A trade group representing songwriters and music publishers filed a complaint against Spotify with the Federal Trade Commission last week, alleging the music streaming platform’s decision to bundle subscriptions is deceiving consumers.
The National Music Publishers Association sent its complaint to 10 states, encouraging attorneys general to investigate the matter on behalf of the Spotify customers in their states. The selected states have a strong interest in protecting songwriters and robust consumer protection laws, said David Israelite, the NMPA president and CEO, during the organization’s annual meeting this week.
The NMPA alleges Spotify deceived users by changing their music-only subscriptions to bundled audiobook-and-music subscriptions without their consent. As a result, subscribers are paying for products and services they did not intend to purchase, according to the complaint. This month, Spotify announced it would increase the costs of its Premium plan — its second price hike this year. For an individual tier, the subscription will increase from $10.99 to $11.99, and the duo plan will increase from $14.99 to $16.99.
In an emailed statement, a Spotify spokesperson said the company rejects the NMPA’s “baseless accusations and will continue to provide consumers incredible value and a best-in-class experience.”
The big picture
The complaint is another step forward in the ongoing battle between music publishers, songwriters and Spotify over mechanical royalties, a storied history that dates back to the streamer’s inception in 2006.
Spotify has a blanket licensing agreement that allows it to offer tens of millions of musical works from songwriters and music publishers. These licenses require Spotify to pay mechanical royalties.
The issue of mechanical royalties is one of the most confusing and opaque topics in all of music, said Matthew Wilson, a partner with Arnall Golden Gregory and co-chair of its entertainment and sports industry team.
The battle escalated this year when Spotify reclassified its flagship ‘Premium’ subscription tier as a bundle, which allows the streamer to pay lower royalty rates for streams.
During the annual meeting, Israelite estimated the change will cost songwriters and publishers an estimated $150 million over the next year, and even more in the future.
Here’s why: Spotify makes its monthly royalty payments to the Mechanical Licensing Collective (MLC), a nonprofit under the U.S. Copyright Office. The amount Spotify pays is determined by an entity called the Copyright Royalty Board. The MLC then distributes those royalties to songwriters and publishers.
Under the copyright board’s most recent document setting rates and terms for interactive streaming and digital downloads, streaming services providing bundles can pay a lower rate than standalone music subscriptions.
In May, the MLC filed suit against the streamer, alleging the subscription revenue Spotify typically reports was suddenly cut in half. The MLC complaint, filed in the U.S. District Court for the Southern District of New York, said Spotify began characterizing its services as a different type of subscription offering: a bundle.
The financial consequences of Spotify’s underreporting are enormous for songwriters and music publishers, according to the MLC complaint.
The next steps
In its complaint, the NMPA asks the FTC to review Spotify’s practices to protect consumers and “the integrity of the music marketplace.” The NMPA also sent its complaint to several consumer advocacy groups, including the National Consumer Law Center and Truth in Advertising, along with attorneys general in California, New York, Colorado, Connecticut, Illinois, the District of Columbia and Oregon
Attorney Matthew Wilson predicts the FTC will take some kind of action. Under Chair Lina Khan, the FTC has actively pursued investigations and antitrust probes into major tech companies, from Microsoft and OpenAI to Amazon and Meta.
In May, NMPA also sent a letter to leaders of the Judiciary Committee in the Senate and House of Representatives, calling for changes to the Copyright Act. But it’s difficult to tell if there’s an appetite for changing the legislation.
“It’s pretty daunting, especially in an election year,” Wilson said.
