The Corner Newsletter: Spotify Shifts Payments from Smaller Artists to Big Labels ( July 28th, 2026)
Welcome to The Corner. In this issue, we take a look at how a new royalty scheme by dominant music streaming service Spotify shortchanges smaller artists in favor of the large music labels.
Spotify Takes from the Small to Give to the Rich, as New Royalty Scheme Serves Big Music
Jai Sharma
This past May, attorney and musician Mark Kratter filed a complaint in Connecticut Superior Court claiming Spotify’s new royalty payout scheme violates state law. Among several new policies that date to April 2024, the corporation stopped paying artists whose songs earn less than 1,000 plays per year. Spotify will pool earnings from the artists who do not hit the minimum —which add up to $40 million a year — and distribute them to artists who do, as per the company’s “streamshare” model.
While a small artist might only receive a fraction of a penny per play, Spotify’s ability to flex its market power to disproportionately benefit Universal Music Group, Sony Music, and Warner Music — each of which hold a nearly six percent ownership stake in Spotify — while harming independent labels is the real concern. Aggregated over several years, the change will result in hundreds of millions of dollars being transferred from the smallest players to the biggest.
To calculate streamshare, Spotify finds the percentage of streams that a particular track has relative to the total number of streams across the platform and multiplies that by the royalty pool. This means that a track with 1% of all streams receives 1% of the total royalty pot. The Stockholm-based based company claims the change will help crack down on “artificial streaming.” This takes place when artists or middlemen use bots to boost streaming numbers to get higher payouts, then attempt to hide their use of bots by distributing them across a large number of tracks.
Spotify, unlike YouTube, requires that artists work with a distributor to publish music on its platform. (YouTube, on the other hand, allows anyone to upload music.) Generally, major labels handle distribution for larger artists while independent artists use companies like DistroKid, TuneCore, and CD Baby to get their music onto Spotify. One estimate suggested that over 20% of streams represented by these smaller intermediaries would become ineligible under Spotify’s new rules, with Universal, Sony, and Warner reaping the rewards.
Spotify’s terms of service allow the corporation to change certain remuneration policies unilaterally without consulting artists. Distributors that take a percentage of an artist’s royalty will lose business, as well as small labels that may own hundreds of records across niche genres like classical, jazz, and non-English music that rely on small-volume streams across many records to generate revenue.
Such arbitrary changes to royalty payment policy reflect bigger problems in the music industry. Spotify, Apple, and Amazon together operate as a de facto streaming oligopoly, with Spotify alone controlling 30% of the streaming market. Such dependency on a single platform makes it all but impossible for artists to opt out, especially with the changing economics of the music business.
The other factor working against independent artists is that Spotify is not simply a neutral distributor of music, but a business that earns significant revenue from promoting specific recordings.
In engaging in such activity, Spotify skirts close to one of the most famous laws designed to regulate distribution of recorded music. In the 1950s and 1960s, the music industry was roiled with a “payola” scandal, where record labels would pay DJs to promote their music. Today it is against the law for broadcasters to secretly accept payola, with FCC rules requiring broadcast licensees to disclose when they are being paid to promote a record. Over the years, many artists and labels have charged that Spotify engages in payola, by boosting certain tracks in exchange for a reduced royalty rate and then failing to disclose the agreement. The corporation states only that “commercial considerations” may influence their recommendations.
Spotify pushes particular tracks through various curated playlists, which can greatly impact the success even of larger artists. Spotify’s algorithm uses a variety of factors including listening time, the lyrical content of a song, and the emotion it generates in a listener to determine whether to push a specific song to a particular customer.
Smaller artists primarily compete against two actors for such promotion: the major labels and Spotify itself. As professors Luis Aguiar and Joel Waldfogel point out, Spotify may have an economic incentive to prioritize artists affiliated with the labels that partly own the platform.
Spotify also has an incentive to prioritize its own music. Perfect Fit Content (PFC) is the internal program that creates cheap filler for playlists like “jazz” and “peaceful piano.” Spotify employs production companies to make ambient or “chill” music, and then displaces real artists from playlists in favor of their own commodity artists. Spotify thus avoids paying independent artists.
Liz Pelly, a journalist who has long covered the music business, articulated the problems with the program, saying that artists “face the possibility of losing out on crucial income by having their tracks passed over for playlist placement or replaced in favor of PFC.”
OMI Lauds State Attorneys’ Move to Block Paramount-Warner Bros Merger, Now on Hold
Open Markets applauded 12 state attorneys general for suing to block the Ellison family’s proposed takeover of Warner Bros. Discovery, framing the case as a major fight against media consolidation, political influence over the free press, and concentrated control over news, entertainment, and information markets. OMI executive director Barry Lynn lambasted the merger as “one family’s attempt to build a corporate media empire in the service of their own political and economic power at the expense of the American free press — the backbone of our democracy.” Paramount has agreed to halt its merger until next June while the case is being considered.
Open Markets also criticized the European Commission’s separate decision last week to conditionally clear the Paramount purchase of Warner Bros. Discovery, warning that the move abandons Europe’s cinemas, creative workers, and citizens. Max von Thun, director at Open Markets Institute Europe, said, “When Disney acquired Fox, film output fell by 40 percent despite the Commission’s conditions.” CMDG director Courtney Radsch added, “This merger hands even more control over Europe’s entertainment and news to a single American conglomerate.”
