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The Mechanical Licensing Collective (the MLC) has filed a lawsuit against Spotify, calling the way the streamer reclassified its premium, duo and family plans as “bundles” and started paying a discounted royalty rate to publishers and songwriters “improper.”
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“The financial consequences… are enormous for songwriters and music publishers,” the MLC writes in the complaint.
News of the lawsuit arrives just a week after Billboard published its estimate that publishers and songwriters will earn about $150 million less in U.S. mechanicals in the next year, compared to what they would have been owed had the services not been bundled.
The root of the conflict started late last year when Spotify added 15 hours of free audiobook listening to Spotify premium, duo and family plans in the United States and other markets. At the time, this was a free extra for subscribers, and Spotify continued to pay the original full mechanical royalty rate for musical works in the United States.
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Starting in March, however, Spotify quietly launched an audiobook-only plan, then started to reclassify its premium, duo and family plans as bundles because audiobooks were included. According to Phonorecords IV, the agreement that dictates U.S. mechanical royalty rates for 2023-2027, bundles of multiple products are an inherently different type of subscription and thus use a different, lower royalty rate, given that multiple offerings must be paid for from the same subscription price.
In the lawsuit filed by the MLC, which processes and distributes mechanical royalties to publishers and songwriters in the United States, the organization argues “premium is exactly the same service” as it was previously. “Prior to March 1, Spotify paid mechanical royalties on the entirety of Premium revenues, subject to certain specific reductions identified in Section 115, despite the fact that Premium subscribers also had access to the same number of hours of audiobooks as Audiobooks Access subscribers now have,” the lawsuit reads.
“On March 1, 2024, without advance notice to the MLC, Spotify unilaterally and unlawfully decided to reduce the Service Provider Revenue reported to the MLC for Premium by almost 50 percent,” reads the complaint. “[This was done] by improperly characterizing the service as a different type of subscription offering and underpaying royalties, even though there has been no change to the premium plan and no corresponding reduction to the revenues that Spotify generates from its tens of millions of Premium subscribers.”
Spotify provided a statement to Billboard in response to the lawsuit, saying: “The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago under the Phono IV agreement. Bundles were a critical component of that settlement, and multiple DSPs include bundles as part of their mix of subscription offerings. Spotify paid a record amount to publishers and societies in 2023 and is on track to pay out an even larger amount in 2024. We look forward to a swift resolution of this matter.”
Reports of Spotify’s change to its royalty rate structure for premium, duo and family plans first arrived in April. Immediately, the National Music Publishers’ Association (NMPA) began speaking out against Spotify’s reclassification, calling it an “end to our period of relative peace” and “potentially unlawful.”
On Wednesday (May 15), the NMPA sent Spotify a cease and desist letter regarding a separate issue: allegedly unlicensed lyrics and video. In the letter, NMPA general counsel/executive vp Danielle Aguirre also mentioned there might be some publishing content that “will soon become unlicensed” by its members. Spotify fired back at the letter in a statement, which read: “This letter is a press stunt filled with false and misleading claims.”
In its lawsuit filed Thursday, the MLC claims that to qualify for the bundle subscription rate, “an offering must include at least two distinct products or services. Premium does not,” adding, “Premium already consisted of unlimited music and access to other audio products including up to 15 hours of audiobook listening” as well as other offerings like podcasts.
The MLC further argues that the audiobook-only plan Spotify launched in March is not a different product, saying that it offers more than just audiobooks. “New Audiobooks Access subscribers are being granted access to 15 hours of audiobooks listening and the same access to unlimited, ad-free, on-demand music that Premium subscribers are provided. The only difference is that subscribers to Audiobooks Access are paying $9.99 per month, rather than $10.99, to receive the same product,” reads the complaint.
The MLC also notes that the “audiobook access subscription page does not appear to be directly accessible from Spotify’s website” — making the point that the offering is difficult to find. As a consequence, the MLC says it believes “there is little doubt that the number of subscribers who will sign up for Audiobooks Access is likely to be a fraction of the Premium subscribers.”
A few months ago, the MLC also sued Pandora, another streaming service it collects mechanical royalties from in the United States, for what it says is a failure to properly pay streaming royalties. That lawsuit is ongoing.
The MLC and the Digital Licensee Coordinator (DLC) — the organization intended to represent the majority interests of digital music providers affected by the blanket license set up by the Music Modernization Act (MMA) — are also currently in the process of their first five-year check-up (called a “re-designation” process) to ensure both are effectively fulfilling their duties. This routine, five-year check, conducted by the U.S. Copyright Office, allows the two organizations to self-report on their progress and gives key stakeholders — including the Digital Media Organization (DiMA) — the opportunity to speak to the strengths and weaknesses of the organizations.
The MLC’s operational costs are paid for by DiMA members, including Spotify, Pandora, Apple Music, Amazon Music and more, as set forth by the Music Modernization Act (MMA). In a blog post in March, DiMA’s CEO/president, Graham Davies, pointed out that the MLC is “suing one of the licensees [Pandora] that pays its costs.” The NMPA replied to this post by defending the MLC, saying that streamers “do not want what is in the best interests of music publishers or songwriters,” calling DiMA’s “new…strategy…an effort by the world’s largest digital companies to leverage their power to pay less.”
The NMPA’s president/CEO David Israelite provided a statement of support for the MLC lawsuit, saying, “we applaud the MLC for standing up for songwriters and not letting Spotify get away with its latest trick to underpay creators. The MLC is tasked with challenging services who falsely report royalties, and we commend their swift action. The lawsuit sends a clear message that platforms cannot improperly manipulate usage — in this case unilaterally redefining services as a bundle — in order to devalue music. We strongly support the MLC and will continue to pursue justice.”
The National Music Publishers Association (NMPA) has sent a cease and desist letter to Spotify for allegedly hosting lyrics, music videos and podcast content that contain their members’ copyrighted musical works without proper licenses. The organization, which represents music publishers in the U.S., says that it “demands” that these alleged unlicensed works “be removed from the platform or Spotify will face copyright liability for continued use of these works.”
The letter comes a week after Billboard released an estimate, claiming that Spotify will pay about $150 million less in U.S. mechanical royalties to music publishers and songwriters in the next year than what publishers and songwriters were previously expecting. This is because Spotify added audiobooks into its premium, family and duo plans, and the company claims that the move now qualifies them as a bundle, which pays a discounted royalty rate from normal standalone subscriptions, given Spotify now has to pay for books and music from the same subscription price.
