Three US lawmakers have expressed concern over Spotify‘s recent bundling practices and its potential impact on songwriter compensation.
Spotify announced in March that it would reclassify its Premium tiers as ‘bundles’ by combining music and audiobooks. In 2022, a legal agreement (Phonorecords IV) allowed music streaming services in the US to pay lower royalties to publishers and songwriters for music offered as part of bundles compared to standalone music subscriptions.
In a letter addressed to Shira Perlmutter, the US Register of Copyrights, Congressmen Ted Lieu (D) and Adam Schiff (D), plus Senator Marsha Blackburn (R), raised questions about whether Spotify’s new practice is in line with the spirit of the Music Modernization Act (MMA) of 2018.
“American songwriters create the music we love but have long labored under a compulsory licensing system that robs them of control over their work and the ability to receive fair compensation. Six years ago, Congress passed the Music Modernization Act (MMA) to address that problem,” they wrote in the letter dated June 12.
The bipartisan group of lawmakers highlighted the long-standing challenges faced by songwriters in receiving fair compensation under the compulsory licensing system, acknowledging that the MMA is a positive step towards fairer compensation for publishers and songwriters, while expressing concern that Spotify’s actions might undermine these efforts.
Their concern lies in Spotify’s “unexpected decision” to reclassify its Premium subscription tier as a bundle when offering audiobooks as a free add-on to its $10.99 monthly subscription plan.
They said the copyright royalty rates are set by the Copyright Royalty Board (CRB) with a specific rate structure for bundled services. This structure seeks to ensure rightsholders receive a fair share of royalties when services are offered together at a discounted price, the lawmakers wrote.
“Few would expect customers to purchase audiobooks at that rate when it is available for free with the music service for only $1 more per month. This was, however, the same moment in which Spotify automatically reclassified the 50 million subscribers in its music services into a bundle,” they said.
This, according to the two representatives and one senator, led to a “sharp reduction” in royalty payments made to publishers and songwriters.
They also highlighted the importance of protecting copyright owners from practices that exploit the compulsory licensing system. They stressed concerns that digital service providers like Spotify might manipulate statutory rates to reduce royalties, ultimately undermining copyright protections for creators.
“Digital service providers should not be permitted to manipulate statutory rates to slash royalties, deeply undercutting copyright protections for songwriters and publishers.”
Ted Lieu, Adam Schiff and Marsha Blackburn
“As members of the Judiciary Committee, which originated the Music Modernization Act, we want to see the law faithfully implemented and copyright owners protected from harm arising from bad faith exploitation of the compulsory system. Digital service providers should not be permitted to manipulate statutory rates to slash royalties, deeply undercutting copyright protections for songwriters and publishers. A fair system should prevent any big tech company from setting their own price for someone else’s intellectual property, whether the owner wants to sell or not.
The lawmakers posed specific questions to the Copyright Office, seeking its expertise in navigating the situation.
Their questions revolve around whether there are existing protections in place to prevent companies from using the compulsory license system to disadvantage copyright owners and whether there is a cost-effective process for songwriters and publishers to seek relief if licensees engage in improper or illegal actions.
(You can read the lawmakers’ full letter to the Copyright Office here.)
Billboard had estimated that publishers and songwriters will earn $150 million less in US mechanical royalties than previously expected in the next 12 months due to Spotify’s change.
The National Music Publishers Association (NMPA), which represents prominent independent publishing companies, as well as major publishers, Sony Music Publishing, Universal Music Publishing Group and Warner Chappell Music, has accused Spotify of “attacking songwriters.” NMPA President & CEO David Israelite described Spotify’s action as “a cynical, and potentially unlawful, move that ends our period of relative peace.”
The NMPA has already threatened Spotify with legal action over the service and called on Congress to update the copyright law in the US to allow publishers to negotiate in a “free market” like record labels.
Meanwhile, the US-based Mechanical Licensing Collective (The MLC) and the US Federal Trade Commission sued Spotify for allegedly underpaying royalties to songwriters and publishers, arguing that by applying the rate formula applicable to bundles to its Premium subscriptions, Spotify’s position does not comply with the law.
For its part, Sony Music Publishing is considering “all options” against Spotify over the change, saying in a letter that SMP songwriters and composers in the US have seen their mechanical royalty payments from Spotify reduced by approximately 20%.
Music Business Worldwide [STAGING]