The 50 Dollar Handshake Goes to Washington: Payola, Spotify and Steering Agreements

It will be old news to MTP readers, but Spotify has yet another feature that smacks of pay to play, or what is sometimes called “payola.” We’ve seen all of this before in a few different manifestations over the years, but this time a couple of Congressmen sent a letter about it to billionaire Daniel Ek, Spotify’s CEO. (See the Artist Rights Alliance op ed and Ashley Cullins reporting in The Hollywood Reporter.) This time it’s about Spotify’s “Discovery Mode” but it could just as easily have been about Spotify’s direct artist deals from a few years ago or the Pandora and iHeart “steering agreements” from a few years before that.

Is it “payola”? Not really, but maybe it should be. I haven’t seen the issue surface in the U.S. Congress until now, but remember that the Digital, Culture Media and Sport Committee’s streaming inquiry at the UK Parliament spent considerable time discussing streaming playlists, especially Spotify’s enterprise playlists, as a replacement for radio. The issue is also coming up tangentially in the Canadian House of Commons debate over Bill C-10 particularly as it applies to Canadian content, indigenous peoples and culture generally. The cultural problem with Spotify is that it is the dominant music streaming platform in the world and itself is dominated by Anglo-American culture. (Of course, Spotify told the Canadian Parliament that they were all about Canadian culture because two of their top artists were Canadian. You know, Justin Bieber and Drake. Victory has a thousand fathers….)

So pay to play has a lot of ramifications. But is it “payola” under U.S. law? Probably not.

As the erudite David Oxenford noted a few years ago about Internet radio but could also have been speaking of Spotify:

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)…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.

“Payola” at U.S. law has a very specific meaning, so Spotify probably doesn’t come within the payola statutes.


Maybe it should. Representatives Jerry Nadler and Hank Johnson sure seem to think so. And given the tone of their inquiry to billionaire Daniel Ek, he may find himself in front of a Congressional committee faster than you can say “Arsenal.”

But if that happens, Congress should also investigate steering agreements which have been in effect for many years and still are as far as I know. These deals, like Discovery Mode, pay less the more times a track is played by Pandora or iHeart. The terms apply to certain agreements only, so Pandora knows which tracks costs them less. Sirius and Music Choice have tried similar shenanigans.

Of course the real problem is that Billboard started including streaming in the charts. I know it’s shocking, but people in the music business try to juice the charts. An old promotion man once was told by a distributor that his single would be 34 on the week’s sales turned into Billboard. His response was, would it matter if it were 9? So as soon as Billboard included streaming (as a radio replacement) they opened the door to liability-free payola. Liability free until it isn’t.

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