Spotify is facing renewed criticism from US Congress over its Discovery Mode feature, which allows artists to receive additional exposure for a reduced royalty rate.
Three Congress members – Yvette D. Clarke, Judy Chu and Tony Cardenas, who represent the Congressional Caucus on Multicultural Media, have sent a letter to Spotify CEO Daniel Ek criticising the feature.
In exchange for a boost in visibility, artists and their labels agree to receive a “promotional” royalty rate on those streams, believed to be lower than the standard rate through the feature, which was announced in November 2020.
Highlighting this issue, the letter said via Variety: “Choosing to accept reduced royalty payments is a serious risk for musicians, who would only benefit if Discovery Mode yields more total streams for an artist across their entire catalogue, not just the track covered by the program.”
“And if two competing artists both enroll their newest track in the program, any benefit could be cancelled out, meaning that the only profit goes to your company’s bottom line. For artists of diverse backgrounds, who often struggle to access capital, the premise that they must now pay in order to be found by new consumers on Spotify represents an especially serious problem.”
It added: “We would ask that Spotify publish, on a monthly basis, the name of every track enrolled in the program and the royalty discount agreed upon. Without this transparency, you are asking artists to make a blind choice, and it represents a classic prisoner’s dilemma.”
The letter also accuses the streaming platform of a lack of transparency for consumers in Discovery Mode.
“Regarding consumers, they too deserve transparency,” it continues. “Spotify fails to tell consumers that they are listening to paid content when it feeds them Discovery Mode songs. We believe there is no meaningful distinction between paying a lower royalty rate and accepting payment for placement on the service. In fact, Spotify advertises to listeners that its Radio feature offers ‘continuous music based on your personal taste and no ads if you are a Premium member.’
“Based on our understanding of the program, this appears to make Discovery Mode a straightforward example of misleading 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 seems identical to deceptive native advertising like undisclosed promotional tweets from paid social media influencers or inadequately described sponsored search results.”
A spokesperson for Spotify hit back at the letter and told Variety: “Artist and label teams have told Spotify 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.
“We have been transparent about the use of Discovery Mode and the commercial considerations associated with it to our users and partners by publicly discussing this test in many forums and describing its use within the user experience. On the whole, the response to Discovery Mode from our listeners and partners has been incredibly positive and we will continue to be transparent about how it is working.”
The latest letter comes after concerns were raised in a previous letter to the company by Congress last year stating that Discovery Mode could encourage a “race to the bottom” wherein artists and their labels “feel compelled to accept lower royalties as a necessary way to break through an extremely crowded and competitive music environment”.