Written by Andrea Zarczynski — Despite recording artists’ complaints of meager royalty payments, Spotify is approaching them and record labels for a new source of ad revenue. In order to support profitability, the streaming company has pinpointed music artists and labels to foot the bill in exchange for advertising their songs on the Spotify app. As deals are made with large players in the industry, the discovery of smaller labels and artists will suffer greatly, according to Daryl Friedman, chief industry, government and member relations officer at The Recording Academy.
“It’s a bad idea for artists, for fans – and in the long run – for Spotify,” says Friedman.
The new effort requires artists to pay Spotify additional dollars for exposure, which effectively reduces their royalties even further, Friedman explains. While major labels may choose to engage in the deal, indie labels and artists may not be able to afford it, thereby driving down the overall amount of music played on Spotify. In the long term, fans will suffer as Spotify playlists are reduced, he says.
In 2018 Spotify announced that it would not allow payola to dictate the formation of its playlists, a tactic that radio stations were known for entertaining in the past. Making its playlist curation process more transparent meant that while the platform allows artists and labels to submit songs for inclusion in a playlist, no payment will be accepted to ensure that the song is added.
As Spotify continues to lag behind its competitors in ad revenue, the company is exploring whether podcasts and its new paid promotions will become lucrative ways to strengthen artist-fan connections. Last year Spotify explored a new form of fan engagement with the beta launch of Marquee, a marketing tool offering artist teams the opportunity to engage with fans using full-screen “marquee” album recommendations on Spotify. The tool introduced a broader reach than previous recommendations that were determined by the platform.
Past Spotify services, including one that allowed artists to upload songs directly to the platform, were not well received by leading labels Sony Music Entertainment, Universal Music and Warner Music. The new paid promotions may appeal to some big names but will do little to improve the overall music industry, Friedman says. He suggests a stronger approach to diversifying revenue streams and increasing profitability – identifying ways to lure users from freemium ad-supported access to paid subscriptions.
“Every day I hear artists tell me that they’re getting millions of streams yet low royalties around $100. It’s really (Spotify’s) obligation to pay the artist,” says Friedman, who adds that, in contrast, radio stations pay no royalties to creators or record companies. “Spotify is better than zero, and radio is zero.”
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