Business

It has been over one year since Spotify brought limited audiobook functionality to its Spotify premium products in November 2023. In March 2024, in a major shift for songwriters and music publishers, Spotify began reporting its three principal premium subscription tiers to the Mechanical Licensing Collective (MLC) as “bundled subscription services” rather than as “standalone portable subscriptions,” as they had previously done. In response, the MLC sued Spotify in May 2024 for allegedly underpaying music publishers, but a judge dismissed the case in January 2025. A motion for reconsideration filed by the MLC in February 2025 remains pending in the Southern District of New York.
Earlier this month, the National Music Publishers’ Association (NMPA) stated at its annual meeting that this change has resulted in a first-year loss of $230 million in mechanical royalties to songwriters and music publishers. Spotify’s own recent SEC filing states a loss of 205 million euros in mechanical royalties for the 13-month period between March 1, 2024, and March 31, 2025. This is actual money that should have, but did not, make it into the pockets of songwriters and music publishers. It has instead remained with Spotify.

Trending on Billboard

Spotify’s actions have already been publicly lambasted by this author, the NMPA and the songwriter and music publisher communities as perhaps the worst affront in a long line of offenses committed by Spotify against songwriters. So why am I writing about this issue again, a year after first doing so in Billboard? Because with a year’s worth of additional facts and data at hand, it is my opinion that this is one of the greatest injustices visited upon songwriters in the era of music streaming, sadly perpetuated by the company that has perhaps benefited more than any other from the creativity and labor of songwriters. All songwriters and music publishers should be aware of this critical issue and deserve to know all of the supporting facts.

When I wrote on this issue back in May 2024, I opined that Spotify’s actions would likely reduce the effective share of its U.S. subscription revenue paid to songwriters and music publishers from the agreed-upon 15.1% to 15.35% in the Phonorecords IV settlement to less than 12%. I wrote that Spotify’s timing felt engineered to partially sideline songwriters and music publishers from benefiting from price increases that were reportedly soon to take effect (and did). I wrote that the Spotify Audiobooks Access tier was seemingly not commercially viable as a standalone product and was launched in the U.S. (and nowhere else) with the primary and perhaps sole purpose of supporting Spotify’s attempt to report most of its subscription tiers to the MLC as bundles and reduce mechanical royalty payments to songwriters. And finally, I wrote that Spotify was motivated to take publishing royalties out of the pockets of songwriters in order to improve its gross margin and offset the costs of running its new audiobook initiative.

One year later, I believe that all of this has proved to be true. Let’s look at the facts.

What is a bundle?

In this context, a bundle occurs when Spotify — or another music service — is sold to consumers for a single price as part of a package which includes other goods and services. Some bundles package music with digital services such as subscription video on demand and/or physical goods such as phones, tablets and delivery services. The components of the bundle typically can be purchased on an individual basis if a consumer is not interested in purchasing the entire package, and those components typically have a clear independent commercial value to some segment of consumers.

For rightsholders, the potential value exchange is that a tech platform may package a bundle of goods and services (including music) together in a manner that could potentially bring additive revenue, users and engagement to music creators that, absent the bundle, might be less obtainable. Basically, the platform is offering a package deal to reach customers who may be less likely to pay for a music service sold on its own.

Rightsholders operating in a free market may be asked by the licensee to help offset their other costs of operating such a bundle (e.g., non-music licensing costs, other operating expenses) by agreeing to reduced royalty terms than what would typically apply to a standalone music service, which a licensee may also offer. Rightsholders are able to consider such requests, sometimes referred to as “bundle discounts,” by engaging in discussions with the licensee and utilizing pertinent data and information such as market research, reporting and revenue forecasts to inform their viewpoints and make decisions that are in the best interests of music creators.

A range of outcomes is possible in the free market. A rightsholder may refuse to license the bundled service at all, or they may license the bundled service for the same price and terms they’d grant to a standalone music service, or they may agree to some means of discounting. The Phonorecords IV settlement includes examples of such terms, including a specific definition of revenue for bundled services and other terms that are reduced relative to those that apply to standalone music services.

When this works as intended, music rightsholders may choose to effectively co-invest with a streaming service in creating a discounted bundle that they feel has the potential to earn additional revenue, even if there may be less revenue earned on a per-user basis from the bundle relative to a standalone music service. The potential benefit to music creators is that they may capture additional royalty amounts from users who might not have signed up for a music service absent the additional non-music components of the bundled offerings. The licensee is rewarded for bringing some level of added value to music creators by building, offering and marketing the bundled package to consumers.

Why Spotify’s bundle is different

But this is not what Spotify has done. Spotify has built a music subscription empire based upon the creativity and labor of songwriters and now reduced their U.S. mechanical royalties in a manner that implies that songwriters now contribute less to the success of Spotify. That could not be further from the truth. Regardless of the legal issues surrounding this matter, Spotify’s reduction of songwriters’ mechanical royalties, in my opinion, has no commercial merit.

