Spotify's New AI Initiative Is Terrifying

Let’s talk about Spotify’s new AI initiative and why I find it terrifying. Recently, Spotify announced plans to create its own AI products in collaboration with the three major record companies: Universal Music Group, Warner Music Group, and Sony. Their press release reads like the plot of Terminator 2 - only AI can defeat AI. All hail Spotify, the savior that will singlehandedly stop AI platforms from abusing music artists. They’re positioning the company as a protector when it’s a profiteer.

Understanding the ecosystem of the platform, its relationship with major labels, and the profit incentive is key to the justification of why I think it’s a nightmare waiting to happen. Allow me to explain…

Spotify’s Ecosystem

Kehlani - on this day - has over 28 million monthly listeners on Spotify. Spotify leverages her popularity through algorithmic and editorial playlists.

When I open up Spotify, I’m not looking to work to find something to stream. If I choose an album or playlist I’ve created, I know what to expect; it’s monotonous. That drives me into the arms of the algorithm, where I seek refuge through Artist radio and Daily Mixes.

Daily Mixes are playlists served up by Spotify that consist of a user’s most-streamed songs, including closely related songs they haven’t yet streamed. Each user gets a series of Daily Mixes organized by genre.

My Hip Hop Daily Mix has a lot of the songs I grew up dancing to at house parties in Harlem. Some of them I have saved in my library, but a lot of them aren’t. If you love One More Chance by B.I.G., are you likely to object Feeling It by Jay Z? Not having it in your library is probably just an oversight.

A Kehlani fan is going to get Daily Mixes featuring music related to Kehlani, which is how she’s leveraged to promote other artists and releases.

Songs can span genres. Any popular song, no matter the genre, crosses into Pop. A popular R&B song with a Rap verse could be placed on multiple Daily Mixes for the same user. An artist categorized as similar to Kehlani could see their song added to the Daily Mixes of over 28 million listeners. That could drive more than 28 million streams per day, not from fan interest, but from placement.

Over 28 million streams and not a single listener could recall hearing the song, care anything about it, or be aware of the artist’s existence.

There are multiple playlists served by Spotify with similar functionality: Discover Weekly, Release Radar, Editorial, which also gets mixed with algorithmic, Artist radio, and more.

Spotify’s Relationship with Majors

Spotify and other streaming platforms have the most power because they control their algorithms and editorial. However, they’re controlled by the entities that own the rights to the music their platforms depend on, and that’s major record companies. When they say “Jump,” Spotify says “How high?” Take the Artist-Centric payout model, for example. It’s a monetization model created by Universal Music Group and effectively forced on streaming platforms as part of licensing agreements. It’s been branded as a reverse Robinhood where royalties are taken from artists who earn the least, and given to major label artists who earn the most.

The economics of streaming

Revenue doesn’t get paid out to artists who earned streams; it gets paid out to artists who earned more streams than other artists. Say you got 100 out of 1,000 streams, that’s 10%. Earning the same number of streams if the total increases to 100K drops you to 0.1%.

Spotify’s value proposition is offering users access to an almost unlimited library of music. The platform doesn’t earn money from streams. The revenue generated from subscriptions and ads is split with rights holders, with Spotify retaining 30% and rights holders receiving 70%. That’s in exchange for the licensing rights to have the music in its library. Right now, all the songs people love are human-generated. A platform that doesn’t have the music of Taylor Swift, Beyoncé, Kendrick Lamar, Drake, K-pop acts like BTS, and Ed Sheeran, mine as well not exist.

What Terrifies Me

Spotify could create a virtual artist with AI-generated music and force the music on listeners through its playlists. It would become a rights holder and would end up paying itself and retaining all its revenue. If Spotify retains its revenue, that’s money that doesn’t go to record companies. That won’t fly. Record companies would threaten to discontinue licensing music to the streaming platforms, and they need those catalogs.

Everything changes when the virtual artists and AI music are collectively owned by Spotify and record companies, because their interests are aligned.

The biggest danger with AI isn’t how artists and enterprising music fans use it; it’s the Industry. It’s the platforms under corporate control and the power they have over discovery and delivery. As evidence, we can turn to Spotify plastering Drake on the cover of every playlist on the platform in 2018 during the promotion of his album Scorpion. Unlike a record store that earns money from every sale, where an incentive to promote a release to drive more sales, Spotify doesn’t earn anything from streams. It’s not lead acquisition because everyone exposed to the playlist was already a Spotify user. The only motivation was appeasing UMG.

Major record companies and streaming platforms collectively have the power to do a human artist Blackout on their platforms. Not to say they would, especially not now with mega stars like Taylor Swift under contract and still relevant, but they could when today’s stars fade. It’s the perfect storm.

There could come a day when every editorial and algorithmic playlist almost exclusively features virtual artists with AI-generated music. The homepage features new releases by virtual artists with AI-generated music. And human artists are left fighting for crumbs.

Spotify is a publicly traded company. Two out of the three major record companies are publicly traded companies. They have a fiduciary responsibility to operate in the best interest of their investors. The interest of investors is making money. Spotify’s announcement that it slashed its workforce drove share prices up. For record companies, artists are the workforce. Every recording artist who uses an AI cover artwork generator to avoid paying a visual artist should understand what’s about to happen.

What artists should do to prepare and future-proof their business is to de-emphasize industry-controlled platforms. Create a website and send fans there. We’re working on a guide that will walk artists through monetizing their websites in the same way Spotify and social media monetize, where there’s no pressure to get sales. You can sign up below to be notified when it drops.