NurPhoto/Contributor/Getty Images
Spotify is changing the way it pays US songwriters and publishers, which will cut an estimated $150 million in US mechanical royalties, causing the music industry to speak out.
Spotify argues that by adding audiobooks to Spotify's Premium, Duo, and Family plans, it is entitled to pay songwriters a discounted “bundled” fee for the premium streams, which is only $1 more than if only the music was offered, because it had to pay licensing fees for both books and music in the same subscription fee.
Spotify argues that the addition of audiobooks reclassifies the service from a “standalone portable subscription” to a “bundled subscription service” according to the royalty rate formula laid out in Phonorecords IV. The National Music Publishers Association (NMPA) and Nashville Songwriters Association International (NSAI), which represented the music industry in the Phono IV litigation, disagree with Spotify's interpretation of the settlement, with the NMPA calling it a “cynical and potentially illegal move that misrepresents the 2022 settlement agreement.”
Last week, Billboard calculated that the change would reduce U.S. mechanical royalties from Premium, Duo and Family plans by an estimated $150 million during the first 12 months that the bundling fee applies, compared to what songwriters would have earned if the three subscription tiers were not bundled. The change affects payments from March 2024 onwards, so it won't affect Spotify's Premium, Duo and Family payments for the first two months of 2024. Specifically, the estimate refers to losses during the first 12 months after the Premium, Family and Duo tiers qualify as bundles, not to calendar year 2024.
As Spotify grows, the music industry is concerned that the gap between what songwriters and publishers would be paid if Premium continued to count as a regular, standalone service and what they are currently paid when music and audiobooks are bundled together will continue to widen.
Spotify has said it will soon offer a music-only subscription tier that will be paid for in the same way as Spotify Premium, but no timeline has been announced yet for when this option will launch.
Spotify released a statement in March about the changes to bundle fees, saying, “We plan to pay publishers and music organizations more in 2024 than we did in 2023. As our industry partners know, changes to our product portfolio mean that we will pay differently, based on terms agreed to by both streaming services and publishers. Several DSPs have long paid lower fees for bundles than for standalone music subscriptions, and our approach remains consistent.”
Below is an updated list of music industry reactions to the news.
National Music Publishers Association (NMPA)
“Spotify appears to have once again gone on the offensive against the songwriters who underpin its business. Spotify's attempt to drastically reduce payments to songwriters by reclassifying its music service as an audiobook bundle is a cynical, potentially illegal, move that ends an era of relative peace. We will not tolerate them distorting the settlement we reached in 2022, and we are considering all options.”
Association of Independent Music Publishers (AIMP)
“Two weeks ago we spoke out about the potential impact it could have on independent music publishers if Spotify went ahead with its plans to bundle its previously free audiobook service with its music subscriptions. Now that the potential revenue losses for music publishers have been put into hard numbers, with a staggering estimate of $150 million per year, we feel it is necessary to speak out again.
“It is a deeply cynical move for Spotify to use this bundling 'loophole' to try to get around the CRB settlement agreed to by NMPA, NSAI and DiMA in 2022, and even more insulting that it will actually increase the price of Spotify subscriptions for users and cut revenue for songwriters who keep their business going. This is especially problematic for independent music publishers, because they, and all publishers, are legally prohibited from negotiating protections against such bad faith tactics, while labels are allowed to do so in the free market.”
“At this time, it remains to be seen how Spotify plans to inform its subscribers of this change. The right response would be to default existing subscribers to a music-only account and then offer them the option to add the audiobook service for an additional $9.99 per month, Spotify's proposed standalone fee for audiobooks. This would ensure fair, non-degrading royalty rates for both music and audiobook publishers and rights holders, both of whom would otherwise be negatively affected by bundling.”
“AIMP voices its unequivocal support for the NMPA as they fight to stop Spotify's plans from coming into force. We urge all independent music publishers to join us in this position and make songwriters aware of this attack on their livelihoods. We cannot allow bundling to set a precedent and deprive songwriters of their hard-earned royalties.”