In June 2024, a few months after Spotify began including the limited audiobook functionality (15 hours of listening time per month) in Spotify’s premium tier, it launched a tier called Spotify Basic. Spotify Basic, which is $1 to $3 less expensive than Spotify’s premium tier, depending on the number of users, is what Spotify’s premium tier was prior to November 2023 — a music subscription service without the audiobook functionality. It is the service that tens of millions of users signed up for prior to November 2023 because they acknowledged the value of unfettered access to music and are willing to pay for it. But all of those premium users, regardless of whether or not they want audiobooks, are now considered by Spotify to be bundled subscribers as of March 2024. That is, unless they manually selected to switch to Spotify Basic.

Most Spotify users probably don’t know that all of this happened, or that Spotify Basic exists. Spotify Basic is not available to new subscribers; it is only available in the U.S. to existing premium users who were subscribed as of June 20, 2024. Promotion and marketing of Spotify Basic to qualifying users has been limited. If a Spotify user cancels their Spotify Basic plan later on, it is not possible to resubscribe to it. Basic is also not available via upgrade paths. For example, a subscriber cannot upgrade from Basic Individual to Basic Duo. Instead, they are forced to pay $2 more for Premium Duo even if they have no interest in audiobooks.

Since Spotify’s November 2023 launch of the limited audiobook functionality, it has not been possible for new Spotify users to obtain a Spotify subscription that does not include audiobooks (save for qualifying student plans, which are bundled with Hulu). This is important because, absent a clearly presented and available option for a new (or existing) customer to choose between one offering that is music-only and another offering that includes audiobooks but is more expensive, the very clear conclusion is that music alone continues to drive consumer decision making around Spotify, including users’ decisions to pay for Spotify, what price they are willing to pay and what levels of price increases they are willing to endure without canceling their subscriptions.

Most Spotify users also don’t know that there’s a Spotify Audiobook Access tier. Last year, many — including this author — opined that the Audiobook Access tier was launched solely in the U.S. for the primary or sole purpose of lending legal support and a pricing benchmark to Spotify’s reduction of mechanical royalties. One year later, this appears on its face to have been true. Spotify Audiobook Access only remains available in the U.S., and there appears to be little, if any, earnest effort on Spotify’s part to promote and market it to consumers. They do not publicly report subscriber numbers for Spotify Audiobook Access, nor do they seem to talk about it much. In my opinion, it appears to be an offering that Spotify is not serious about and that was launched to prop up the reduction of songwriter’s mechanical royalty payments.

I’ve also been asked why Spotify did not declare its premium tier to be a bundled product when it began offering podcasts to subscribers many years before its introduction of audiobooks. The answer may lie in the fact that podcasts are monetized by selling advertising to businesses and brands, and there has been clear demand for Spotify to provide that service. Audiobooks, by contrast, have historically been monetized mostly via subscriptions sold to consumers by digital retailers. In Spotify’s case, it is possible that while some segment of premium subscribers might utilize limited audiobook access if they are already paying to access unlimited music, those same subscribers might not be motivated enough to pay Spotify specifically for access to audiobooks. In other words, engagement alone might not be an indicator of willingness to pay. It costs Spotify money to offer audiobooks to its subscribers, and if those subscribers aren’t willing to pay for them specifically, it’s possible that Spotify needs to offset those costs in some other manner. As I’ve opined before, I believe this has been a material driver behind Spotify’s bundling initiative that has cost songwriters and music publishers hundreds of millions of dollars in U.S. mechanical royalties to date.

Spotify’s financials post-bundling

Finally, let’s talk about how this issue has impacted Spotify’s financial performance. Spotify’s premium gross margin increased from 29.1% to 33.5% between Q4 2023 (the last full quarter unimpacted by Spotify’s reduction of mechanical royalties via bundling) and Q1 2025. The $230 million first-year loss of U.S. mechanical royalties reported by the NMPA equates to about 1.4% of Spotify’s global premium revenue of 13.82 billion euros (approximately $15.89 million) for 2024. There are a number of factors that have allowed Spotify to improve its gross margin performance, but its reduction of U.S. mechanical royalties has contributed to that improvement on a very real and material basis, as Spotify has noted on quarterly earnings calls.

Spotify’s gross margin improvement has undoubtedly been a big factor in the performance of its stock, which is up about 130% year-over-year as of this writing. It is perverse that songwriters and music publishers have contributed so meaningfully towards these recent improvements in Spotify’s financial performance and the market’s reaction, yet find themselves not only unrewarded for their contributions but on the wrong end of Spotify’s efforts to reduce its U.S. music publishing costs.

So, where do songwriters and music publishers go from here? While it has been reported that Universal Music Publishing Group and Warner Chappell have entered into direct agreements with Spotify for the U.S. as part of broader deals that include their associated record labels, the upcoming Phonorecords V process before the Copyright Royalty Board — which starts early next year — presents the entire songwriter and music publishing community with the opportunity to right Spotify’s wrong. I encourage all who depend on songwriting and publishing royalties for their livelihood to educate themselves on the facts and stay aware of new developments.

Adam Parness was the global head of music publishing at Spotify from 2017 to 2019. He currently operates Adam Parness Music Consulting and serves as a highly trusted and sought after strategic advisor to numerous music rightsholders, notably in the music publishing space, as well as popular global brands, technology-based creative services companies and firms investing in music and technology.