Spotify has once again shocked the songwriting community by trying to use a legal loophole to find a new way to pay them less.
Music creators have enjoyed a period of relative peace with Spotify since songwriters and music publishers struck a deal with the digital service in 2022 to increase royalty rates for the next five years. Unfortunately, the streaming giant is now twisting that deal by using audiobooks to redefine and reduce the amount they pay songwriters – hundreds of millions of dollars. By unilaterally adding audiobooks to their premium stand-alone music service, they are now classifying that music service as a “bundle”, which means they can attempt to pay royalties by a different definition. In a single year this could cost songwriters around $150 million.
Whether or not they can get away with it is still up for debate.
Record labels, in a free market, readily resort to such misguided tactics. They are not subject to compulsory licensing like songwriters and have the freedom to deal directly with streaming services like Spotify. Mainly, this means that if they don't like how their rights are affected by Spotify's bundling strategy, they can say no.
Unfortunately, songwriters and music publishers cannot. They have to go to court every five years and are at the mercy of three judges to interpret Spotify's routing of the rules.
Spotify first came aggressively for songwriters in 2018. We achieved a 44% increase in the rate for mechanical streaming rights in Copyright (CRB) – increasing rates from 10.5% to 15.1% of revenue. In an unprecedented move, Spotify appealed this decision, sending us on a half-decade legal odyssey that ultimately resulted in our nominal rate increase being upheld as well as some new changes.
Fast forward to 2022. Having lost interest rate appeal, streaming services came to the table to negotiate the next five years.
To avoid a repeat of another era of uncertainty and to ensure prices and terms improve, we agreed a deal with Spotify, Amazon, Apple, Google and Pandora to cover the period 2023-2027, which included a gradual increase of interest rates. Importantly, it also included strengthening the bundle definitions by ensuring that services were no longer able to attribute all parts of the revenue to other non-music offerings in the bundle. However, the court prevented us from doing away with bundle definitions entirely, because when a service pays under the bundle definition, they pay at a discount, since the music is only part of the deal.
It was only recently, when Spotify's royalty reports plummeted in the middle of a CRB rate period, that we were made aware that Spotify was reinterpreting the new bundle rules to manipulate its payments. However, calling Spotify's premium service a bundle is dishonest.
After last year's price hike, there was great hope that Spotify would better align prices with market value and that songwriters would see the benefits of the deal we agreed in 2022, which ensures that when prices go up, their rights also increase.
Only in Spotify's world would a price increase for users mean a lower royalty rate for songwriters.
As we look forward to the next CRB test, where we will once again face the world's largest technology companies, we hoped to approach it as business partners, strengthened by many years of cooperation. This development destroyed those possibilities as Spotify returned to attacking the very songwriters who make its business possible – and worse, they do it through a dishonest solution.
Bundles were designed to be implemented when two stand-alone products were combined to incentivize new users and increase the paying consumer base. What Spotify has done is act like audiobooks are a new, separate service, when in fact it's the same premium streaming option that millions of users already subscribe to.
In fact, in a bombshell last week, it was discovered that if you can find where you can sign up for the audio-only option, the first question Spotify asks you is who your favorite artists are – just like when you board a subscriber only music. It then offers you all the music on its on-demand platform.
We will not support the misinterpretation of bundles exactly as they are defined in our settlement. If the legal formula is allowed to be abused in this way, it will open the way for other services to do the same.
That is why several serious actions are underway. Last week, the Mechanical Licensing Collective (MLC) sued Spotify for improperly reporting its usage – aka underpaying songwriters by branding their service as a bundle.
As MLC states in its complaint, “Spotify informs potential Access Audiobook subscribers that, unlike Premium subscribers, they will not have access to unlimited, ad-free, on-demand music. But in launching its plan to access audiobooks, Spotify neglected to create a different product.”
Separately, the NMPA also sent a demand letter to the streaming giant for using unlicensed musical works in its lyrics, videos and podcasts. We also specifically warned Spotify about the rumored “remix” feature that would allow subscribers to “speed up, combine and edit different” songs to create derivative works.
In addition to these legal challenges, we will soon unveil a legislative proposal to permanently redress the power imbalance songwriters face by subjecting their songs to compulsory licensing.
Spotify's cynical and potentially illegal move should make all songwriters and artists question their relationship with the service. The strategy of rebranding the music as a “bundle” further devalues their craft and amounts to complete betrayal.
David Israelite is the president and CEO of the National Music Publishers' Association (NMPA). Founded in 1917, the NMPA is the trade association representing all American music publishers and their songwriting partners.
from our partners at https://www.billboard.com/business/publishing/nmpa-david-israelite-spotify-bundling-music-plan-legislative-proposal-1235687751/
