It has been over one yr since Spotify introduced restricted audiobook performance to its Spotify premium merchandise in November 2023. In March 2024, in a serious shift for songwriters and music publishers, Spotify started reporting its three principal premium subscription tiers to the Mechanical Licensing Collective (MLC) as “bundled subscription providers” somewhat than as “standalone moveable subscriptions,” as that they had beforehand finished. In response, the MLC sued Spotify in Might 2024 for allegedly underpaying music publishers, however a decide dismissed the case in January 2025. A movement for reconsideration filed by the MLC in February 2025 stays pending within the Southern District of New York.
Earlier this month, the Nationwide Music Publishers’ Affiliation (NMPA) acknowledged at its annual assembly that this modification has resulted in a first-year loss of $230 million in mechanical royalties to songwriters and music publishers. Spotify’s personal current SEC submitting states a lack of 205 million euros in mechanical royalties for the 13-month interval between March 1, 2024, and March 31, 2025. That is precise cash that ought to have, however didn’t, make it into the pockets of songwriters and music publishers. It has as an alternative remained with Spotify.
Spotify’s actions have already been publicly lambasted by this creator, the NMPA and the songwriter and music writer communities as maybe the worst affront in an extended line of offenses dedicated by Spotify in opposition to songwriters. So why am I writing about this concern once more, a yr after first doing so in Billboard? As a result of with a yr’s value of further information and information at hand, it’s my opinion that this is without doubt one of the best injustices visited upon songwriters within the period of music streaming, sadly perpetuated by the corporate that has maybe benefited greater than every other from the creativity and labor of songwriters. All songwriters and music publishers ought to pay attention to this essential concern and need to know the entire supporting information.
After I wrote on this issue again in Might 2024, I opined that Spotify’s actions would probably scale back the efficient share of its U.S. subscription income paid to songwriters and music publishers from the agreed-upon 15.1% to fifteen.35% within the Phonorecords IV settlement to lower than 12%. I wrote that Spotify’s timing felt engineered to partially sideline songwriters and music publishers from benefiting from value will increase that had been reportedly quickly to take impact (and did). I wrote that the Spotify Audiobooks Entry tier was seemingly not commercially viable as a standalone product and was launched within the U.S. (and nowhere else) with the first and maybe sole goal of supporting Spotify’s try to report most of its subscription tiers to the MLC as bundles and scale back mechanical royalty funds to songwriters. And at last, I wrote that Spotify was motivated to take publishing royalties out of the pockets of songwriters so as to enhance its gross margin and offset the prices of working its new audiobook initiative.
One yr later, I consider that every one of this has proved to be true. Let’s have a look at the information.
What’s a bundle?
On this context, a bundle happens when Spotify — or one other music service — is bought to shoppers for a single value as a part of a bundle which incorporates different items and providers. Some bundles bundle music with digital providers akin to subscription video on demand and/or bodily items akin to telephones, tablets and supply providers. The parts of the bundle usually might be bought on a person foundation if a client just isn’t desirous about buying your complete bundle, and people parts usually have a transparent unbiased industrial worth to some section of shoppers.
For rightsholders, the potential worth trade is {that a} tech platform could bundle a bundle of products and providers (together with music) collectively in a way that would doubtlessly deliver additive income, customers and engagement to music creators that, absent the bundle, may be much less obtainable. Mainly, the platform is providing a bundle deal to achieve prospects who could also be much less more likely to pay for a music service bought by itself.
Rightsholders working in a free market could also be requested by the licensee to assist offset their different prices of working such a bundle (e.g., non-music licensing prices, different working bills) by agreeing to diminished royalty phrases than what would usually apply to a standalone music service, which a licensee might also supply. Rightsholders are capable of take into account such requests, generally known as “bundle reductions,” by participating in discussions with the licensee and using pertinent information and knowledge akin to market analysis, reporting and income forecasts to tell their viewpoints and make selections which can be in the most effective pursuits of music creators.
A spread of outcomes is feasible within the free market. A rightsholder could refuse to license the bundled service in any respect, or they might license the bundled service for a similar value and phrases they’d grant to a standalone music service, or they might comply with some technique of discounting. The Phonorecords IV settlement contains examples of such phrases, together with a particular definition of income for bundled providers and different phrases which can be diminished relative to people who apply to standalone music providers.
When this works as meant, music rightsholders could select to successfully co-invest with a streaming service in creating a reduced bundle that they really feel has the potential to earn further income, even when there could also be much less income earned on a per-user foundation from the bundle relative to a standalone music service. The potential profit to music creators is that they might seize further royalty quantities from customers who may not have signed up for a music service absent the extra non-music parts of the bundled choices. The licensee is rewarded for bringing some stage of added worth to music creators by constructing, providing and advertising and marketing the bundled bundle to shoppers.
Why Spotify’s bundle is completely different
However this isn’t what Spotify has finished. Spotify has constructed a music subscription empire based mostly upon the creativity and labor of songwriters and now diminished their U.S. mechanical royalties in a way that means that songwriters now contribute much less to the success of Spotify. That might not be farther from the reality. Whatever the authorized points surrounding this matter, Spotify’s discount of songwriters’ mechanical royalties, for my part, has no industrial advantage.
