Earlier this week, Spotify reportedly began experimenting with sponsored content from record labels in exchange for payment. ‘Sponsored songs’ are promoted by appearing in users’ playlists without the user adding them. While Spotify is running a risk of changing the user experience, selling ad space might be a natural next step for a company with reach to over 140 million active users and 50 million paid subscribers.
The “pay for play” strategy is reminiscent of an age-old tale that still haunts the record business today. Back in the 1950s, ‘payola’ became a familiar term in the music industry. The “paying of cash or gifts in exchange for airplay” was a major issue by 1960, and was officially made illegal through the Federal Communication Act. At this time Congress outlawed “under-the-table payments and required broadcasters to disclose if airplay for a song has been purchased.”
But comparing Spotify’s recent dabbling in sponsored content with payola doesn’t seem quite fair. For one, the small trial for these sponsored songs does not affect any paid subscriptions. Additionally, Tech Crunch says that if the testing is successful and sponsored songs are officially used, they would only appear to users on the free tier. There could even be an option to opt out of the sponsored content settings.
When taking a closer look, it seems that Spotify may be playing a game of survival in a streaming market full of huge competitors like Apple and Amazon. In 2016, Spotify reportedly earned $3.3 billion in revenue, but lost almost $400 million on overall operating costs. Adding to this, Spotify has agreed to pay record labels at least $2 billion over a predetermined span of time – this is in addition to the per-stream royalty rates that they already pay each time a user streams a track.
So, with Spotify’s bigger picture in mind, there’s a possibility that the company will find it beneficial to create a more involved partnership with record labels. This could help their bottom line by allowing them to negotiate lower royalty rates and continue forming strong relationships. Even if this does mean that user playlists will be a bit less organic.
So how do you feel about sponsored plays and do you think we’re going back in time to the “payola” days? Maybe there’s something to be said about offering users a taste of the newest music released by big name labels. Who knows – these sponsored songs could end up fueling your next workout or becoming your favorite tune for a long drive.
Tell us what you think. We want to hear your opinion!