Spotify has lengthy described itself because the radio of the streaming period. Now, due to a brand new class-action lawsuit over payola on the platform, that comparability might come again to hang-out it. Radio payola is sometimes called “the fifty greenback handshake”–when a radio promoter would slip a $50 invoice to a DJ throughout a handshake. If it’s unlawful on terrestrial radio, why ought to or not it’s authorized on-line? I’m a giant believer in platform parity and a degree taking part in subject.
The Regulation on Payola
Payola is a phrase that will get thrown round however it truly has a really particular which means when utilized to broadcast radio. The query goes to activate whether or not within the trendy period a broadcast equal also needs to be topic to payola legal guidelines or straight up business bribery statutes. Once more, we don’t want new legal guidelines. We now have lots to cease unhealthy habits.
Beneath 47 U.S.C. § 508 (and §317), it’s unlawful for any broadcaster to air content material in change for cash, providers, or “another helpful consideration” with out disclosing to the general public that it has been paid for. The rule’s intent, because the FCC explains, is to make sure listeners “know who’s making an attempt to influence them.” It’s the statutory spine of the payola ban that was prevalent on American radio beginning with the scandals of the Nineteen Fifties. (Though these instances had been prosecuted as “business bribery” beneath state legal guidelines.). If Spotify really is “radio,” Discovery Mode and its hidden royalty reductions may properly qualify as payola beneath that very same customary—business affect disguised as editorial judgment.
Because the erudite David Oxenford famous a couple of years in the past:
The payola statute, 47 USC Part 508, applies to radio stations and their staff, so by its phrases it doesn’t apply to Web radio (at the least to the extent that Web Radio will not be transmitted by radio waves…However that doesn’t finish the inquiry. Be aware that neither the prosecutions introduced by Eliot Spitzer in New York state a couple of years in the past nor the prosecution of legendary disc jockey Alan Fried within the Nineteen Fifties had been introduced beneath the payola statute. As an alternative, each had been based mostly on state regulation business bribery statutes on the speculation that improper funds had been being obtained for a business benefit. Such statutes are under no circumstances restricted to radio, however can apply to any enterprise. Thus, Web radio stations would have to be involved.
From Payola to Playlists
In Capolongo v. Spotify USA Inc. (S.D.N.Y., filed Nov. 4 2025), a subscriber alleges that Spotify deceives customers by promoting its playlists and algorithmic suggestions as “customized” whereas secretly prioritizing tracks promoted by Discovery Mode, the place labels and artists commerce decrease royalties for algorithmic boosts. The swimsuit claims these undisclosed business preparations violate New York’s consumer-protection and false-advertising legal guidelines.
That’s just about what I warned about years in the past in “The Return of the Fifty Greenback Handshake.” That 2018 submit described Spotify’s “direct-artist offers” as “payola 2.0,” pointing to a system the place data-driven steering replaces DJs and $50 handshakes. The handshake didn’t vanish—it grew to become algorithmic.
David Lowery Noticed It Coming
Again in 2015, David Lowery filed feedback with the FCC warning that “steering agreements” letting digital platforms low cost royalties in change for favored remedy had been “the similar transaction to conventional payola, differing solely in supply mechanism.” He urged the Fee to use sponsorship-identification guidelines to streaming, writing that “undisclosed funds beneath a steering settlement are the similar transaction to extra conventional payola.”
Lowery requested the FCC the query that also defines immediately’s debate:
“Is there a principled motive why there ought to be a payola lane on the Web, the place the substance of the principles don’t apply?”
Radio Guidelines, Streaming Loopholes
If Spotify or Pandora had been terrestrial broadcasters, Discovery Mode and stream-share thresholds would virtually actually set off the FCC’s payola-disclosure necessities. As David Oxenford mentioned, the sponsorship-identification guidelines exist exactly so “the general public is aware of who’s making an attempt to influence them.” Keep in mind that precept.
But Spotify markets itself as “radio reinvented” whereas avoiding these obligations. As the category motion grievance notes, Spotify’s algorithm quietly prioritizes commercially discounted content material—with none discover to the listener—whereas promising subscribers that playlists are “for you.”
And now there’s a fair darker twist: beneath Spotify’s stream-share threshold coverage, the corporate nonetheless makes use of listener and coaching knowledge from songs it doesn’t pay for. These works are excluded from royalty swimming pools however nonetheless gasoline discovery, advice, and AI-training methods. It’s exploitation with out remuneration—the digital type of payola assembly unpaid labor.
Business bribery directions to a jury would look one thing like this:
The defendant is charged with [Offering/Agreeing to Offer/Receiving/Agreeing to Receive] a bribe in violation of [statute]. To show this cost the Folks should show every of the next components past an affordable doubt:
- That the defendant Spotify obtained a factor of worth within the type of a royalty low cost.
- That the factor of worth was given on to Spotify.
- That the profit was given (or promised) with the data and consent of Spotify.
- That the profit was given (or promised) with corrupt intent — that’s, with the aim of influencing the recipient’s conduct in relation to Spotify’s (for instance, to induce Spotify to play or promote sure recordings.
- That the defendant’s conduct was the proximate explanation for a bonus to the defendant (or the giver) or a detriment to Spotify insofar as Spotify acted (or avoided performing) because the briber meant.
For those who discover from the proof that the Folks have proved past an affordable doubt every of those components, then you could discover the defendant responsible. If the Folks have didn’t show any of those components, then you could discover the defendant not responsible.
Canada Steps In
Sarcastically, Canada has already determined that if a service behaves like radio, it ought to be regulated like radio. The CRTC now classifies Spotify and related audio platforms as broadcasters, subjecting them to Canadian-content and financial-contribution guidelines. Ottawa’s message is obvious: in case you monetize like radio, you’ll be handled like radio.
That precedent exposes how far behind U.S. regulators are—nonetheless letting algorithmic steering and royalty-discounting function in a grey zone that may be unlikely to outlive FCC scrutiny or a business bribery investigation.
Reckoning?
That’s why Capolongo v. Spotify is greater than a shopper swimsuit—it’s a possible reckoning for algorithmic payola. If platforms that decision themselves “radio” and compete with radio are secretly promoting spins, suppressing smaller artists, and nonetheless harvesting their knowledge, each customers and creators have been deceived.
As Lowery informed the FCC a decade in the past, what issues isn’t simply how the cash strikes—it’s additionally that the general public doesn’t see it. The “$50 handshake” by no means died. It simply realized methods to code. I’m wondering how for much longer Spotify shareholders will put up with it.