Open Markets Praises EU Efforts to Restrict Google’s Abusive Conduct
Open Markets welcomed the European Union’s $1 billion fine on Google for self-preferencing its own services and for preventing app developers from freely steering users to other offers outside of the company’s Play Store but added more action needed to be taken. “Fining Google for its systematic and intentional non-compliance with the DMA is a good first step, but must be seen as the bare minimum,” OMI Europe director Max von Thun said. “Having finally established Google’s non-compliance, the Commission must now move quickly to force Google to end its unfair business practices once and for all.” The massive fine represents the tech giant’s first penalty under the EU’s landmark Digital Markets Act.
Open Markets also applauded a decision earlier this month by the European Commission to require Google to open Android to rival AI assistants and share key search data with competitors, arguing that the measures are critical to preventing Google from turning its search and mobile operating system dominance into control over Europe’s AI future. “This order will empower users to break free of Gemini, and competitors to develop better competing products,” von Thun said. The statement was covered in Prism News.
📝 WHAT WE'VE BEEN UP TO:
Center for Media and Digital Governance at Open Markets Institute director Courtney Radsch argues in Project Syndicate that business models built on surveillance advertising have been allowed to proliferate in the absence of meaningful regulation, a vacuum that has led to a powerful global movement to restrict minors’ access to social media. “The social-media industry spent a decade making its toxic practices legally and politically untouchable,” she writes. “The question is whether policymakers will respond before the AI industry replicates the same model.”
Open Markets editorial director Anita Jain published a review of Cory Doctorow’s latest book The Reverse Centaur’s Guide to Life After AI: How to Think About Artificial Intelligence — Before It’s Too Late in the Washington Monthly. In that work, the tech pundit dismisses the risk that AI could become superintelligent or cause mass unemployment and focuses instead on the AI industry’s shaky economics. “He does us a solid by deflating the rhetoric surrounding AI and placing the technology in a more realistic light,” Jain writes.
Open Markets fellow Matt Scherer coauthored an essay in Persuasion explaining why corporate AI customers have begun to question their return on investment in the technology. “Uber, Walmart, and other companies have responded to cost overruns not by increasing their AI budgets, but by tightening their limits on employees’ AI use, switching to open-source Chinese models, or even, like Microsoft, canceling third-party AI licenses altogether,” Scherer writes.
OMI legal director Sandeep Vaheesan’s groundbreaking 2004 book on publicly owned power and rural electric cooperatives Democracy in Power: A History of Electrification in the United States will be out in paperback Sept. 30. Please use the discount code UCPNEW to purchase the book.
Vaheesan was quoted in Truthout on NextEra’s potential acquisition of Dominion Energy. “Two of the largest and most powerful utility holding companies in the country are joining forces, and this is going to give them even more political clout at the national level,” he said.
OMI chief economist Brian Callaci joined Bloomberg’s Odd Lots podcast to discuss how legal battles fought by franchises helped usher in the gig economy.
Open Markets Institute fellow and director of the Southern Justice Project Evan Turnage sat down with Senator Elizabeth Warren to discuss monopoly power and what normal citizens can do to curb corporate power.
Open Market joined an amicus brief defending California’s AI transparency law requiring AI companies to disclose information about the data used to train their models following an appeal by xAI. “If AI companies can invoke the First Amendment to shield basic facts about their products from public scrutiny, it will become significantly harder for policymakers and the public to govern these technologies in the public interest,” said CMDG senior analyst Karina Montoya. Read the brief, authored by AI Coalition of Data Integrity, here.
Open Markets Institute joined other antimonopoly, consumer, and farm advocacy groups in endorsing the “Family Grocery and Farmer Relief Act,” a bill aimed at breaking up harmful food and agriculture monopolies. The bill was introduced by Democratic House representatives Pat Ryan, Chris Deluzio, and Pramila Jayapal. National Hog Farmer and Meatingplace highlighted support from Open Markets.
Open Markets also endorsed two other bills, the Curtailing Executive Overcompensation (CEO) Act, introduced by Democratic Senator Sheldon Whitehouse, and the Fair Seeds for Farmers Act to rein in seed monopolies. Daily Hampshire Gazette covered OMI’s endorsement of the Fair Seeds for Farmers Act.
Press Gazette reported on how U.S. copyright law is being weaponized to silence journalism globally, citing research by CMDG@OMI director Courtney Radsch showing that journalists in the Global South and in exile have been targeted with bogus copyright law requests aimed at removing critical reporting.
Bond Buyer reported that Milwaukee is considering municipalizing its electric utility to gain more control over rising electricity rates. The article cites Open Markets Institute research finding that opponents of municipalization outspent supporters by 34 to 1.
S&P Global cited Sen. Elizabeth Warren’s remarks on banning private equity rollups at Open Markets’s June 24 event, “The Next American Revolution: Breaking Oligarchy and Making a New Democracy.”
🔊 ANTI-MONOPOLY RISING:
France passed a law restricting social media access to minors under 15, becoming the first country in Europe to do so though others like Poland, Italy, and Spain are drafting laws. The French law follows in the footsteps of a similar bill passed in Australia. (New York Times)
Switzerland’s Competition Commission has launched a preliminary investigation into Google’s removal of a choice screen that allows Android users to opt out of using its search engine as default. This feature, which had been rolled out across Europe in compliance with the Digital Markets Act, was recently removed in non-EU Switzerland. (Reuters)
📈 VITAL STAT:
10%
The portion of global revenues that a group of European construction chemicals companies and trade association might be fined if found guilty by EU antitrust regulators for taking part in a cartel between 2021 and 2022. (Reuters)
📚 WHAT WE'RE READING:
Private Power and Democracy’s Decline: How to Make Capitalism Support Democracy: In his book, Stanford University economic professor Mordecai Kurz argues that concentrated power in the tech sector has made capitalism different from what was envisioned in the Age of Enlightenment. He posits that this market power creates political inequality and contributes to democracy’s decline and possible destruction.