As Spotify seeks to again raise subscription prices in a desperate bid for maximum profitability, the streamer appears to be using a loophole to save an estimated $150 million cut in US mechanical royalties by claiming a “bundle” rate because of audiobooks.
Spotify is adding audiobooks to its premium, duo, and family tiers, claiming this shifts their service from a “standalone portable subscription” to a “bundled subscription offering,” based on the royalty rate formula in Phonorecords IV.
However, the record industry is crying foul, with the National Music Publishers Association calling it a “cynical and potentially unlawful move.” Nashville Songwriters Association International said, “lowering royalty payments to an already beleaguered songwriter community is in the worst bad faith,” and, “counters every statement Spotify has ever made of claiming the company is friendly to creators.”
Spotify previously stated that it is “on track to pay publishers and societies more in 2024 than in 2023,” citing changes in their product portfolio and payment terms agreed upon by both streaming services and publishers. They emphasized that multiple DSPs have long paid a lower rate for bundles compared to standalone music subscriptions.
This adjustment will impact payments starting in March 2024, but the initial two months of 2024 will remain unaffected.
Spotify reported strong fiscal Q1 2024 earnings, achieving a profit as part of its “efficiency” strategy. The company posted an operating income of $179 million, a substantial turnaround from a loss the previous year.
Revenue rose to $3.88 billion, a 20% year-over-year increase, surpassing forecasts. Although total monthly active users slightly missed expectations at 615 million (against a forecast of 618 million), this still marked a 19% increase from the previous year.
Spotify projects a stronger Q2 with an operating income of €250 million and expected revenues of €3.8 billion. The company also plans further price increases in markets such as the UK, Australia, and Pakistan.
