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Spotify is trying to captivate music labels with promotional models

Racehorse. Diamond ring for singers. A prostitute and a cassette box packed with cocaine. Or just cash, push it into the palm of a disc jockey, or stuff it into an LP sleeve.

These are all documented examples of “Piora,” a private sweetener for playing songs. With striking ingenuity, he skipped the history of the music industry, from a choral singer secretly sponsored in 19th-century London to a song plugger in New York’s Timpan Array to a 1970s radio ruche record spinner.

No wonder, its legitimate form is now pervading the digital age and Spotify’s algorithms. The question is not whether the 21st century payola has arrived, but whether it is totally beneficial to music streaming services.

Spotify is growing fast, but is chronically in the red. The company’s financial challenge is to better meet with major music labels that offer content at a percentage of their revenue. Spotify’s bet to improve music margins is a “double-sided marketplace” marketing tool that claims as a way to better connect artists and fans.

In “Discovery Mode,” announced this month, labels can promote their tracks with the Spotify algorithm. This will create personalized radio feeds and autoplays for 320 million monthly users. Quid pro quo to increase streaming volume: Reduce usage fees when playing songs. Reactions from some artists and industry were predictable. “It’s a piora. It’s pretty easy. You get an editorial position and you get play,” complained a music industry executive.

Defending the artistic purity of algorithm coding may not be straightforward, but there are legitimate concerns. Listeners, of whom about 144 million pay for premium, ad-free services, will be unaware of certain commerce that is out of balance so that certain songs can be heard.

It’s dangerous for music services that rely on the trust of their subscribers. There may also be sadness from artists who find that the small revenues from streaming will eventually result in additional promotional costs.

But under strict legal conditions, Spotify is safe. There is precedent. The reduced payment model leverages a groundbreaking 2014 licensing agreement between music service Pandora and Merlin, a coalition of independent labels.

Pandora has agreed to systematically “steer” automated online radio feeds towards Marlin music in exchange for discounted royalty rates. Importantly, because there was no payment, the copyright judge considered it a fully legal commercial arrangement.

The debate brilliantly recorded the crude form of illegal payola in 1979, but was awarded the late Nobel Prize, noting that it undoubtedly banned legal forms of price competition in theatrical payments. It reflects the economist Ronald Coase.

The main issue with Spotify is not the law or frustrating subscribers, but the economics of their own business model. Within a subscription platform, legitimate payola may not be as fruitful as some Wall Street expects.

Big labels don’t hate paying for theater. Most of YouTube’s revenue goes back to video services, leveraging the recommendation engine to boost overall sales.

Within Spotify, the incentives are different. Richard Kramer, an analyst at Arete Research, said: “Labels will understand that they are equivalent to paying each other to make money.”

Of course, the music industry has a rich tradition of clever one-up manship. Spotify could succeed in seducing one big label or independent company to steal a rival’s march. Then holdouts continue to protect your share.

The overall determination of the industry has been broken before.Izak Goldberg Tin Pan Array From 1930, it describes how music publishers in the 1890s agreed to stop buying singers to plug in songs. However, after that, some publishers made a secret deal that “duplicates were found and the lid was blown off.”

Another episode in history is also useful. After World War II, the biggest lobbying of anti-piola law was incumbents in the industry who were struggling to give way to new rock’n’roll from big stars and indie labels that lacked marketing budgets. .. Everyone was practicing payola, but as the course pointed out, “a small company thrived on it.” The big difference in the streaming economy is that breakthroughs can only occur at the expense of another artist or label.

alex.barker@ft.com

Spotify is trying to captivate music labels with promotional models

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