The cease and desist letter, obtained by Billboard, covers a separate issue to last week’s announcement, but the timing suggests the NMPA is hoping to push back against Spotify’s practices on several fronts. The letter continues: “Spotify appears to be engaged in direct infringement by hosting unlicensed musical works in its lyrics, videos and podcasts and by distributing unauthorized reproductions, synchronizations, displays and derivative sues of these musical works to its users. Making matters worse, Spotify profits from such infringement.”
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Written by NMPA’s executive vp and general counsel Danielle Aguirre, the letter did not cite any specific unlicensed works or say how many instances there are of unlicensed works on Spotify and warned about both unlicensed works as well as works that “will soon become unlicensed” by its members. When asked for a list or a ballpark number of the unlicensed works, NMPA declined to comment. If the NMPA ever gets to the point of filing a lawsuit against Spotify for these alleged offenses, however, the organization would then provide more detail.
Many music publishers currently have licenses in place with Spotify for their lyrics and video content. Unlike the government-regulated process of setting U.S. mechanical royalty rates, lyric and video licenses are direct deals between the publisher and the streaming service, and each negotiation is unique, but for lyrics specifically, some publishers will license through third party aggregators like Lyric Find. These deals are not considered to be major money makers for publishers or streamers, and although their duration can vary, the licenses typically run for 1-2 years, according to a source close to the matter.
The NMPA also cites a recent Wall Street Journal article that claimed Spotify is working on tools that would allow subscribers to “speed up, mash up and otherwise edit songs from their favorite artists” in its letter to Spotify, warning the streaming platform that if “any such feature” is released by Spotify “without the proper licenses in place from our members” it “may constitute additional direct infringement.”
Spotify and the NMPA have a history of not getting along, but since late 2022, it appeared the two were on relatively good terms. After a contentious five years of back-and-forth over how to set the U.S. mechanical royalty rate for streaming for 2018-2022, the NMPA, Nashville Songwriters Association International (NSAI) and streaming services, like Spotify, came together to collectively settle the next rate period together (2023-2027), hoping to avoid another lengthy and costly fight. The result was something David Israelite, president and CEO of the NMPA, touted at the time as the “highest streaming rates in the history of digital streaming,” due to a raise in the headline rate.
Part of the compromise for that settlement, however, included an update to how bundles were treated, which was considered a potential benefit to streaming services. As the Association of Independent Music Publishers (AIMP) put it in their statement against Spotify’s bundling practices, music publishers believe Spotify used a “loophole” to “circumvent the [Copyright Royalty Board] settlement.” Israelite went further, calling the bundle reclassification a “potentially unlawful move” when it was first announced, even though Spotify believes it rightfully qualifies. Recently, the NMPA admitted a lawsuit against Spotify for bundling was “likely.”
Read the full letter below:
Dear Mr. Kaefer [vp and global head, music and audiobook business] and Ms. Konstan [general counsel of Spotify]:
I write on behalf of the National Music Publishers’ Association (“NMPA”) regarding copyright infringement of our members’ musical works on the Spotify platform. As the voice of our members, NMPA protects, promotes, and advances the interests of music creators and enforces the rights of publishers, and their songwriter partners, who own and/or control musical work copyrights.
Music is essential to Spotify’s service; it is the reason subscribers utilize the Spotify platform every day. Spotify’s primary use of musical works via interactive streams and downloads is subject to the antiquated compulsory license under 17 U.S.C. § 115 and consent decree-governed public performance licenses.
Regardless of the mechanical and public performance licenses Spotify may have, however, the use of lyrics and music in videos and podcasts on its platform requires rights that must be negotiated directly with rightsholders in a free market.
It has come to our attention that Spotify displays lyrics and reproduces and distributes music videos and podcasts using musical works without the consent of or compensation to the respective publishers and/or administrators (our members) who control the copyrights in the musical compositions. As such, these uses of musical works on the Spotify platform are not licensed or will soon become unlicensed.
U.S. copyright law generally grants copyright owners the exclusive right to, among other things, reproduce, distribute, display, perform publicly, and create derivative works from their copyrighted works under 17 U.S.C. § 106. Violation of these exclusive rights constitutes copyright infringement under 17 U.S.C. § 501.
Spotify thus appears to be engaged in direct infringement by hosting unlicensed musical works in its lyrics, videos, and podcasts, and by distributing unauthorized reproductions, synchronizations, displays, and derivative uses of these musical works to its users. Making matters worse, Spotify profits from such infringement.
Accordingly, on behalf of our members, NMPA demands that unlicensed lyrics, music videos, and podcasts be removed from the platform or Spotify will face copyright liability for continued use of these works.
We also understand that Spotify wishes to offer a “remix” feature allowing Spotify subscribers to “speed up, mash up, and otherwise edit” their favorite songs to create derivative works. Spotify is on notice that release of any such feature without the proper licenses in place from our members may constitute additional direct infringement.
NMPA further demands that Spotify preserve all electronically stored information (“ESI”), as defined by Rule 34 of the Federal Rules of Civil Procedure, along with any paper files, in Spotify’s possession, custody, or control that is relevant to use of our members’ unlicensed works. Spotify must also cease any auto-deletion operations affecting ESI relevant to this matter.
This letter is not intended as a full recitation of the facts or claims that may be made against Spotify by NMPA, its members, and/or other copyright owners, and is made without prejudice to all rights or remedies against Spotify and all others acting in concert with Spotify, including without limitation, monetary damages and attorneys’ fees as provided under 17 U.S.C. §§ 502-505.
Sincerely,
Danielle Aguierre
In Spotify‘s latest Billions Club: The Series episode Tuesday (May 14), Cardi B feasts on some delicious Caribbean food while enjoying a few major streaming milestones on the side.
To celebrate having four songs on the platform surpass a billion plays, the rapper ate a meal of oxtails, rice and plantains while using her quartet of shiny new Spotify plaques as plates. In between bites, she opened up about making each track, starting with her 2018 feature on Maroon 5’s “Girls Like You.”
“This song is the perfect song to dedicate [to] my child,” she says in the clip while wearing a pink bathrobe and slippers. “Like, my daughter was in me when I did this song. When I perform this song, it touches me a little different.”
