Spotify Discovery Mode Lawsuit: Payola Claims and Arbitration Ruling

The Spotify Discovery Mode lawsuit is a proposed class action filed in November 2025 by subscriber Genevieve Capolongo, who accused Spotify of running a “modern form of payola” by boosting songs in algorithmic recommendations in exchange for reduced royalties without telling listeners which tracks were paid placements. A federal judge sent the case to private arbitration on April 30, 2026, dismissed the class claims with prejudice, and stayed the individual dispute, ending the public courtroom fight before any ruling on whether the practice was actually deceptive.¹²

What Discovery Mode Does

Discovery Mode is a promotional tool inside Spotify for Artists. Labels and artists flag specific tracks they want boosted, and Spotify gives those tracks additional weight in algorithmic contexts like Radio, Autoplay, and personalized mixes. There is no upfront charge. Instead, Spotify takes a 30% commission on royalties earned from streams generated through those Discovery Mode contexts, so a track that would normally return about 70% of streaming revenue returns closer to 40% on a boosted play.³⁴

Spotify announced the program on November 2, 2020, tested it for roughly two years, and opened it to more artists in early 2023 through distributors like DistroKid, CD Baby, and TuneCore. By 2023, more than half of mid-tier artists earning $50,000 to $500,000 a year had used it. Between May 2022 and May 2023, the program generated €61.4 million in gross profit for Spotify.⁵⁴

The disclosure question sits at the center of the dispute. Spotify does not identify which specific tracks in a listener’s feed are enrolled. A general “understanding recommendations” page references “commercial considerations” as one factor influencing what plays, but nothing flags a promoted song at the point of playback.⁴

What the Lawsuit Alleged

Capolongo filed Capolongo v. Spotify USA Inc. in the U.S. District Court for the Southern District of New York on November 4, 2025. She brought claims for deceptive practices and false advertising under New York state law, along with fraudulent inducement and unjust enrichment.⁶

The theory was that Spotify sells a personalized listening experience while quietly shaping what users hear based on which artists and labels agreed to take a pay cut. The complaint called Discovery Mode a “pay-for-play scheme” comparable to the radio payola scandals of the mid-20th century, arguing that Spotify’s algorithmic recommendations now play the same gatekeeping role radio once did.⁷

As illustration, Capolongo pointed to her own feed, alleging Spotify repeatedly served her major-label artists like Drake, Zach Bryan, and Justin Bieber despite those artists bearing “little resemblance” to her actual listening habits. The complaint also referenced media reporting on the algorithmic prominence of Sabrina Carpenter and Chappell Roan, though no artist was named as a defendant. Spotify was the only defendant.⁷

Capolongo sought to represent millions of subscribers and asked for restitution, punitive damages, and an injunction requiring Spotify to clearly disclose when commercial incentives drive playlist placement.⁸

How Spotify Responded

A Spotify spokesperson called the allegations “nonsense” and said the complaint was “riddled with misunderstandings and inaccuracies.” The company said Discovery Mode is “clearly disclosed in the app and on our website,” that the feature “doesn’t buy plays,” and that it does not affect editorial playlists, only algorithmic Radio, Autoplay, and certain mixes.⁶

Spotify’s legal move, though, was procedural rather than substantive. In January 2026, the company filed a motion to compel arbitration. It argued that Capolongo had received notice of updated Terms of Use in March 2023 and August 2025 through email and in-app pop-ups, that those terms contained a mandatory arbitration clause and a class-action waiver, and that her continued use of Spotify amounted to agreement.⁹

The Arbitration Ruling

On April 30, 2026, Judge John G. Koeltl granted the motion. He found that Spotify had given “conspicuous notice” of the arbitration terms and that Capolongo had manifested assent by continuing to use the service without opting out. Capolongo had argued the arbitration clause was unenforceable in part because the $215 arbitration filing fee could exceed the $5 to $21 in individual damages any subscriber might recover, making the process economically pointless. The court rejected that argument.¹⁰²

The class-action claims were dismissed with prejudice because Spotify’s terms allow disputes to be brought “only in your or its individual capacity.” The underlying individual dispute was stayed in federal court pending the outcome of arbitration.⁹

What the Ruling Means for Subscribers

The practical effect is that other Spotify users cannot join this case. The class claims are gone, and Capolongo’s remaining dispute will be handled privately. That means no public discovery of internal Spotify documents about how its algorithms and playlist economics work, no public trial, and no court opinion establishing whether the absence of track-level disclosure is lawful under New York consumer protection law.¹¹

Any subscriber who wants to pursue a similar complaint would face the same arbitration clause and class-action waiver in the current Terms of Use, and would need to file individually.

Where the Payola Question Still Stands

The courtroom fight is over, but scrutiny of Discovery Mode is not.

On April 22, 2026, Texas Attorney General Ken Paxton opened an investigation into Spotify, Apple Music, Pandora, Amazon Music, and YouTube Music over potential payola practices. His office issued Civil Investigative Demands to all five companies under the Texas Deceptive Trade Practices–Consumer Protection Act, which requires disclosure of material information that could affect a purchasing decision. As of mid-2026, none of the platforms had publicly responded.¹²

Congressional attention goes back further. On June 3, 2021, House Judiciary Committee Chairman Jerrold Nadler and Subcommittee Chairman Hank Johnson wrote to Spotify CEO Daniel Ek warning that Discovery Mode “may set in motion a ‘race to the bottom’ in which artists and labels feel compelled to accept lower royalties.” They posed five questions and set a June 16, 2021 response deadline; no public response has been reported. Spotify paused the rollout after conversations with the Music Artists Coalition, then resumed and expanded it in 2023.¹³¹⁴

One piece of legal context is worth flagging so subscribers don’t misread the situation. The federal payola statutes that require radio stations to disclose paid airplay come from FCC rules under the Federal Communications Act, and legal scholars have noted those rules do not extend to streaming services. A 2022 law review article by Christopher Buccafusco and Kristelia García described streaming pay-for-play as “not currently regulated at the federal level,” with FTC sponsored-advertising rules not yet applied to music promotion.¹⁵¹⁶ That gap is part of why the Capolongo case relied on state consumer protection law rather than federal payola statutes, and it is also why the Texas investigation is proceeding under a state deceptive-trade-practices law rather than a federal one.

1
PacerMonitor. Capolongo v Spotify USA Inc
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Billboard. Spotify Lawsuit: Users Can’t Sue Over Discovery Mode Payola
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Spotify. Discovery Mode
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The Guardian. Spotify Discovery Mode Payola Playlist
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Billboard. Spotify Discovery Mode Expands Access at Stream On Event
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Billboard. Spotify Lawsuit Alleges Discovery Mode Is Modern Payola
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Forbes. Spotify Hit With Class Action Lawsuit Alleging Discovery Mode Is a Pay-for-Play Scheme
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Rolling Stone. Class Action Lawsuit Alleges Spotify Discovery Mode Is Modern Payola
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Music Business Worldwide. Spotify Wins Motion for Arbitration in Payola Lawsuit
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Digital Music News. Spotify Payola Lawsuit Moves to Arbitration
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Musically. Spotify Discovery Mode Payola Lawsuit to Move Into Arbitration
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Texas Attorney General. Attorney General Ken Paxton Launches Investigation Into Major Music Streaming Platforms Including Spotify
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U.S. House of Representatives — Rep. Nadler. Nadler and Johnson Letter to Spotify
14
Music Artists Coalition. Spotify Discovery Mode
15
Duke Law School. Pay-to-Playlist: The Commerce of Music Streaming
16
Kristelia García. Pay-to-Playlist: The Commerce of Music Streaming