With a recent IPO, Spotify has captured immense value as a music streaming platform. According to the company, the platform has 157 million active users, over 35 million songs, and over 2 billion playlists (1). Recently, there have been numerous articles published about how the company utilizes ‘big data’ to create more customized playlists for users and discovery. The company looks at songs users listen to, data about song characteristics, and many other metrics in its endless pursuit for more custom catered music. However, less frequently discussed is Spotify’s use of data to spot ‘hits in the making’ and their ability to ‘create a hit single’ through their platform. The company’s ability to ‘create a hit single’ through data has also shifted its negotiating leverage with record labels.
“Nick Holmsten, the service’s head of shows and editorial, claims he could dig into the data and tell you which new song will be a hit in six months.” According to multiple sources, Spotify treats every song on the service “as a beta test”. The service monitors the number of plays songs receive and utilizes algorithms to spot songs that are starting to gain popularity. Once a song has reached the algorithms threshold, the song is funneled into a series of tests to discover its ‘hit potential’. “Think of it as the moneyball of music, a ruthlessly data-driven approach to introducing listeners to songs.” Spotify uses a strategy it calls “playlisting” (2). Through this process, songs are added to Spotify created playlists with different numbers of active followers. Spotify considers playlists to be a fundamental competitive differentiator of its product. “Listeners now spend about half their time on Spotify listening to playlists, either of their own creation or curated by Spotify’s editors and other tastemakers.” (2) The company posts ‘songs with hit potential’ onto playlists with some followers and if the “numbers look good”, the song is upgraded to playlists with more subscribed listeners and enters a new round of competition with other top performing songs. This process continues until the most successful songs hit the major playlists. “By the time a song lands on Today’s Top Hits or other equally popular sets, Spotify has so relentlessly tested it that it almost can’t fail.” (2)
In an article titled ‘How Spotify Creates Hits’, Rolling Stone Magazine recounts the story of Electro-Pop singer Lauv and his smash single ‘The Other’. The artists discusses how he tracked Spotify adding the songs to bigger playlists and how it radically increased streams from 8 to 100 Million. According to Rolling Stone, this increase in virality led to the artists first headlining tour.
Interestingly, record labels have caught wind of this new tactic. This data play has shifted the company’s negotiating leverage with record labels. Specifically, the ability to pick and choose which songs get heard through these playlists is already being used as a negotiating tactic by the company to obtain better terms from labels. “Record companies that offer it lower royalty rates, don’t do exclusives with its competitors like Apple Music, or get their artists to release special re-recorded Spotify Sessions of their hits could see their artists placed more prominently in Spotify’s playlists and their audiences grow. Labels that don’t play ball with Spotify might sublty notice they’re not getting the same playlist love.” (3)