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Cardi’s first child — a daughter named Kulture Kiari, whom she shares with Offset along with son Wave — was born in July 2018, less than two months after her collaboration with Maroon 5 dropped. The New York native also released “I Like It” with Bad Bunny and J Balvin while she was expecting her baby girl, not that she gave the two Latin music stars a heads-up about her pregnancy before meeting them for the first time.
“They just looked down at my stomach like, ‘Oh!’” Cardi recalled, laughing.
“I went to my Grandma’s house, and I played it to everybody like, ‘I have a song with Bad Bunny and f–kin’ J Balvin! Oh my god!” the musician added. “The three of us, we were coming up at the same time.”
Cardi also celebrated her collaboration with Ozuna, Selena Gomez and DJ Snake, “Taki Taki,” reaching a billion streams, clarifying that the song’s title has nothing to do with the popular spicy chip of the same name. “It’s just a word Ozuna made up,” she said with her usual hilarious candor. “I don’t freaking know.”
And of her “WAP” duet with Megan Thee Stallion, Cardi said that their two voices “just went perfect” together. “It meshed very well, like butter and f–king bread,” she continued. “It became such a political record, which kinda shocked me and kinda shocked Megan. The song is not that freaky.”
Three of Cardi’s four Billions Club entries reached No. 1 on the Billboard Hot 100 following their respective releases, with “Girls Like You” reigning atop the chart for a whopping seven weeks back in 2018. “Taki Taki” reached No. 11 on the listing that same year.
“I just want to say thank you to my fans because sometimes I can be a little bit hard on myself … I never feel satisfied,” the Whipshots founder said to close out the episode. “The goal is never going to be reached because I’m always hungry for more.”
Watch Cardi’s new Spotify Billions Club episode below.
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Not long after Artist Partner Group (APG) signed Odetari — who specializes in glitchy, racing electronic tracks — last year, the label set up a second Spotify profile for him. Odetari “frequently has two to three different versions of records coming out a month,” explains Corey Calder, svp of marketing and creative services at APG. “If we were to have that all sit on his page, it would feel cluttered and make it hard for his fanbase to follow and track it all.”
This means that “HYPNOTIC DATA – Slowed & Reverbed” and “GMFU – Sped Up” live on a Spotify page called ODECORE, while the original hits will be found by anyone scrolling through Odetari’s own Spotify profile. And this split artist identity is part of a growing trend where acts keep one Spotify account for “official” releases, plus a side account for alternate versions.
Odetari’s labelmate 6arelyhuman puts remixes on Spotify under the name Sassy Scene. A Spotify account named Mei Mei The Bunny has only uploaded sped-up versions of Laufey singles, four to date. Mark Ambor has a breakout hit in “Belong Together;” his team uploaded the sped-up remix to Spotify through a separate account titled Lucky Socks.
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Even just a few years ago, creating alternate Spotify accounts for alternate versions of hit singles would’ve seemed wildly unnecessary. But user remixes and edits have proliferated and become popular soundtracks on short-form video platforms like TikTok.
Listeners often don’t care whether the “slowed and reverbed” sound they find on streaming is an official version generating income for the artist they like or a random upload — they just want to play the track that’s stuck in their head. As a result, labels adjusted by starting to release their own alternate reworks to satisfy this portion of the population. If they’re going to stream “Belong Together (Sped Up)” anyway, it might as well be a version that makes money for Ambor.
The streaming service Audiomack found that uploads of “manipulated songs” by labels — official tracks sped and slowed, pitched up and down, muffled and reverbed — shot up at the end of 2022. The number of these releases has continued to rise rapidly ever since, climbing from under 1,000 a quarter to around 6,000 a quarter.
These remixes can thrive in their own streaming ecosystems. Universal Music Group launched a Spotify account called Speed Radio that only posted sped-up versions of label releases; sped up nightcore did the same for singles from Warner Music Group.
The goal was “to create another mechanism for growth and a new algorithmic pocket on streaming services that helps increase visibility and discovery,” says Nima Nasseri, a former UMG executive whose role involved helping the company market user-generated remixes. As these Spotify pages amassed followers who enjoyed sped-up audio, they allowed new remixes to reach a larger audience by standing on the shoulders of their predecessors.
Some remix-focused side accounts exhibit clear links back to the mothership in a way that also helps drive awareness of the main artist project — ODECORE and Sassy Scene songs usually credit Odetari and 6rarelyhuman, respectively, as collaborators. Some of these alter-ego accounts, like Lucky Socks, maintain a degree of anonymity.
But both cater to a demand: Anyone searching Spotify for a sped-up version of 6rarelyhuman’s “Faster n Harder” finds the Sassy Scene version first. 6rarelyhuman picks up plays (and royalties) that might otherwise have been steered towards an entrepreneurial cover artist.
ODECORE has an additional function, according to Calder: Eventually, the goal is to turn it into a “sub-label” featuring music from artists signed to Odetari. “Ideally we’ll have a built-in audience already,” Calder says. ODECORE currently has more than 430,000 followers on Spotify, according to Chartmetric; that group functions as a potential launching pad to help Odetari’s future signings reach a wider listenership.
“A lot of what we do internally at APG is create multiple profiles for artists across social channels, and we’ll run fan pages in-house for our artists,” Calder continues. “We have these secondary and tertiary brands that are always on in the background. And so we just applied that same thinking to a Spotify profile.”
At the moment, the primary downside to releasing remixes under an alter ego is that they don’t count towards the success of the original on the Billboard charts. If artists put out a remix under their own name, consumption of that new version also counts towards chart position (generally, as long this happens within 18 months of the original track’s release and the original is still a “current” on the charts). That’s why stars often put out remixes with big names attached when they’re in tight races for the top spot on the Hot 100. But if Ambor’s alternate version of “Belong Together” is attributed to Lucky Socks, he gets no help from the extra consumption.
Ben Klein, president of Ambor’s label, Hundred Days Records, acknowledges that “commercially, it makes a lot more sense” to put out remixes under the same artist project. But Ambor is not competing for No. 1 — at least not yet, as the song has only reached No. 84 on the Hot 100 — and the team chose to release “Belong Together (Sped Up)” under a goofy alternate name anyway.
