Spotify’s Discovery Mode Under Scrutiny by Congress (Again)

Members of Congress are once again taking aim at Spotify’s controversial Discovery Mode feature, which allows artists and labels to receive a lower royalty rate on select tracks in exchange for higher priority in the platform’s algorithms.

In a letter obtained by Billboard, dated March 29, 2022 and addressed to Spotify founder, CEO and chairman Daniel Ek, Reps. Yvette D. Clarke (D-NY), Judy Chu (D-CA) and Tony Cardenas (D-CA) – co-chairs of the Congressional Caucus on Multicultural Media – express concerns that Discovery Mode “lacks transparency” for both artists and consumers and ask the company to publish “on a monthly basis the name of every track enrolled in the program” and the agreed-upon discounted royalty rate for each. Variety first reported on the letter.

“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,” the letter reads. “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.”

Without transparency, the letter continues, Spotify is “asking artists to make a blind choice, and it represents a classic prisoner’s dilemma,” adding that Discovery mode has potentially harmful potential for “artists of diverse backgrounds, who often struggle to access capital.”

For consumers, the letter also questions whether Discovery Mode – which Spotify says is still in the testing phase – amounts to “misleading native advertising,” stating that the program “seems identical” to promotional social media posts or sponsored search results that fail to alert users to the fact that they’re ads.

“We understand that relevant FTC guidelines disclosures of paid content to be ‘clear and conspicuous,’” the letter continues. “Among the factors considered under this standard are whether disclosure is prominent and unavoidable, and nothing we see on your website or any interface you’re your service meets those criteria. Why does Spotify not comply with these federal guidelines, put in place to protect consumers?”

In response to the letter, a Spotify spokesperson sent the following statement to Billboard: “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.”

First unveiled by Spotify in November 2020, Discovery Mode previously attracted concern from Reps. Jerry Nadler (D-NY) and Hank Johnson Jr. (D-GA), who in June 2021 sent a letter to Ek voicing worries that the feature “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.”

In a written response to that initial letter, Spotify head of global affairs and chief legal officer Horacio Gutierrez claimed  Discovery Mode “has an overwhelmingly beneficial effect” and said the program had grown participating artists’ number of listeners by over 40%, “with artists in the earlier stages of their careers seeing the greatest success.” He added that because Discovery Mode doesn’t require an upfront cost, it allows artists “at any stage in their careers access to the same promotional opportunities as established artists with cash marketing budgets at their disposal.”

Regarding the program’s transparency, Gutierrez noted that Spotify provides participating artists with “detailed metrics showing Discovery Mode’s impact” for their music “across the Spotify platform, including on numbers of streams, listeners, track saves, and playlist adds.”

In further efforts to tout the alleged benefits of Discovery Mode, Spotify has published successful case studies of artists who took advantage of the program, including Natalie Perez, mehro, ODIE and Terrace Martin. Several distributors, including Believe CEO Denis Ladegaillerie, Distrokid CEO Philip Kaplan and Tunecore CEO Andreea Gleeson, have also released statements in support of the program.

By contrast, music industry critics of Discovery Mode have said the program “tilts what had been a level playing field for artists” and “misleads listeners,” with others citing Spotify’s alleged “pattern of devaluing music” in calling the program into question.

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