A Report by Dawoud Kringle
Spotify has augmented its corporate policy to avoid paying Artists. It has been bundling audiobooks with music by independent artists on Spotify, calling this a “discounted packet.”
In April 2024, Spotify announced that it now considers all its Premium plans ’bundles‘.
In October, Spotify started offering 15 hours worth of audiobooks with its Premium plans for free by ‘bundling’ access to audiobooks with its Premium services. Alongside its decision to classify its Premium music services as bundles, Spotify has also been making moves to offer different types of subscriptions focused on the various types of content it provides. One example is a $9.99 per month standalone audiobook tier in March in the US. On its Q1 earnings report on April 23, Spotify co-founder and CEO Daniel Ek confirmed that a new ‘music-only’ subscription tier is coming to the platform.
By announcing that all of its Premium plans are now being treated as ‘bundles‘ in the US, Spotify confirmed that the mechanical royalty rate it pays to songwriters and publishers for all its Premium services in the US has been reduced.
Looking back to March 2019, Spotify and Amazon had filed a legal challenge against a decision by the US Copyright Royalty Board (CRB) on January 27, 2018, which set the rates for mechanical rights compensation for the next five years (the Phonorecord III provision). The National Music Publishers Association President & CEO (represents prominent independent publishing companies in the United States, as well as major publishers like Sony Music Publishing, Universal Music Publishing Group, and Warner Chappell Music), David Israelite, was quoted as saying that “Spotify and Amazon have declared war on the songwriting community by appealing that decision.”
When Spotify first announced the reclassification of its Premium services as bundles on April 18, David Israelite was quoted in musicbusinessworldwide.com as saying, “It appears Spotify has returned to attacking the very songwriters who make its business possible. Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, potentially unlawful move ending our period of relative peace. We will not stand for their perversion of the settlement we agreed upon in 2022 and are looking at all options.” Sony Music Publishing Chairman & CEO Jon Platt informed SMP songwriters and composers that their mechanical royalty payments from Spotify have been reduced by approximately 20%.
For example, Damizza got over 1 billion streams last quarter and was paid $700. This is because the bundling model equates royalties to each account that uses the stream, not the number of streams. If one account streams 5 million plays, instead of being paid $15,000, the artist is paid for one stream, which is $0.003.
The Mechanical Licensing Collective-MLC (the non-profit organization established by the Music Modernization Act of 2018 designated by the US Copyright Office to ensure that music streaming services like Spotify pay the mechanical royalties they owe to songwriters and music publishers, and the sole entity authorized to develop and administer a mechanical licensing system) sued Spotify over lower royalty rates for bundling. The MLC argued that Spotify’s move was unilaterally unlawful. They argued in its lawsuit against Spotify (https://www.musicbusinessworldwide.com/files/2024/05/Complaint-MLC-Spotify-2024.05.16-2.pdf) that “Spotify’s assertion that Premium is now a Bundled Subscription Offering is directly at odds with the Section 115 regulations that the MLC has primary responsibility for interpreting and applying”.
On Friday, January 31, 2024, the court dismissed the legal action brought by the MLC against Spotify. Judge Analisa Torres ruled in favor of Spotify, finding that the company’s description of its service was correct. She said that Spotify’s Premium service is appropriately categorized as a bundle and that “no set of facts” could support the MLC’s position on bundle interpretation. Furthermore, Torres stated that federal royalty rate rules allowed Spotify to claim the lower rate legally.
Spotify had initially lobbied for these same rules to be included in the 2022 Phonorecords IV agreement.
The MLC is reviewing the decision and considering an appeal. The decision’s impact on negotiations and other streaming platforms’ bundling classifications is unclear and must be monitored.
Spotify’s unethical practices ensure that artists are paid less or nothing. The legal system allows them to cheat us out of our rightful property. Spotify calls it innovation and insists it is treating the owners of the rights to the music from which it somewhat steals billions.
Eventually, Spotify may rule that artists who release music anywhere pay them a recurring royalty and surrender all copyrights and publishing to them. The logic of their position demands it.