“We actually took inspiration from the Laufey team when we came up with the idea,” Klein says. “When Mark thinks about his profile, he wants it to be a representation of his music. A sped-up version is meant to be a fun, playful way for people to engage with the song on social media. It’s not a direct connection to his artistry. And I think he just wanted to keep it separate for that reason.”
Calder believes “a lot more new artists” will take a similar approach in the future. As streaming platforms try to capitalize on the homemade remix eruption by adding their own audio manipulation tools, it’s easy to imagine artists encouraging fans to mess with their songs by saying that the most popular fan edit will be posted to an official artist account. Just not the official artist account.
Spotify is changing the way it pays songwriters and publishers in the United States — leading to an estimated $150 million cut to U.S. mechanical royalty payments — and the music business is speaking out.
By adding audiobooks into Spotify’s premium, duo and family tiers, Spotify now claims it qualifies to pay a discounted “bundle” rate to songwriters for premium streams given that it now has to pay licensing for both books and music from the same subscription price tag — which will only be a dollar higher than when music was the only offering.
Spotify argues that adding audiobooks reclassifies the service from a “standalone portable subscription” to a “bundled subscription offering,” according to the royalty rate formula provided in Phonorecords IV. The National Music Publishers Association (NMPA) and Nashville Songwriters Association International (NSAI), both of which represented the music business in Phono IV proceedings, disagree with Spotify’s reading of the settlement, with the NMPA calling it “a cynical and potentially unlawful move” that is a “perversion of the settlement we agreed upon in 2022.”
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Last week, Billboard calculated that this change will lead to an estimated $150 million cut in U.S. mechanical royalties from premium, duo and family plans for the first 12 months the bundle rate is in effect, compared to what songwriters would have earned if the three subscription tiers were never bundled. The change affects payments starting in March 2024, so it will not impact Spotify’s premium, duo or family payouts for the first two months of 2024. Specifically, the estimate refers to losses for the first 12 months after the premium, family and duo tiers are qualified as a bundle, not calendar year 2024.
As Spotify grows, the music business fears that the difference between what payments to songwriters and publishers would have been if premium continued to be counted as a regular standalone service versus what will be paid now that music and audiobooks have been bundled will continue to increase.
Spotify says it will soon offer a music-only subscription tier that will pay out in the same way Spotify premium used to, but there’s not yet a timeline for when this option will launch.
Back in March, Spotify released a statement about the change to the bundle rate, stating that the company is “on track to pay publishers and societies more in 2024 than in 2023. As our industry partners are aware, changes in our product portfolio mean that we are paying out in different ways based on terms agreed to by both streaming services and publishers. Multiple DSPs have long paid a lower rate for bundles versus a stand-alone music subscription, and our approach is consistent.”
Below is an updating list of music industry reactions to the news:
National Music Publishers’ Association (NMPA)
“It appears Spotify has returned to attacking the very songwriters who make its business possible. Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace. We will not stand for their perversion of the settlement we agreed upon in 2022 and are looking at all options.”
Association of Independent Music Publishers (AIMP)
“Two weeks ago, we spoke out about the potential consequences for independent music publishers should Spotify go forward with its plan to bundle a previously free service, audiobooks, with music subscriptions. Now that an actual number has been put to the potential lost revenue for music publishers, a staggering estimate of $150 million per year, we feel the need to speak out again.
“It is a deeply cynical move for Spotify to attempt to circumvent the CRB settlement agreed to by the NMPA & NSAI and DiMA in 2022 via this bundling ‘loophole,’ and further insulting that the price of a Spotify subscription will actually increase for users while cutting revenue for the songwriters who keep their business alive. This is especially problematic for independent music publishers, as they and all publishers are legally prevented from negotiating protections against bad-faith tactics such as this, while labels are allowed to do so in a free market.
“At this point, we still do not know how Spotify plans to notify its subscribers of this change. The right thing to do is to default existing subscribers to music-only accounts, and then give them the option to add-on the audiobook service for an additional $9.99 per month — Spotify’s proposed standalone rate for audiobooks. This ensures a proper, non-devalued royalty rate for both music and audiobook publishers and rightsholders, who will otherwise both be negatively affected by bundling.
“The AIMP offers its unequivocal support to the NMPA as they fight this critical battle to prevent Spotify’s scheme from taking effect. We encourage all independent music publishers to join us in this stance and make their songwriters aware of this attack on their livelihood. We cannot allow bundling to become a precedent that can be used to deprive songwriters of their well-earned royalties.
“The AIMP has also been speaking with the Coalition of Concerned Creators and are happy to report that we are aligned on this issue. Please find their statement on this issue below.
“From the Coalition of Concerned Creators:
“All musicians, creator advocacy groups, unions and organizations, and other creator stakeholders — including authors and podcasters — must stand firm against Spotify’s recent policy shift. It is essential to advocate for equitable compensation for music creators, who are pivotal to the industry’s sustainability. Additionally, this is a clear pattern of behavior and we continue to be concerned about Spotify’s bridge into new audio formats, like audiobooks, and how this pattern of behavior will affect other creators, like authors, as well.”
Nashville Songwriters Association International (NSAI)
“Spotify, we are writing regarding Spotify’s decision to ‘bundle’ music with audiobooks, resulting in an estimated annual loss of as much as $150 million in mechanical royalty payments to American songwriters, composers and music publishers. This attempt at lowering royalty payments to an already beleaguered songwriter community is in the worst bad faith and a perversion of the Copyright Royalty Board settlement that the Nashville Songwriters Association International (NSAI), the National Music Publishers Assn. (NMPA) and the Digital Media Assn. (DiMA) agreed to in 2022. It counters every statement Spotify has ever made of claiming the company is friendly to creators.
“‘Bundling’ music with other offerings without a music-only option does not comport with our view of the intent of the Copyright Royalty Board (CRB) in recent Phonorecord procedures in which the NSAI participated. Further, this move negates gains awarded to songwriters by the CRB. NSAI will not accept what we view as an attempt to manipulate the intent of the court through a ‘bundling’ gimmick. NSAI calls for Spotify to immediately reverse its course and offer separate music subscription choices at price points that will fairly remunerate songwriters.
“The American songwriter community is appalled that this is happening while Spotify is reporting record profits, and while founder Daniel Ek has recently cashed in a reported $180 million in stock options, including $118 million that practically coincided with the ‘bundling’ announcement which reduced Spotify’s yearly royalty obligation. The amount Ek cashed in conveniently mirrors the estimated amount that Spotify wants to leech off the back of songwriters who create the product on which streaming services are making billions.
