Former Spotify Executive Criticizes the Company’s Bundling Strategy to Lower Songwriter Royalties: ‘Clearly Violates the Spirit of the Agreement’

Former Spotify exec criticizes company's bundling move
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Former Spotify exec criticizes company's bundling move
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Photo Credit: Patrick Perkins

Spotify’s Former Global Head of Publisher Licensing Adam Parness says Spotify’s move to switch its subscriptions to bundles is both “misguided and unfair.”

Parness published an op-ed in Billboard to decry the new move, calling it an “ill-informed attempt to deprive songwriters and music publishers of their rightfully earned U.S. mechanical royalties.” Billboard estimates the losses will amount to $150 million per year for songwriters and publishers, increasing as bundled subscription revenue grows.

Parness frames the piece not as a way to disparage Spotify, but as an appeal to the company to do the right thing. Spotify’s bundling is technically legal, but Parness argues the ethical damage of not compensating songwriters extends beyond the bundling loop hole Spotify has exploited in the Phonorecords IV settlement. According to that agreement, bundled services are permitted to pay a lower mechanical royalty rate to publishers and songwriters than standalone music subscription services.

The Mechanical Licensing Collective (MLC) has taken issue with the move, filing a lawsuit against Spotify that alleges it will underpay royalties now that the bundled subscription is live. Parness agrees. “Spotify has an unfortunate and documented history of punching down at songwriters and music publishers,” he writes. “Spotify presumably entered into the [Phonorecords IV] settlement with the full knowledge and acceptance that it was agreeing to pay the revenue share rates of 15.1% to 15.35% upon a properly undiluted revenue base—as it had been doing until March 2024.”

Spotify’s move to switch all current subscribers to a new bundle with audiobooks dilutes that revenue percentage from 15.1% to as little as 12%. That effectively drops Spotify’s mechnical royalty rate below the rate established by the Phonorecords III decision, which raised the mechanical royalty rate from 10.5% to 15.1% over a five-year period.

Parness says he believes Spotify is attempting to reduce its royalties to songwriters and music publishers to use the displaced royalties to offset the audiobooks cost and improve its bottom line. “Spotify’s reframing of the vast majority of its subscription services as bundled subscription services is a work of fiction,” Parness continues. “It has done so by launching a standalone audiobooks access tier that does not appear commercially attractive to users and was launched to support its ‘bundling’ strategy.”

The MLC took issue with this strategy in its recent lawsuit against Spotify, stating the audiobooks add-on is largely hidden on Spotify’s website. Spotify’s website steers new users to subscribe to its basic Individual Premium tier—while the audiobooks access tier is only available in the United States. (The U.S. is also the only counotry to which the Phonorecords IV settlement and statutory framework applies).

“At minimum, Spotify’s action clearly violate the spirit of the agreement, and to say otherwise is blatantly dishonest,” Parness says of Spotify’s statement about the MLC and publishers agreeing to the bundling provisions in the Phonorecords IV settlement. “To the extend Spotify may believe it has outsmarted songwriters and music publishers, there should be no pride in ownership.”

Parness says Spotify is free to spread its wings and expand its business, but the company’s overall gross margins have been dragged down by the company’s interest in the podcast space. “Not all of those investments, including content deals and acquisitions of other companies, have produced positive results,” he continues. “The royalties Spotify pays to songwriters and music publishers are not the problem, nor are the royalties it pays to others. Spotify receives tremendous value in exchange for the mechanical and other royalties that it pays for music works—songwriters should not be treated by Spotify as a drag on its margins.”

“To pay slightly north of 15% of revenue for songwriters’ creative output is a gift, and there is absolutely no reason for Spotify to sneak around corners to dilute songwriters’ income. It is beyond pale, even relative to actions that Spotify has taken against songwriters and publishers in recent years.”

Parness respectfully appeals to Spotify and asks them to voluntarily honor the Phonorecords IV settlement on the intended terms “that you know fully well were agreed to and promptly reverse course on your misguided attempts to reduce U.S. mechanical royalties.” Read the full appeal to Spotify’s sense of of ethics here.