As Spotify continues to dominate the music streaming landscape, the company has quietly implemented a controversial strategy that considerably reduces payments to songwriters and publishers through a legal loophole in the U.S. Copyright Act.
The streaming giant has reclassified its Premium subscriptions with audiobook access as “bundled subscription offerings,” allowing it to calculate royalties only on the music component’s weighted retail price rather than the total subscription fee.
By rebranding Premium as a bundle, Spotify now pays royalties on a fraction of subscription revenue, not the full amount.
A January 2025 court ruling in the Southern District of New York confirmed Spotify’s legal right to employ this tactic, which reportedly helps the company avoid approximately $150 million annually in royalties.
The maneuver, executed in 2023 when Spotify added 15 monthly hours of audiobook content to Premium subscriptions, effectively converted over 44 million subscribers into bundle subscribers without explicit notification.
The National Music Publishers’ Association has raised alarms about potential cumulative losses reaching $3.1 billion through 2032 if this practice continues unchecked.
Music industry stakeholders are now pinning hopes on the upcoming Phonorecords V proceedings, where the U.S. Copyright Royalty Board will set mechanical royalty rates for 2028-2032 and potentially close such loopholes.
Senators Marsha Blackburn and Ben Luján have called for a federal investigation, characterizing Spotify’s approach as deceptive to both subscribers and artists.
Their intervention follows ongoing litigation by the Mechanical Licensing Collective, which has sued Spotify for underreporting royalties due to this classification scheme.
While consumers might overlook the implications, the financial impact is substantial.
The MLC specifically argued that audiobooks added to Premium subscriptions represented nothing more than token value rather than substantial additional content justifying bundle classification.
NMPA President David Aguirre emphasized the first-year loss of $230 million directly resulting from Spotify’s bundling practices.
Spotify’s bundling strategy could reduce mechanical royalty payments by nearly €205 million for 2024-2025 alone.
The company does offer a cheaper “basic plan” without audiobooks, but its obscure availability—requiring users to downgrade from the bundled plan—has kept most subscribers unaware of alternatives.
For Spotify, the strategy has paid dividends, contributing to an operating profit of $499 million by late 2024 while saving over $100 million in royalty payments through content bundling under the 2022 Phonorecords IV agreement.
This controversy arrives as musicians increasingly explore sync deals and other alternative revenue streams to compensate for diminishing streaming royalties.
Many artists are now turning to comprehensive social media advertising strategies to build direct fan relationships that reduce dependence on streaming platform payouts.
