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UPDATED: 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 reduced royalty rate. Among other notes, the letter requests that Spotify label such songs as paid content; the company announced the policy, which has come under heavy criticism, in 2020.

The letter, written on official Congress stationary and obtained by Variety, is dated March 26, 2022 and signed by Reps. 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 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.

“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,” the letter continues. “Without this transparency, you are asking artists to make a blind choice, and it represents a classic prisoner’s dilemma.”

Last July, House Judiciary Committee Chairman Rep. Jerry Nadler (D-NY) and Subcommittee on Courts, Intellectual Property, and the Internet Chairman Rep. Hank Johnson Jr. (D-GA) wrote to Ek requesting more information on the policy, voicing concerns that it “may 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.”

To be fair, the program is essentially no different from traditional brick-and-mortar promotional campaigns whereby record companies pay retailers for premium store-display placement for their CDs and vinyl; and unlike those programs, Spotify is at least upfront about the advance-royalty-payment aspect of Discovery Mode. The company emphasizes that the program requires no up-front costs, although it is still a method whereby artists or labels pay for better placement, with hit-or-miss results.

Contacted by Variety, a Spotify spokesperson said: “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.”

Philip Kaplan, CEO of independent distributor Distrokid, is among the executives and artists who praise the program on the company’s website, saying “Discovery Mode is a groundbreaking music marketing tool because it doesn’t require any upfront budget. Discovery Mode makes it possible for independent artists at every level to reach new fans in a whole new way.”

The March 26 letter accuses the company of a lack of transparency for consumers in Discovery Mode as well.

“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.”

On its website, Spotify bills Discovery Mode as “a marketing tool designed to help you find new listeners when it matters to you most.” However, it has come under criticism from the media and the artist community for many of the reasons the letter above outlines. Music Business Worldwide published a lengthy criticism of the policy last year, calling it a “Pay for Influence Tool.”

The letter comes during a challenging time for Spotify, which came under intense criticism for hosting Joe Rogan’s controversial podcast earlier this year in a $200 million deal, and followed by the company’s decision to sponsor the Barcelona soccer team in a $300 million deal. These nine-figure deals come at a time when the company, along with Amazon, Google and Pandora, has spent millions in an effort to lower the rate it pays to music publishers and by extension songwriters.

The text of the new letter appears in full below:

Dear Mr. Ek:

We write to you as the co-chairs of the Congressional Caucus on Multicultural Media to express our concerns about Spotify’s approach to consumer transparency and disclaimers. Your company’s questionable approach has been brought to light in public by recent scandal and your company’s decision to add “content advisory flags” to podcast episodes about the COVID-19 pandemic that include misinformation, like the Joe Rogan podcast.

As you are well-aware, the recent episode led to a standoff between your company and a number of iconic artists including Neil Young and India.Arie. The New York Times reported that this is “the latest strain in the company’s complex and frequently troubled relationship with artists.” 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.

As reported in the press and on your website, Discovery Mode offers recording artists and copyright owners a heightened push of enrolled songs to consumers on algorithmic plays, including streams through Spotify’s Radio and Autoplay formats, in exchange for reduced royalty payments for the use of those sound recordings by the platform. However, it is our understanding 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 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.

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.

Regarding consumers, they too deserve transparency. 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.”i

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.

We seek information from your company to determine if Discovery Mode violates
the foundational truth-in-advertising principle that “it’s deceptive to mislead consumers about the commercial nature of content.”ii We understand that relevant FTC guidelines disclosures of paid content to be “clear and conspicuous.”iii Among the factors considered under this standard are whether disclosure is prominent and unavoidable, and nothing we see on your website or any interface your service meets those criteria. Why does Spotify not comply with 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 more equitable media landscape and in that spirit would ask that you seriously consider whether Discovery Mode deceives consumers and undervalues independent artists.

Signed,

Yvette D. Clarke Judy Chu Tony Cárdenas Member of Congress Member of Congress Member of Congress