“Reporting record profits while reducing songwriter royalties as the company founder cashed in millions in stocks proves a greedy, offensive and callous disregard for the songwriters on whose backs these revenues are generated.
“Signed unanimously by Nashville Songwriters Association International”
When Bloomberg reported that Spotify would be upping the cost of its premium subscription from $9.99 to $10.99, and including 15 hours of audiobooks per month in the U.S., the change sounded like a win for songwriters and publishers. Higher subscription prices typically equate to a bump in U.S. mechanical royalties — but not this time.
By adding audiobooks into Spotify’s premium tier, the streaming service now claims it qualifies to pay a discounted “bundle” rate to songwriters for premium streams, given Spotify now has to pay licensing for both books and music from the same price tag — which will only be a dollar higher than when music was the only premium offering. Additionally, Spotify will reclassify its duo and family subscription plans as bundles as well.
To determine how great this loss in royalty value would be for the music business, Billboard calculated that songwriters and publishers will earn an estimated $150 million less in U.S. mechanical royalties from premium, duo and family plans for the first 12 months that this is in effect, compared to what they would have earned if these three subscriptions were never bundled. Notably, this change will not impact Spotify’s premium, duo or family pay outs for the first two months of 2024. Bundling kicks in starting in March, so this number refers to losses for the first 12 months after premium, family and duo is qualified as a bundle, not the calendar year of 2024.
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Billboard’s figure was calculated by determining how Spotify’s service revenue, payments to labels, performance royalty rates, and other factors that impact mechanical income are expected to rise each month throughout 2024. These 2024 projections are based on actual numbers pulled from the Mechanical Licensing Collective’s Spotify rate sheets for 2023. For premium specifically, the streamer will pay an estimated $100 million less in the first 12 months bundling is in effect, in comparison to what Spotify was projected to pay in the next 12 months had it never been reclassified.
To be more conservative with the premium-only estimate, if the lost royalty value was calculated purely based on actual 2023 numbers from the MLC, the losses would be around $80 million for the first 12 months, but given all of Spotify’s music service revenue grew by an average of 1.1% every month in 2023, according to Billboard’s calculations, $80 million is almost certainly a low-ball. (A representative for Spotify declined Billboard’s request for comment).
As Spotify grows, the chasm between what payments would have been to songwriters and publishers if premium was counted as a regular standalone service versus what it will be paid now as a bundle with books is expected to increase. According to Spotify’s latest earnings call, the company is growing steadily, up 14% year-over-year for premium subscribers and 20% year-over-year for premium revenue globally.
The lost royalty value for songwriters and publishers could become even larger if Spotify ups the cost of premium to $11.99, which a source close to the matter thinks is possible. It is also possible that this loss could be lessened by how many users change their subscription from premium, duo and family to Spotify’s forthcoming music-only tier, which will pay out in the way that premium did before it was bundled, but this is unlikely to make a significant impact in the estimate of first year losses, considering the tier has yet to be launched and users are automatically renewed on their current plans, even after bundling.
Given there are some unknowns still present, estimates range for lost mechanical royalty value for the first year. One source close to the matter agrees with Billboard’s estimate, also independently calculating that the lost royalty value will total at $150 million in U.S. mechanical royalties for premium, duo and family. Another source calculated somewhere between $140-150 million. A third source says their personal estimate totaled at around $120-130 million at minimum.
This change only impacts the United States, but there are fears that Spotify’s reclassification will have a domino effect worldwide, given other major markets like Australia, Canada, Ireland, U.K. and New Zealand also have audiobooks now included in Spotify premium. Roberto Neri, CEO of the U.K.-based songwriting organization The Ivors Academy told Billboard that “if Spotify gets away with this in the U.S., they will no doubt use it in their future negotiations with European, [Asian-Pacific] and other territories,” and that “what happens in one territory can impact others.”
The National Music Publishers’ Association, which represents U.S. music publishers, said that it would be “looking at all options” to fight back against Spotify’s changes to premium when it was first announced in March, and now that the fight between TikTok and UMG has concluded, it has turned its “full attention” to this issue.
“It appears Spotify has returned to attacking the very songwriters who make its business possible,” said David Israelite, the NMPA’s president and CEO, when the change to premium was first announced. “Spotify’s attempt to radically reduce songwriter payments by reclassifying their music service as an audiobook bundle is a cynical, and potentially unlawful, move that ends our period of relative peace. We will not stand for their perversion of the settlement we agreed upon in 2022.”
Phonorecords IV Settlement
So, how did we get here? It all goes back to the Copyright Royalty Board (CRB), the slate of judges that set the rates for U.S. streaming mechanicals, based on weighing the business interests of publishers, songwriters and services. Unlike the sound recording side of the music business, which decides on their streaming rates based on private, free market negotiations, the publishing mechanicals are highly regulated in the U.S.
Every five years, the NMPA, Nashville Songwriters Association International (NSAI) and members of the Digital Media Association (DiMA), such as Spotify and Apple Music, come together to discuss the rates for the next five-year period; and if no agreement can be reached, then the CRB judges make a determination after a rate trial. In 2022, the three organizations convened about the period of 2023-2027, called “Phonorecords IV” or “Phono IV,” and decided, in an effort to save time and money, to come to a voluntary settlement to present to the CRB judges.
Even though the Phono IV settlement included changes to the way bundling worked (which was considered a concession to streaming services), many in the music business called the settlement as an overall win, especially because the previous five-year rate (Phono III) was fought over for about five years, causing confusion over rates in the interim. When it was announced, the NMPA touted the Phono IV settlement as delivering the “highest rates in the history of digital streaming,” because of its win for a larger headline rate, and many felt it signaled a new era of cooperation between streaming services and the music business. Israelite says now in his statement that Spotify’s latest move to bundle audiobooks “ends our period of relative peace.”
How Bundling Affects Mechanical Revenue
Even though the price of Spotify premium is rising, that additional revenue does not benefit songwriters and publishers. Now that premium is considered a bundled service with audiobooks, some of the subscription price is owed to book publishers and authors to license their works, too.
Mechanical revenue for bundles is calculated by seeing what audiobooks are valued at as a standalone offering ($9.99) and weighing that against the price of the premium bundle offering ($10.99), according to Phono IV. The value of music is found by dividing the total premium price ($10.99) by the two services (audiobooks only and premium) together ($21), which results in music being valued at about 52% of the total bundle, or around $5.70 per subscriber.