In June 2024, a couple of months after Spotify started together with the restricted audiobook performance (15 hours of listening time monthly) in Spotify’s premium tier, it launched a tier known as Spotify Fundamental. Spotify Fundamental, which is $1 to $3 cheaper than Spotify’s premium tier, relying on the variety of customers, is what Spotify’s premium tier was previous to November 2023 — a music subscription service with out the audiobook performance. It’s the service that tens of hundreds of thousands of customers signed up for previous to November 2023 as a result of they acknowledged the worth of unfettered entry to music and are keen to pay for it. However all of these premium customers, no matter whether or not or not they need audiobooks, at the moment are thought-about by Spotify to be bundled subscribers as of March 2024. That’s, except they manually chosen to modify to Spotify Fundamental.
Most Spotify customers most likely don’t know that every one of this occurred, or that Spotify Fundamental exists. Spotify Fundamental just isn’t accessible to new subscribers; it’s only accessible within the U.S. to present premium customers who had been subscribed as of June 20, 2024. Promotion and advertising and marketing of Spotify Fundamental to qualifying customers has been restricted. If a Spotify consumer cancels their Spotify Fundamental plan in a while, it isn’t doable to resubscribe to it. Fundamental can be not accessible through improve paths. For instance, a subscriber can’t improve from Fundamental Particular person to Fundamental Duo. As an alternative, they’re pressured to pay $2 extra for Premium Duo even when they’ve no real interest in audiobooks.
Since Spotify’s November 2023 launch of the restricted audiobook performance, it has not been doable for brand spanking new Spotify customers to acquire a Spotify subscription that doesn’t embrace audiobooks (save for qualifying scholar plans, that are bundled with Hulu). That is vital as a result of, absent a clearly introduced and accessible possibility for a brand new (or present) buyer to decide on between one providing that’s music-only and one other providing that features audiobooks however is dearer, the very clear conclusion is that music alone continues to drive client determination making round Spotify, together with customers’ selections to pay for Spotify, what value they’re keen to pay and what ranges of value will increase they’re keen to endure with out canceling their subscriptions.
Most Spotify customers additionally don’t know that there’s a Spotify Audiobook Entry tier. Final yr, many — together with this creator — opined that the Audiobook Entry tier was launched solely within the U.S. for the first or sole goal of lending authorized help and a pricing benchmark to Spotify’s discount of mechanical royalties. One yr later, this seems on its face to have been true. Spotify Audiobook Entry solely stays accessible within the U.S., and there seems to be little, if any, earnest effort on Spotify’s half to advertise and promote it to shoppers. They don’t publicly report subscriber numbers for Spotify Audiobook Entry, nor do they appear to speak about it a lot. In my view, it seems to be an providing that Spotify just isn’t severe about and that was launched to prop up the discount of songwriter’s mechanical royalty funds.
I’ve additionally been requested why Spotify didn’t declare its premium tier to be a bundled product when it started providing podcasts to subscribers a few years earlier than its introduction of audiobooks. The reply could lie in the truth that podcasts are monetized by promoting promoting to companies and types, and there was clear demand for Spotify to supply that service. Audiobooks, in contrast, have traditionally been monetized largely through subscriptions bought to shoppers by digital retailers. In Spotify’s case, it’s doable that whereas some section of premium subscribers may make the most of restricted audiobook entry if they’re already paying to entry limitless music, those self same subscribers may not be motivated sufficient to pay Spotify particularly for entry to audiobooks. In different phrases, engagement alone may not be an indicator of willingness to pay. It prices Spotify cash to supply audiobooks to its subscribers, and if these subscribers aren’t keen to pay for them particularly, it’s doable that Spotify must offset these prices in another method. As I’ve opined earlier than, I consider this has been a cloth driver behind Spotify’s bundling initiative that has price songwriters and music publishers a whole bunch of hundreds of thousands of {dollars} in U.S. mechanical royalties to this point.
Spotify’s financials post-bundling
Lastly, let’s discuss how this concern has impacted Spotify’s monetary efficiency. Spotify’s premium gross margin elevated from 29.1% to 33.5% between This autumn 2023 (the final full quarter unimpacted by Spotify’s discount of mechanical royalties through bundling) and Q1 2025. The $230 million first-year lack of U.S. mechanical royalties reported by the NMPA equates to about 1.4% of Spotify’s world premium income of 13.82 billion euros (roughly $15.89 million) for 2024. There are a variety of things which have allowed Spotify to enhance its gross margin efficiency, however its discount of U.S. mechanical royalties has contributed to that enchancment on a really actual and materials foundation, as Spotify has famous on quarterly earnings calls.
Spotify’s gross margin enchancment has undoubtedly been a giant issue within the efficiency of its inventory, which is up about 130% year-over-year as of this writing. It’s perverse that songwriters and music publishers have contributed so meaningfully in direction of these current enhancements in Spotify’s monetary efficiency and the market’s response, but discover themselves not solely unrewarded for his or her contributions however on the flawed finish of Spotify’s efforts to scale back its U.S. music publishing prices.
So, the place do songwriters and music publishers go from right here? Whereas it has been reported that Common Music Publishing Group and Warner Chappell have entered into direct agreements with Spotify for the U.S. as a part of broader offers that embrace their related report labels, the upcoming Phonorecords V course of earlier than the Copyright Royalty Board — which begins early subsequent yr — presents your complete songwriter and music publishing group with the chance to proper Spotify’s flawed. I encourage all who depend upon songwriting and publishing royalties for his or her livelihood to coach themselves on the information and keep conscious of latest developments.
Adam Parness was the worldwide head of music publishing at Spotify from 2017 to 2019. He at present operates Adam Parness Music Consulting and serves as a extremely trusted and wanted strategic advisor to quite a few music rightsholders, notably within the music publishing house, in addition to well-liked world manufacturers, technology-based inventive providers corporations and companies investing in music and expertise.