“AIMP has also been in discussion with the Coalition of Concerned Creators and is pleased to find consensus on this issue. Please see below for their statement on this issue.”
From the Coalition of Concerned Creators:
“All musicians, creator advocacy groups, unions, organizations, and other creator stakeholders, including authors and podcasters, must stand firm in their opposition to Spotify's recent policy shift. It is essential to insist on fair compensation for music creators, who are crucial to the sustainability of our industry. Moreover, this is a clear pattern of behavior, and we remain concerned about Spotify's foray into new audio formats, such as audiobooks, and how this pattern of behavior impacts other creators, such as authors.”
Nashville Songwriters Association International (NSAI)
“Spotify, we are writing about Spotify's decision to “bundle” music and audiobooks. This decision is estimated to cost American songwriters, composers, and music publishers as much as $150 million per year in lost mechanical royalty payments. This attempt to undercut royalties to the already struggling songwriting community is done in the worst kind of bad faith and distorts the 2022 Royalty Board settlement agreed to by the Nashville Songwriters Association International (NSAI), the National Music Publishers Association (NMPA), and the Digital Media Association (DiMA). It runs counter to every statement Spotify has made to date claiming that the company is creator-friendly.
“Bundling” music with other services without a music-only option is inconsistent with our view of the Copyright Royalty Board's (CRB) intent in the recent Phonorecord proceeding in which NSAI participated. Moreover, this move voids the benefits the CRB granted to songwriters. NSAI will not accept what we see as an attempt to manipulate the court's intent with the gimmick of “bundling.” NSAI calls on Spotify to immediately reverse course and offer a separate music subscription option at a price that ensures songwriters are fairly compensated.
The American songwriting community is aghast that this is happening as Spotify reports record profits and as founder Daniel Ek recently reportedly cashed in $180 million worth of stock options, including $118 million that came around the same time as Spotify's “bundling” announcement that reduced its annual royalty burden. The amount Ek cashed out conveniently lines up with the estimated amount of money Spotify is trying to squeeze out of the songwriters who create the product that makes the streaming service billions of dollars.
Reporting record profits while cutting royalties to songwriters, even as the company's founders cashed in millions of dollars in stock, demonstrates greed, aggressiveness and callous disregard for the songwriters who generate these revenues.
The Nashville Songwriters Association International unanimously signed the agreement.
International Independent Music Publishers Forum (IMPF)
“IMPF offers its full support to the American songwriter community through NSAI, and to the U.S. publishing industry through NMPA and AIMP. We oppose Spotify's attempt to directly manipulate the CRB settlement to lower copyright royalties. The potential loss of revenue will be devastating to the work and livelihoods of our publishers and the songwriters and composers they represent, once again devaluing and undermining them.”
Recording Academy, Songwriters & Composers Category
“Songwriters provide the foundation for the music we love and should always be fairly compensated. The 2022 CRB agreement was a welcome step forward in collaboration between digital platforms and publishers. We are disappointed that Spotify appears focused on cutting costs at the expense of songwriters rather than continuing in that spirit of collaboration. The Recording Academy Songwriters + Composers Wing will continue to stand by songwriters and work to ensure they are fully recognized and properly compensated for the work they do that enriches our lives.”
The Music Artists Alliance (MAC), Artists Rights Alliance, Songwriters Association of North America (SONA), Society of Composers and Lyricists (SCL)
“As advocates for songwriters and artists, we strongly disagree with Spotify's recent decision to reclassify its premium music subscriptions as 'bundles' with audiobooks. We believe this is a clear attempt to avoid paying agreed-upon copyright royalties and undermine the CRB IV settlement.”
Spotify is once again disrespecting the value of music and the people who make it. With this move, Spotify is deceiving both fans and creators. By first offering audiobooks for free, then adding them to a premium music subscription and calling it a bundle, Spotify is exploiting a loophole to pay songwriters less without providing any new discounts or products to consumers.
“Every time we believe we've made progress to protect songwriter pay in the digital age, Spotify lets us down. As advocates for songwriters and artists, we will not be silent. We call on Spotify to immediately reverse this decision to cut songwriter pay.”