How Bundling Affects the Total Content Cost
The first step in calculating the mechanical royalty rate a streaming service owes to songwriters and publishers is to find the “all-in pool.” Streaming generates two forms of royalties for music publishing — performance and mechanical — so this “all-in pool” includes both types. (Performance royalties are determined by a separate, but also U.S. government regulated, process).
The all-in pool is the greater of either the headline rate (which ranges from 15.1% for 2023, 15.2% for 2024, 15.25% for 2025, 15.3% for 2026, and 15.35% for 2027) of Spotify’s music revenue (which is now lowered to around $5.70 per subscriber because of bundling) or the percentage of total content cost (TCC), a.k.a. what royalty Spotify pays to labels.
Previously, Spotify premium qualified for the full rate of the lesser of 26.2% of TCC for the period (or $1.10 per subscriber). Now, after deciding to change its premium offering to include audiobooks, Spotify argues it qualifies as a “bundled subscription offering,” which moves its rate down to 24.5% of TCC for the accounting period.
Regardless of whether the CRB mechanical formula determines all-in royalty pool based on the percentage of TCC or the headline rate, both options are negatively affected by Spotify reclassifying premium as a bundle. According to Billboard’s calculations, every month of 2023 used the headline rate of music revenue as the all-in pool for premium, but after bundling, the next 12 months will use the percentage of TCC as this pool.
After that, the final mechanical royalty pool is determined by subtracting out the performance monies from the all-in pool. This number is weighed against a calculated royalty floor. Whichever is the larger number is the final amount owed to publishers and songwriters for U.S. mechanical royalties.
HipHopWired Featured Video
Source: Bernard Smalls / @PhotosByBeanz
Kendrick Lamar is contention for the Rap MVP of 2024 award. He has just surpassed Drake’s Spotify streaming record with “Not Like Us”.
As reported by Digital Music News the Compton, California native is putting numbers on the board like never before. The streaming service recorded that his diss track going at the 6 God has broken the single-day streaming record on Spotify with 10.986 million plays in the United States. Ironically this moment just makes their Rap war that much more ironic as the song that previously held the record was Drake’s “Girls Want Girls” featuring Lil Baby.
While their beef has been strictly lyrical it has unfortunately turned physical. The Toronto Sun reports that Drake’s bodyguard was shot outside of his mansion on Tuesday, May 7. Local police say a drive by shooting occurred outside the property that left the 48-year-old with serious injuries as one of the bullets hit him in the upper chest. The unidentified man was immediately rushed to Sunnybrook Hospital to be treated. Toronto Police Inspector Paul Krawczyk, of the Integrated Gun and Gang Task Force, says that security cameras did capture footage of the crime but investigators are “dealing with video quality issues.” Drake has yet to comment on the matter.
You can listen to Kendrick Lamar’s “Not Like Us” below.
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In March, a Spotify account named Lucky Socks uploaded a sped-up version of Mark Ambor’s “Belong Together” to the platform. More than six weeks later, this jaunty take on the folksy original is still earning around 350,000 streams a day, and various high-speed versions of “Belong Together” have been used in more than 400,000 TikTok videos to date.
This is just the latest sign that sped-up remixes — often made at home by amateurs — drive both music discovery and streaming activity. “A big percentage of the population is engaging with music in this way,” says Ben Klein, president of Ambor’s label, Hundred Days Records. “If you’re an audio platform, you need to start allowing people to tap into that.”
That’s exactly what the platforms are doing. At the end of 2023, the streaming service Audiomack quietly rolled out Audiomod, a new set of tools that allow users to fiddle with tracks by changing the tempo, modifying the pitch, or swaddling them in reverb. In March, the company Hook announced that it had raised $3.5 million to further develop a platform that will help artists “monetize the use of fan-generated remixes on social media.” And in April, The Wall Street Journal reported that Spotify plans to introduce its own remixing tools.
Trending on Billboard
These initiatives signal a growing awareness that user remixes cannot be prevented — kids can make them easily on their phones. Since almost all of these reworks are unauthorized, labels and publishers will stand to gain if fans make and listen to remixes on streaming platforms where these can be paid out like a normal track. (“The next big forefront will be how we get paid for UGC,” Warner Chappell CEO/co-chair Guy Moot recently told Billboard, noting “the real challenge” of identifying all “those really sketchy sped-up versions.”)
And platforms can also benefit if new audio manipulation tools increase engagement or even attract additional users. “We think it can be a way to encourage more users to subscribe,” says Audiomack co-founder Dave Macli.
Audiomack Quarterly Uploads of Manipulated Songs
Courtesy of Audiomack
Creating new remixing capabilities will require the music industry to become comfortable with more flexible licensing agreements that legitimize what was previously a black-market activity — for fans, creating a remix at home without permission is fun; for labels, it’s technically copyright infringement. It remains unclear how artists will feel about labels sanctioning random reworks of their work, and whether listeners will connect with these homemade remixes when they’re not attached to addictive videos on TikTok or Instagram Reels.
While user remixes and edits are not a new phenomenon, there is a sense around the industry that this behavior — pushing a song’s tempo recklessly fast, or slathering the track in distortion — is especially dear to a new generation which sees altering music as a way of expressing fandom. Audiomack has found that “modders,” who alter more than 100 songs a month, are 50% more likely to be under the age of 20 relative to the average platform user.
“The younger users want to have some control over the sound on their own: ‘hey, what if we f—ed with this a little?’” says Tyler Blatchley, co-founder of the label Black 17 Media.
As a result, artists and labels often encourage fan remixing because it can be an effective promotional tool. At the same time, they frequently take down the unauthorized reworks that they find on major streaming services, because those divert money from artists’ pockets. Some acts release their own official sped-up or slowed versions to try to capitalize on the popularity of the form. (Audiomack data shows this trend really accelerated at the end of 2022.)
For the music industry, this patchwork system remains unsatisfactory. “There’s little visibility into what people are doing with the music, the artists don’t get to play a role in how their fans engage, and often they’re not getting paid for [the] consumption” of unofficial remixes, says Gaurav Sharma, the CEO of Hook.
