing streams and, maybe more importantly, overall payouts — is, of course, Spotify, which is notoriously tight-lipped.
One manager who saw 200% to 300% gains for his artists through Discovery Mode last year recently saw the impact fall to 20% to 30% — but he acknowledges that it’s hard to draw conclusions from just a few acts. Still, there’s logic to the idea that the oomph of Discovery Mode would wear off over time. Bringing a gun to a knife-fight gives you a pronounced advantage, until you show up one day and everyone else has armed themselves in the same fashion. “If more and more people opt in, eventually there’s just limited space,” one label-head says. “I think there’s probably another year left of extracting value out of this.”
If that theory proves to be true, that would mean early adopters would reap the benefits of Discovery Mode, getting in at a time when the lift in streaming outweighs the decrease in revenue, while latecomers would participate primarily to avoid falling further behind. The one entity that would stand to keep extracting value from the program in the long term is Spotify, thanks to an increasing number of streams that pay out at a lower rate.
Two sources say the indie labels and distributors in the Merlin Network got access to Discovery Mode earlier this year, which will increase competition. On top of that, sources say that some distributors are putting artists’ entire catalog into Discovery Mode at once. “I’m against that,” one manager says. He supports putting just one or two songs into the program, but believes that throwing a whole catalog in there is getting greedy.
Another manager who agrees that Discovery Mode is “going to get absolutely flooded” is still eager to take advantage of it while he can. “This is the golden age for this right now,” he says. “I think this is an excuse for Spotify to pay people less when they’re not paying people much to begin with. But an artist in the development stage needs everything they can get.”