Platform Power Struggle: Spotify and the Major Record Labels

Digitization has facilitated the emergence of large distribution platforms downstream from traditionally powerful suppliers. Digital platforms can carry many suppliers’ products, test the products’ consumer appeal, and choose which products to promote, potentially shifting power from the suppliers to the platforms. We study these forces in the recorded music industry, which was traditionally dominated by a few “major” record labels distributing their products through fragmented radio stations and retailers. Now, the majors receive most of their promotion and distribution through platforms like Spotify, which carry millions of songs from both major and “independent” suppliers. We study Spotify’s use of playlists using data covering 2017-2020. First, Spotify used their expanded playlist capacity to test – and discover – proportionately more independent songs to promote on their playlists. Second, at least relative to major-label playlists, Spotify-operated playlists promoted new independent songs more than was indicated by their subsequent success. Third, placement on Spotify new-music playlists has a large causal impact on streams. The independent-label share of new-music promotion rose from 38 percent in late 2017 to 55 percent in early 2020, which helps to explain the reported decline in the share of Spotify royalty payments to major-label suppliers over the same period.