Hook’s app, which recently launched a private beta, offers a more controlled environment for remixing activity, where users can select pre-cleared songs to manipulate and mash together. If a fan creates a new version they love — and, crucially, rightsholders have given permission — they will theoretically be allowed to export that alternate to other platforms when the app launches publicly later this year. In other words, a fully licensed and track-able remix or mash-up could be created on Hook and then go viral on a short-form video platform or in a video game.
While Audiomod allows users to play with tempo, distortion, and more, they cannot mash one song up with another or export their beloved remix to other platforms. They can share their preferred settings with friends, though, so pals can easily replicate their favorite mix. Plays of an altered version of a song on Audiomack will be paid out the same as plays of official recordings.
Audiomack has Merlin — the global digital licensing agency for the independent music industry — “signed up for this,” says co-founder Dave Macli. “We are in talks with the majors.”
At the moment, Spotify appears mostly to have a plan to create some remixing tools in the future. (A rep for the service declined to comment.) The company has been interested in figuring out ways to let users “play with and manipulate music” for years in contexts like a DJ set, according to a former executive. On top of that, “Spotify is trying to seize a lot of creator engagement moments, because TikTok is much more of an engagement platform.”
While The Wall Street Journal reported that Spotify does not yet have licensing agreements in place for remixing tools, the former exec believes labels “will be all-in for anything that increases plays and gets them a bigger share of the royalty pool.”
And labels do appear more open to sanctioning user manipulation of their audio recently. In December, for example, the video game Fortnite introduced a new musical experience called “Jam Stage,” which allows gamers to play music with their friends — but every person can be noodling on a different song, creating a strange, cacophonous mash-up in real (virtual) time.
The former Spotify exec believes the real obstacle to getting official remixing tools in place will come from artists being protective of their work. “What are [labels] permitted to do in their contracts with artists, and how will artists feel about it?” he asks.
At Audiomack, Macli says “we respect an artist’s decision if they don’t want to be a part of [allowing users to remix their songs]. But I think in a way you’re fighting the tide.”
Once platforms and labels sort out licensing, one big question remains: will users make and listen to sped-up remixes on streaming services without the enticement of a compelling visual trend or the possibility of going viral?
Audiomack users already appear to like sending around the tracks they pitch up or alter in other ways. “Over 9% of all shares on the platform are modifications of songs,” according to Macli.
Though Klein agrees that “there is an appetite for listening to sped-up stuff,” he believes “there’s a much smaller use case in that context.” “Sped-up sounds are really breaking through on audiovisual platforms” — especially TikTok, which has had a fraught relationship with the music business lately.
Still, Macli says, “the industry is going to have to lean into this one way or the other. They should lean into it as a tech problem that the DSPs should solve.”
Don Passman had been teaching a course on music law at USC for several years when he realized his class notes were the outline of a book. “Because musicians are oriented to their ears,” he says, there was an opportunity to write “an easy-to-read overview of the business for people who don’t like to read.” Think “big print, lots of pictures, analogies, simple language.” When the first edition of All You Need to Know About the Music Business came out in 1991 — the 11th edition arrived this past October — “there was only one book on the music business at the time that was of any consequence,” Passman recalls. “And it was a bit difficult to read.”
Recently, however, music business education appears to be an increasingly hot topic. Thanks to technological advances, the number of aspiring artists releasing songs with little-to-no understanding of the music industry has ballooned. Many of these acts start releasing tracks in their early teens, long before they might get the chance to take a college-level course on the music business, much less master the nuances of copyright law. And they often hire a similarly-inexperienced friend to serve as a “manager,” ensuring that even their closest advisors lack experience in navigating the industry.
Trending on Billboard
As a result, there is a dire need for quality, accessible music business education. Many of the platforms that allow artists to create, listen to, or distribute music today see educational initiatives as a way to foster loyalty and community — which will in turn help them stand out in the neverending battle for users and attention — and possibly as an additional revenue stream as well.
Some of these educational efforts are in their early stages: Spotify started testing video learning courses in the U.K. in March, for example, while TIDAL has said education will be a cornerstone of its new era as it works to build financial tools for artists. (It was acquired by Block in 2021.)
The company Creative Intell is further along — it has raised money from around the music business and created an animated series to teach young artists the inner workings of the industry, from record deals to publishing. And the platform Bandlab, which allows its 100-million-plus users to create songs on their phones, has been releasing a steady stream of free tutorials and blog posts.
Helping aspiring artists grasp the intricacies of the music industry is “something that we’re investing a lot in,” says Krevin Breuner, Bandlab’s head of artist development and education. “The industry is more complex than ever, and understanding the business from day one is not just an advantage; it’s essential. Bandlab has such a young audience, it’s growing, and we want those artists to feel like they have a partner — somebody they can trust.”
Austen Smart agrees: The DJ, who co-founded the U.K. music-education company PLAYvirtuoso in 2020 with his brother, sees “huge potential in this space.” “I look at it like, there will be one in eight people, at least, learning at home,” he says, and a portion of those will be interested in the music industry.
Creative Intell co-founder Steven Ship divides the music education field into three buckets — how to create music, how to market music and the business of music. While YouTube alone is littered with free videos on the first two topics — not to mention all the Reddit threads, blog posts and TikTok tutorials — finding reliable and accessible information on the third is more challenging. “The business of music is probably the most important; it has to be the most accurate, and it’s often ignored,” Ship says.
If an aspiring artist produces a track poorly or markets it clumsily, that song probably won’t do well — a temporary setback. In contrast, if they don’t understand how the industry works, the consequences can be far more damaging: They could sign a contract with a manager, label, or publisher that cedes control of their output for decades. “Artists were horribly taken advantage of in the early days of the music business, because they just didn’t know what they were doing,” Passman says. And today, “the industry is changing so fast,” Breuner adds, making it even harder to “know what’s important and what’s not.”
When Smart signed a major label deal with his brother — just “two hungry young artists living in London” — he admits the pair “didn’t have the knowledge and the understanding of what we were ultimately signing.” An attorney would have helped, but they didn’t have the cash “to engage with lawyers who could help us interpret it.”
Contracts are often “murky and complicated,” Smart continues. “You get offered a relatively big advance; it’s quite a big number when you’re 25 and 22. What does it actually mean? What does it mean ten years later?”
