Spotify and the musicians' dilemma

Yesterday I posted an example of the prisoners' dilemma, applied to supermarkets' pricing behaviour in New Zealand. These are strategic situations where each player (decision maker), acting in their own self-interest, creates an outcome (and payoffs) that are worse for all of the players. There are many real world examples of the prisoners' dilemma (such as this one, or this one). However, I want to concentrate on an example from this January article in The Conversation, by John Hawkins, Ben Freyens, and Michael Walsh (all University of Canberra):

Streaming now accounts for more than half of recorded music revenue. Spotify has about a third of the subscribers paying for music streaming. Playlists overtook albums as the preferred way of listening to sequences of songs about five years ago.

Appearing on a prominent Spotify playlist is therefore a big deal...

With so much power, what will Spotify do next?

The answer, apparently, is to run a pay-to-play “experiment”, dropping Spotify’s “crystal clear” commitment in 2018 that “no one can pay to be added to one of Spotify’s editorial playlists”. But now there’s this:

In this new experiment, artists and labels can identify music that’s a priority for them, and our system will add that signal to the algorithm that determines personalised listening sessions.

The catch is musicians must accept a lower payment — a “promotional recording royalty rate” — on any song streamed as a result.

So, essentially, Spotify is asking musicians so accept a lower royalty rate in exchange for having their music promoted more intensively. Why does this provide an example of the prisoners' dilemma? Hawkins et al. explain:

The musician’s dilemma is that the best cooperative outcome is all artists refusing Spotify’s offer. No one gains, but no one loses either.

But who’s going to organise that, given the understandable fear of repercussions for going against Spotify?

Best placed to resist are Spotify’s superstars — the likes of Eilish, Taylor Swift, Ariana Grande, Ed Sheeran, Drake and Bad Bunny, with billions of streams between them. They have diversified marketing and revenue sources, and are cash cows Spotify doesn’t want to lose.

The most likely outcome is many or most musicians accepting lower song payments from Spotify, putting the squeeze on struggling musicians who refuse while making little difference to the prominence super streamers get from Spotify’s algorithms.

In other words, all of the musicians could work together and disagree with Spotify's generous offer of promotion. However, every musician then has an incentive to sign up to the programme, knowing that their music would have greater visibility while every other musician's music would not. So, even if there was an agreement between the musicians, the agreement would quickly break down. This is the problem that all cartels face - all of the members of the cartel have an incentive to 'cheat' on their agreement to get themselves a better deal.

Cooperation is hard. As I note in my ECONS101 class, it requires trust between the players. And trust usually requires developing a reputation for being trustworthy. And each musician would need to be able to trust all (or at least most) of the other musicians, before it would be worthwhile agreeing to forego the deal with Spotify. That seems unlikely.

The musicians' dilemma is clearly something that Spotify has thought through. Spotify might back down for any of the superstars (see above), but the average musician will just have to take what they can get, which already isn't a whole lot.