What a $10 million AI bot farm exposes about the music industry’s oldest rigged game
Read this post on Creative Frontiers.
History is full of ambitious criminals. Michael Smith looked at them and thought: there must be a lazier way.
This spring, the fifty-four-year-old North Carolinian stood in a Manhattan federal courtroom and pleaded guilty to one of the most unorthodox heists in music history.
Smith didn’t rappel through a skylight to steal recording equipment. He didn’t even hijack an eighteen-wheeler full of custom guitars. No, Smith managed to siphon more than $10 million directly from the pockets of thousands of working musicians, all without ever leaving the comfort of his ergonomic desk chair.
Over seven years, Smith used AI to generate hundreds of thousands of songs. He then deployed a robot army of fake listener accounts to stream them up to 600,000 times a day on platforms like Spotify. All told, he was raking in about $1.2 million per year.
Now you might be asking: Wait, how does a robot listening to songs steal money from a real artist? Well, it all comes down to the economics of streaming. Spotify doesn’t actually pay per stream. Instead, they take all the subscription money from listeners and dump it into one, giant communal tip jar. At the end of the month, the money is divided up based on market share. If Drake gets 5% of all the listens, he gets 5% of the tip jar.
By using bots to artificially inflate his slice of the pie, Smith was reaching his hand into that jar and pulling out dollars that belonged to other artists.
Naturally, the U.S. Attorney called it wire fraud. The major record labels, however, called it an existential emergency that threatened the very fabric of the art itself.
The feds were right about the fraud. Smith lied to the platforms about the source of his sudden popularity. But the major labels’ apocalyptic panic is where this story gets really revealing.
The real threat isn’t that AI can be used to manipulate the system. The threat is that AI allows an outsider to compete with the power brokers who already manipulate it.
As media scholar Charles Fairchild has pointed out: for decades, the major labels have used their own tools to steer attention toward the songs they want people to hear.
Michael Smith isn’t a threat to the art of music. He’s a threat to the rigged oligopoly of the music industry.
Guarding the Store Shelves
The music industry faces one massive economic problem: there is a near-infinite amount of music, but a finite number of ears. It is a business defined by an overwhelming oversupply and strictly limited demand. Making music isn’t the bottleneck. Getting heard is.
Imagine a grocery store receiving a hundred thousand new brands of cereal every day, but with only one shelf to display them. Whoever controls that shelf holds all the power, and it certainly isn’t the customer. In the music business, it’s been the major labels.
In the 1940s and 1950s, the shelf was the national radio networks. The major labels had cozy “ownership relationships” with all of them, ensuring that the artists they invested in were the ones you heard. That’s how you remove uncertainty from an unpredictable market; you run the industry like a cartel. You protect the shelf from the competition.
Then came the postwar baby boom. Millions of teenagers emerged, longing for authenticity rather than the sanitized, boardroom-approved crooners the labels were peddling. These customers wanted something different on the shelf.
Enter Alan Freed. In 1951, the young Cleveland DJ bypassed the national networks and started spinning original, independent R&B; records for his local market. It was a new shelf for a new product. He coined the term “rock ‘n roll” and to his teenage audience, he was an authentic rebel.
Independent record labels, locked out of the national cartel, went straight to local DJs like Freed. They started slipping them cash to play their records, a practice soon dubbed payola.
While some called it bribery, economists recognize it as a decentralized pricing mechanism. It was a way to locally price a scarce resource (airtime) without the central bosses setting the rules. In a tightly controlled oligopoly, it was the only way an independent artist could be heard.
And it worked. Between 1955 and 1962, the major labels watched their market share crater from a dominant 74% to a terrifying 25 percent.
Changing the Rules
Slaughtered in a more open market, the cartel did what cartels invariably do: they ran to the government to change the rules.
Under the guise of grave concern over the “moral decay” of American youth, the old-guard music establishment, spearheaded by their powerful publishing arm ASCAP, partnered with a pliant Congress to launch the 1960 Payola hearings. As economists Joeri Mol and Nachoem Wijnberg note, the goal wasn’t so much to clean up a corrupt industry; it was to destroy the authenticity of the competition. They branded the local DJs as corrupt pushers of illicit noise.
Alan Freed refused to play along. He was suspended, charged with 26 counts of bribery, and died broke five years later.
With the upstart DJs crushed, the major labels reclaimed their shelf space. They replaced the local tastemaker with the “Top 40” countdown, claiming it was an “objective” measure of a song’s success based on sales. In reality, the labels just used their massive corporate budgets to replace illegal payola with “independent pluggers,” vendors who paid radio stations for airplay, but as perfectly legal marketing and advertising expenses.
The DJs had accidentally exposed a rigged game. Rather than fixing the system to make it more equal, the cartel simply crushed the whistleblowers and built a legal framework that allowed them to keep paying for play.
Same Song, New Verse
Which brings us back to Michael Smith and his bots.
Today’s shelf space isn’t a radio tower; it’s the Spotify algorithm. Think of digital streaming platforms like Spotify and Apple Music as grocery stores with near-infinite aisles, but only a few highly visible end-caps. Instead of a massive display of Frosted Flakes or Gatorade, the end-cap is a curated editorial playlist or the Autoplay algorithm. And the major labels shape the system by paying to control those displays.
Right now, a major label can agree to take a slightly lower royalty rate in exchange for Spotify artificially boosting their artist in your algorithmic playlists. (Which may explain why I get hit with Elton John over and over and over again. Please make it stop.) To be clear, this isn’t a call to regulate Spotify’s algorithm. The labels are doing what every rational incumbent does: buying shelf space with their advantages. The issue isn’t that they’re powerful. The critique is that when an indie artist gets a fighting chance, they’ll run to Washington to close it off.
As Nathan Brackett, former executive editor of Rolling Stone, explains in his newsletter, Stems, “some version of pay-for-play has been around since the dawn of the modern music biz….” So, as technological innovations change the game, the major labels rewrite the rules to retain their grip.
Michael Smith, much like the DJs of the 1950s, revealed a new way to bypass the gatekeepers, this time using artificial intelligence. Brackett notes that these AI tools have fundamentally changed the economics of the hustle. Because AI drops the cost of generating a track to “next-to-nothing,” it creates a “flywheel” effect. A fraudster like Smith can take endless, cheap shots at gaming the algorithm until something sticks.
To the industry incumbents, this isn’t just a problem; it’s an existential crisis.
The Cartel’s Complaint
So, when industry titans demand government crackdowns on AI to “protect artists” from manipulation, remember who’s asking. These are the same institutions that weaponized regulations to crush their competitors and built a royalty system that keeps artists dependent.
A V.P. of Warner Music Canada recently confessed to music industry veteran, Joel Gouveia: “For the first time in history, we don’t control the entire means of consumption.” While, the ghosts of 1950s radio DJs might quibble with the timeline, the panic is real. The cartel is losing its grip, and Michael Smith is the latest symptom.
Smith should be prosecuted. That part is not complicated. But we should be equally skeptical when the people who built the rigged game demand new rules.
After all, it is clear that the major labels do not oppose manipulation; they just oppose unauthorized manipulation.