If he could rewind the clock, he imagines going through the process again — but this time, “we’ve got that course on understanding label deals” available. And if necessary, he could “book a one-on-one session with someone for 30 pounds” to help provide extra context. This is part of the reason that one of PLAYvirtuoso’s “three pillars” of educational material centers on understanding the music industry.
PLAYvirtuoso is one of four companies that partnered with Spotify initially to provide courses on a variety of topics. The streaming service’s decision to test new education materials came about because it saw data indicating that some users were eager to acquire more knowledge.
“If I take you 10 years back, most of the people that came to Spotify came with a single intent: listening to music,” says Mohit Jitani, a product director at Spotify. “But in the last few years, as we brought on podcasts and audiobooks, people started to come to Spotify to listen to an interview or learn leadership and finance.”
Currently Spotify’s courses are offered via a freemium model: Users are able to access the first few lessons for free, but they must pay to complete a full course.
While Spotify’s exploratory foray into education stemmed from the fact that “people started coming to [us] for casual learning,” as Jitani puts it — and it potentially offers the platform another new revenue stream — TIDAL’s recent drive to help artists raise their business IQ is driven in part by its new owner, the payments company Block.
“Building tools and services for business owners, we saw that the moment that you get a little traction outside of your friends and family, the world becomes a lot more complicated,” says Agustina Sacerdote, the TIDAL’s global head of product. “You have to start to understand your numbers to understand where the next big opportunity is going to come from.”
The same principle applies to artists. Understandably, they tend to focus on the art. But as Ship notes, “The moment you release a song, you’re in business” — whether you like it or not. So TIDAL has started offering webinars and rolled out a new product called Circles, which Sacerdote likens to “a very curated version of Reddit, where we have the topics that we believe most artists have questions about,” including touring and merchandise.
For now, TIDAL’s products are free. “Once an artist does get a really good piece of advice that they would have never gotten [elsewhere] on Circles, then we’ll start to think about, how do we monetize?” Sacerdote says.
Creative Intell’s materials on the music business are currently far more comprehensive than TIDAL’s or Spotify’s: The company has created 18 animated courses to help aspiring artists — the vast majority of whom don’t have a manager or lawyer — “understand what they’re signing, learn how to monetize themselves better and learn how to protect themselves,” Ship says.
Creative Intell releases some materials for free and charges for access to everything ($29.99 a month). It’s also aiming to work with distributors like Vydia as marketing partners. Vydia is not the only company looking to provide this type of resource — Songtrust, for example, has built out its own materials to help songwriters understand how to collect their money from around the world.
“Other industries have all kinds of corporate resources for training and the music industry is lacking those,” Ship says. “We’re trying to fill that void.”
HYBE was rocked by controversy this week after an audit of one of its subsidiary labels, ADOR, allegedly revealed that the label’s CEO, Min Hee-jin, “deliberately led the plan to take over management control of the subsidiary,” according to a statement sent by the company on Thursday (April 25).
Shares of HYBE fell 7.8% on Monday (April 22) and ended the week down 12.6% to 201,500 won ($146.22). HYBE later reported Min, who owns an 18% stake in ADOR, to the police for “breach of trust and other allegations” and asked her to step down, it said in the April 25 statement. The dispute added to HYBE’s losses at a time when most music stocks are faring well. HYBE shares have fallen 13.7% year to date and 25.4% over the last year.
HYBE was the biggest loser in a week most music companies’ stocks were up. In fact, five music companies’ stocks posted double-digit gains this week and only 7 of the 20 stocks in the Billboard Global Music Index were losers. The index gained 3.2% to 1,756.98, breaking a two-week losing streak and bringing its year-to-date increase to 14.5%.
Trending on Billboard
The week’s greatest gainer was streaming company LiveOne, which increased 14.5% to $1.90 after it provided two updates to upcoming earnings releases. On Monday, the company announced that it expects fiscal 2024 revenue of $118.5 million, up 19% from $99.5 million the previous year, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $14.4 million — about 32% above $10.9 million of EBITDA in the prior year. On Wednesday (April 24), LiveOne announced that PodcastOne expects revenue of $11.7 million in the fiscal fourth quarter 2024, up 32% year over year. LiveOne spun off PodcastOne in 2023 and retained an 81% stake.
Two of the weeks’ best-performing stocks also reached their highest levels in years. Reservoir Media improved 13.8% to $9.10, its highest closing price since the stock closed at $9.20 on May 4, 2022. Chinese music streamer Tencent Music Entertainment gained 13.5% to $12.88, its best closing price since it closed at $13.02 on July 13, 2021.
Hipgnosis Songs Fund (HSF) gained 12.9% to 1.038 pounds ($1.30) as Concord and Blackstone vie for control of the company’s share equity and 65,000-song portfolio. Notably, Friday’s closing price was 5 cents, or 4%, above Concord’s high bid of $1.25 per share, suggesting that some investors expect the bidding process to continue. As the HSF board weighs its options amidst a strategic review and building strife with its investment advisor, Hipgnosis Song Management, a sale seems inevitable. “I think investors have been through such a roller coaster most of them just want their money back,” Round Hill Music CEO Josh Gruss told Billboard this week.
Spotify’s stock closed Friday up 5.0% to $289.59 after an up-and-down week. Shares rose 11.5% on Tuesday — and posted an intraday gain of 19.2% — following the release of the company’s first-quarter earnings report but gave back nearly all the gains over the next two days by falling 6.8% and 2.3% on Wednesday and Thursday, respectively.
Tuesday’s (April 23) intraday high of $319.30 was Spotify’s highest share price in over three years. The last time Spotify traded above $319.30 was Mar. 8, 2021, when shares reached $323.04. The stock dropped below $100, to $96.67, on Apr. 27, 2022, and fell as far as $69.29 on Nov. 4, 2022. Since that low point a year and a half ago, as Spotify has cut its workforce and focused on improving margins, its share price has risen 218%.
Indexes around the world posted gains this week. In the United States, the Nasdaq was up 4.2% to 15,927.90 and the S&P 500 improved 2.7% to 5,099.96. Both indexes were helped by Alphabet, which rose 10% to $173.69 on Friday after releasing first-quarter earnings and announcing a $70 billion buyback program. In the United Kingdom, the FTSE 100 rose 3.1% to 8,139.83. South Korea’s KOSPI composite index gained 2.5% to 2,656.33. China’s Shanghai Composite Index rose 0.8% to 3,088.64.