Insights #016: Spotify's New Bundle Spurs Legal Clash

A significant conflict has emerged in the music industry; the National Music Publishers' Association (NMPA) filed a complaint with the U.S. Federal Trade Commission (FTC) against Spotify Technology SA. The dispute arises from Spotify's recent decision to include audiobooks in its premium subscription service, which has reduced royalty payments for songwriters.

Spotify's introduction of audiobooks into its subscription plan has allowed the streaming giant to reclassify its premium offering as a "bundle," according to Digital Music News, "nearly 97% of Spotify subscription accounts are now categorized as bundles in the United States." Under the complex system established by the U.S. Copyright Royalty Board, this classification enables Spotify to pay a reduced rate to songwriters by licensing books and music under the same subscription price. The NMPA argues that this move is unlawful because it automatically enrolled subscribers into the bundled service without offering an option to remain on a music-only tier, which currently does not exist in the U.S. As a result, the NMPA estimates that payments to songwriters could decrease by approximately $150 million over the next year. The financial implications of Spotify's bundling strategy have prompted significant backlash from stakeholders, leading to market consequences.

In a letter to FTC Chair Lina Khan, the NMPA described Spotify's strategy as a "bait-and-switch subscription scheme," asserting that it forces consumers to pay for services they did not intend to purchase or wish to continue buying. A day following this announcement, Spotify's stock price decreased from $315.5 to $306, marking a negative 3% change. The NMPA warns that if Spotify's actions persist, it will cost consumers millions of dollars and pose a significant threat to the music royalty system, potentially undermining it and harming competition within the industry. Additionally, with the recent increase in price, Spotify might lose some subscribers to Apple Music, which could impact its market share even further.

The NMPA's complaint has not been limited to the FTC. According to Time, the association has also reached out to attorneys general in ten states, including New York, Tennessee, California, and Illinois, as well as various consumer advocacy groups, to spark state investigations and potentially initiate class action lawsuits. In response to these allegations, a Spotify spokesperson defended the company's practices as standard within the industry. The spokesperson highlighted that users are notified a month before any price increases and have access to easy cancellations and multiple plans. Spotify categorically rejected the NMPA's accusations, labeling them as baseless.

This dispute has already seen legal actions, with the Mechanical Licensing Collective (MLC), a royalty collection service, suing Spotify last month. The subscription price for Spotify has increased from $10.99 to $11.99, which marks a total $2 increase within the previous year. The MLC has requested a federal court in Manhattan to stop Spotify from classifying its premium subscriptions as a bundled service and to compensate for the lost revenue. On its part, Spotify expressed a desire for a swift resolution, noting that the terms in question were previously agreed upon and celebrated by both publishers and streaming services. In addition to the federal complaint, the NMPA has broadened its efforts to challenge Spotify's practices.

The NMPA has been proactive in addressing other concerns with Spotify. Last month, the association issued a cease-and-desist letter over products it claims infringe on songwriters' copyrights. The NMPA alleges that Spotify's platform includes music videos, lyrics, and podcasts that use copyrighted music without permission.

The ongoing tension between Spotify and the music publishing industry over fair compensation highlights a key issue in the digital music landscape. As the legal battles progress, the outcome could have significant implications for how streaming services structure their offerings and compensation. The resolution of this dispute will be closely watched by all stakeholders in the music industry, as it may set a precedent for future dealings between tech companies and artists, a potential game-changer in the industry.

References:

Bloomberg, A. C. /. (2024, June 12). Songwriters Association Files FTC Complaint Against? ? ? ? ? ? Spotify Over Royalties. Time. www.time.com/6988114/spotify-songwriters-ftc-complaint-royalties-audiobooks-bundle/.

Aswad, J. (2024, June 12). Music Publishers File Legal Complaint Against Spotify with Federal Trade Commission, Claiming ’Unfair, Deceptive and Fraudulent Business Practices’? . Variety. www.variety.com/2024/music/news/music-publishers-complaint-against-spotify-with-ftc-1236035604/.

Resnikoff, P. (2024, June 14). 97% of Spotify subscriptions are now lower-paying bundles. Digital Music News. www.digitalmusicnews.com/2024/06/14/spotify-subscription-accounts-bundles-transition/.