Spotify has once again shocked the songwriting community by attempting to use a legal loophole to find a new way to pay them less.
Music creators had enjoyed a relative period of peace with Spotify since songwriters and music publishers struck a deal with digital services in 2022 to raise royalty rates over the next five years. Unfortunately, the streaming giant is now perverting that agreement by using audiobooks to redefine and reduce how much they pay songwriters – the tune of hundreds of millions of dollars. By unilaterally adding audiobooks to their premium music standalone service, they are now classifying that music service as a ‘bundle’ which means they can attempt to pay royalties under a different definition. In a single year this could cost songwriters an estimated $150 million.
Whether or not they can get away with this is still in question.
Record labels, who are in a free market, have immediate recourse against such underhanded tactics. They are not under a compulsory license like songwriters, and they have the freedom to negotiate directly with streaming services like Spotify. Crucially, this means if they don’t like the way their royalties are affected by Spotify’s bundling strategy, they can say no.
Unfortunately, songwriters and music publishers cannot. They must go to court every five years and are at the mercy of three judges to interpret Spotify’s routing of the rules.
Spotify first aggressively came for songwriters in 2018. We had achieved a 44% raise in the headline rate for mechanical streaming royalties at the Copyright Royalty Board (CRB) – raising rates from 10.5% to 15.1% of revenue. In an unprecedented move, Spotify launched an appeal of that decision, sending us into a half-decade legal odyssey which ultimately resulted in the upholding of our headline rate increase as well as a few new changes.
Fast forward to 2022. Having lost their appeal in regard to the headline rate, the streaming services came to the table to negotiate the next five-year period.
To avoid repeating another era of uncertainty, and to ensure rates and terms improved, we agreed to a deal with Spotify, Amazon, Apple, Google, and Pandora to cover 2023-2027 which included a phased-in headline rate increase. Critically, it also included strengthening bundle definitions by ensuring that services were no longer able to attribute all parts of revenue to other non-music offerings in the bundle. However, the court prevented us from doing away with bundle definitions altogether because when a service pays under the bundle definition, they pay at a discount since music is only part of the offering.
Only recently, when reporting of royalties by Spotify sharply decreased in the middle of a CRB rate period, were we alerted to the fact that Spotify was reinterpreting the new bundle rules to manipulate their payments. However, calling Spotify’s premium service a bundle is dishonest.
After raising prices last year, there was great hope that Spotify would better align pricing with market value and songwriters would see the benefits resulting from the deal we agreed to in 2022 which ensures that when prices go up, so do their royalties.
Only in Spotify’s world would a price hike for users mean a lower royalty rate for songwriters.
As we look to the next CRB trial, where we will again face the largest tech companies in the world, we had hoped to approach it as business partners, bolstered by several years of collaboration. This development has shattered that potential as Spotify has returned to attacking the very songwriters who make its business possible – and worse, they’re doing it through a dishonest work-around.
Bundles were conceived to apply when two standalone products were combined to incentivize new users and grow the paying consumer base. What Spotify has done is act as if audiobooks are a new, separate service, when they are in fact the exact same premium streaming option to which millions of users are already subscribed.
In fact, in a bombshell last week, it was found that if you can even find where to sign up for the audiobook-only option, the first question Spotify asks you is who your favorite performing artists are – exactly like onboarding a music-only subscriber. It then offers you all of the music on its platform on-demand.
We will not stand for their misinterpretation of bundles as precisely defined in our settlement. If allowed to abuse the statutory formula in this way, it will pave the way for other services to do the same.
That’s why several serious actions are in process. Last week, the Mechanical Licensing Collective (MLC) sued Spotify for improperly reporting its usage – a.k.a. underpaying songwriters by labeling their services as a bundle.
As the MLC states in its complaint, “Spotify informs potential Audiobook Access subscribers that, unlike Premium subscribers, they will not have access to unlimited, ad-free, on-demand music. But in rolling out its Audiobooks Access plan, Spotify neglected to create a different product.”
Separately, NMPA also sent a demand letter to the streaming giant for its unlicensed use of musical works in its lyrics, videos, and podcasts. We also specifically warned Spotify about its rumored “remix” feature which would allow subscribers to “speed up, mash up, and otherwise edit” songs to create derivative works.
In addition to these legal challenges, soon we will unveil a legislative proposal to permanently fix the power imbalance songwriters face by being subject to a compulsory license for their songs.
Spotify’s cynical, and potentially unlawful, move should make all songwriters and artists question their relationship with the service. The strategy to rebrand music as a “bundle” further devalues their art and amounts to a complete betrayal.
David Israelite is the president and CEO of the National Music Publishers’ Association (NMPA). Founded in 1917, NMPA is the trade association representing all American music publishers and their songwriting partners.