Spotify used this one word to justify a 50% cut in royalties, creator lawsuit alleges

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Spotify Technology SA used a legalistic word change to justify slicing royalties to musicians and publishers, reducing the revenue on which royalties are based by almost 50%, according to lawsuit filed by the group that collects their payments.

The change came in March when Spotify added the word “bundled” to its description of its $10.99-a-month music streaming service, the Mechanical Licensing Collective said in its complaint. Nothing else “about the Premium service has actually changed,” according to the suit filed Thursday in federal court in Manhattan.

The collective is legally barred from disclosing how much Spotify royalties declined since March but cited a Billboard story that estimated the loss would amount to about $150 million next year. 

Spotify said it looks forward to “swift resolution” of the lawsuit, which it said concerns terms that publishers and streaming services “agreed to and celebrated years ago.”

“Bundles were a critical component of that settlement, and multiple DSPs include bundles as part of their mix of subscription offerings,” a Spotify spokesperson said in a statement. “Spotify paid a record amount to publishers and societies in 2023 and is on track to pay out an even larger amount in 2024.”

The fight over bundling between the streaming service and publishers has spilled into a dispute over other issues.

The National Music Publishers’ Association on Wednesday sent a cease-and-desist letter to Spotify over products it claims are infringing on songwriters’ copyrights. The NMPA alleges that music videos, lyrics and podcasts on the platform are all using copyrighted music without the proper permissions.

“Before Spotify’s ‘bundling’ betrayal, we may have been able to work together to fix this problem, but they have chosen the hard road by coming after songwriters once again,” David Israelite, chief executive officer at the NMPA, said in a statement.

In response, a Spotify spokesperson called the letter a “press stunt filled with false and misleading claims.” 

Music and audiobook streaming companies, like Spotify, pay musicians and music publishers under a complex system set out in 2018 by the Music Modernization Act of 2018. Under the system, streaming services pay less per stream — in other words, less to creators and publishers — when their services are classified as bundles.

Spotify’s Premium service, which was not classified as a bundle before March 1, includes unlimited music downloads and 15 hours of audiobooks. It added the audiobook offering in November in the US without changing the $10.99 price.

The licensing collective is asking the court to order Spotify to stop classifying Premium as a bundled service and to pay it for lost revenue.

Israelite praised the Mechanical Licensing Collective for “not letting Spotify get away with its latest trick to underpay creators.”

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