I’m Shocked, Shocked: Payola on Spotify?


How can you close me up? On what grounds?


I am shocked, shocked to find that gambling is going on in here!


Your winnings, sir.


Oh. Thank you very much.

From Casablanca, written by Julius J. Epstein, Phillip G. Epstein and Howard Koch.

Can you imagine–someone in the music business is trying to buy their way into the charts.  Shocking, I know.  Totally unpredictable.  Who could ever have anticipated that move?

What about the payola laws, you say?  Good point.  The payola laws are supposed to protect the public from undisclosed payments received by disc jockeys (remember them?) and program directors from people trying to buy their way onto radio stations playlists.

Why would anyone want to buy their way onto a station’s playlist?  Chart position and sales.  The economic principle at work is competition for a scarce resource, in this case an “add”, as in getting added to the station’s playlist.

Why would an add be a valuable resource?  Two reasons:  The “Top 40” playlist format and the “Hot 100” Billboard chart.  Both of these institutions create scarcity where there was none and simultaneously create a very strong incentive for shenanigans.

When Billboard created its largely meaningless “consumption chart”, it baked number of streams into the new chart largely replacing radio airplay in a rush to modernity.  And by allowing itself to get caught up in the streaming bubble, Billboard created a giant incentive to dodge the payola rules.

The Federal Communications Commission established the payola rules for FCC licensees (meaning broadcasters) to require disclosure of payments and it is this nondisclosure that is what makes it illegal.

For broadcasters.

Not for Pandora (although there’s an open question about that given how hell-bent Pandora was to buy a radio station and become subject to payola laws).  Not the monopolist music subscription service Spotify or the other streamers.

So yep–the penny dropped.

If you can control the playlists on a streamer you can control the charts which will help your sales and marketing team, make the artist more attractive to promoters, agents, publishers.

And there’s no payola laws getting in the way because there’s no FCC jurisdiction.

As Pandora’s brilliant Washington, DC lawyer David Oxenford tells us:

“The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a “radio” service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.”

Here’s a link to one of the few extensive articles on the subject.

It should come as no surprise then that Billboard now reports that labels paying for placement on influential playlists on services like Spotify.

Labels are incorporating playlist ­promotion into their overall marketing strategies with the knowledge that discovery through a list favored by, say, music supervisors can lead to synch licenses for a new artist. Radio stations also often use streaming data to inform their own spin cycles, with the rock and pop formats in particular looking to “see what’s bubbling up and amplify it,” says one digital music executive. “Stations don’t want to be behind what’s online.”

Like social media, playlists are viral in nature: A track’s streams will spike after it’s added to a popular playlist; listeners will add the song to their playlists; their friends will do the same. Getting a song onto a hot playlist almost ensures awareness will spread from one social network to another.

But–as Washington insider David Oxenford tells us, even if the FCC can’t get  jurisdiction over Spotify, state attorneys general may be able to investigate under applicable state law commercial bribery statutes.  So let’s not cast the net too narrowly here.  Just because Spotify isn’t an FCC licensee doesn’t mean that there’s not commercial bribery going on.  And that’s the kind of thing that can ruin your whole day.

Billboard noted that another Washington insider, Jonathan Prince, now Spotify’s head of communications said:

In a statement to Billboard, Spotify head of communications Jonathan Prince says its new terms of service, hitting the United States next week, prohibit selling accounts and playlists or “accepting any ­compensation, financial or otherwise, to influence … the content included on an account or playlist.”

Yet policing, let alone enforcing, these terms could be difficult. Spotify can investigate when allegations arise, and in the case of violations, delete a playlist or remove the user from the service. But there are loopholes.

This is kind of like user-generated content services saying in their terms of service that they don’t support copyright infringement.  They really really don’t.  Seriously, they don’t.  Not them.  Nope.  No way.  They don’t support it.  Which may be just a misprint.  It supports them.

What would be more interesting would be to know what is prompting this sudden attention to an issue that has been around for years?

Of course, Spotify board member Google has decided that any state AG with the brass to investigate them is just trying to impose what passes for “censorship” in the Google online echo chamber, so you can expect Spotify to sue any law enforcement officer with the temerity to start sniffing around.

You know…because The Internet.