Spotify's Discovery Mode Generates Over €61 Million in Gross Profit Five Years After Controversial Launch

Spotify's "Discovery Mode," launched in 2020, has become a standard practice in music marketing five years later, despite facing significant backlash and "payola" accusations upon its introduction. The program allows artists and labels to signal priority tracks to Spotify's algorithms, increasing their visibility in personalized listening sessions in exchange for a reduced royalty rate on those streams. This strategic shift aims to boost artist reach on the platform.

Under Discovery Mode, artists incur no upfront costs, with Spotify instead applying a commission to recording royalties generated from streams within specific algorithmic contexts like Radio, Autoplay, and Mixes. To be eligible, tracks typically need to be at least 30 days old and have recent activity in these contexts, with artists often needing a certain threshold of monthly listeners. According to Spotify, artists utilizing the mode have observed notable growth, including an average 50% increase in saves, 44% in user playlist adds, and 37% in followers during the first month. This mechanism is designed to help artists build their fanbase and find new listeners globally.

Upon its 2020 pilot, Discovery Mode drew sharp criticism, with many likening it to modern-day "payola" due to the royalty reduction in exchange for algorithmic promotion without public disclosure. Artist advocacy groups, including the Artist Rights Alliance, labeled it "exploitative" and a "money grab." The US House Judiciary Committee also raised concerns in 2021, warning of a potential "race to the bottom" for artist compensation.

Spotify has consistently framed Discovery Mode as a democratizing tool, emphasizing its no-upfront-cost model as a benefit for artists without large marketing budgets. Internally, the program has proven highly profitable for the company. Between May 2022 and May 2023, Discovery Mode generated a gross profit of €61.4 million (approximately £51 million), with a significant portion derived from independent and DIY artists.

Despite its financial success for Spotify, the program continues to spark debate within the music industry regarding its long-term implications. Some independent label employees express concern that artists are compelled to participate to remain competitive, creating a "vicious cycle" where reduced royalties are accepted to counter overall streaming revenue loss. The effectiveness often varies, with some genres reportedly performing better than others, underscoring the complex dynamics of algorithmic promotion. Discovery Mode's entrenched position highlights the evolving landscape of music distribution and marketing.