Spotify’s Bundling Practices: Implications for Songwriters and Publishers

Martina
25 June 2025, Wednesday

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The turmoil caused by Spotify’s bundling practices continues to affect creatives. At the NMPA’s 2025 Annual Meeting, it was revealed that Spotify’s decision to reclassify its premium music subscription as a bundled offering could cost publishers and songwriters a substantial amount of money. But what exactly could the negative impact of Spotify’s bundling practices be in the long run? Let’s explore together.

Bundled Offering = Less Royalties for Songwriters and Publishers

Spotify announced its decision to convert its Premium Tiers into a bundled package—adding audiobook access to its offerings—back in March 2024. Prior to this, a legal agreement, officially known as Phonorecords IV, was established between music publishers and music streaming services, allowing any bundle services in the US to compensate songwriters and music publishers with lower mechanical royalty rates compared to standalone music subscriptions.

It likely hasn't occurred to publishers that the possibility exists for Spotify—and other streaming platforms—to turn their existing premium music subscriptions into bundled offerings. Now, it is said that this decision might lead to a significant financial loss for publishers and songwriters worldwide.

According to Danielle Aguirre, NMPA’s Executive Vice President and General Counsel, who spoke at the NMPA’s 2025 Annual Meeting in New York earlier this June (2025), Spotify’s practices have already cost publishers approximately $230 million during the first year of implementation. The amount of money lost could rise even higher if Spotify’s actions are not reversed or corrected soon.

“In fact, if we don’t stop them, we are projected to lose over $3.1 billion through the next CRB period,” Aguirre strongly emphasized.

The Background of Phonorecords IV

To provide additional context, the current settlement Phonorecords IV, which determines the royalty rate that music streaming services must pay to songwriters and publishers for the period from 2023 to 2027, was initially viewed as a significant victory for songwriters and publishers. A key outcome of the settlement was an increase in the royalty rate from 10.5% to 15.35% of streaming revenue.

Formally stated, the 15.35% is the official rate under Section 115 of the US Copyright Act (set by the Copyright Royalty Board, or CRB), which streaming services must pay under the law for the right to use songs under a compulsory mechanical license. This compulsory license allows eligible digital services to legally reproduce and distribute musical compositions without needing to negotiate directly with individual rightsholders, as long as they adhere to CRB rules and pay the applicable royalties.

The Phonorecords IV agreement also included specific rules on how bundled offerings are treated. Two main types of bundles were defined, each with the streaming component's share calculated using the same ratio: standalone music price ÷ sum of standalone prices of all bundle parts.

The main goal of the formula is to ensure that songwriters receive a fair share of bundle revenue, based on the standalone value of the music service. This aims to safeguard against streaming platforms artificially deflating or undervaluing the music component when it is bundled with other services (like audiobooks).

However, even though the formula is proportional and may ensure fair compensation, the reality is that under the agreement, songwriters still receive less money from a bundled offering than they do from a standalone music subscription. Take a look at this example:

Standalone music subscription:
$10 → All $10 counts as music revenue
→ 15.35% of $10 = $1.535 goes into the pool for publishers and songwriters.
Bundle (music + audiobooks):
$15 in total, where music is valued at $10, and audiobooks also at $10
→ Music is worth = $10 ÷ ($10 + $10) = 50%
→ 50% of 15 = $7.50 counts as music revenue

→ 15.35% of that $7.50 = $1.151 paid to publishers and songwriters

The Result? Even if the user pays more in total, less money is flowing to songwriters under the royalty calculation.

Circling back to Section 115, while there isn’t a fixed ‘price’ per bundle, the royalty rate is effectively determined using the allocation formula. This ultimately means that even with bundles, streaming services do not need to negotiate rates and rules with each rights holder individually. Critics argue that this setup creates a loophole that allows streaming services to reclassify offerings in a way that legally reduces songwriter payments while maintaining the consumer prices—or even raising them.

What Might the Future Hold, and What Role Will Phonorecords V Play?

As previously outlined, the specific rules regarding bundles have resulted—according to NMPA’s data—in a $230 million loss. This amount roughly aligns with the $205 million estimate published by Spotify in its SEC filing in April 2025.

“The additional royalties that would be due in relation to the period March 1, 2024, to March 31, 2025, would be approximately €205 million, plus potentially penalties and interest,” states Spotify in the SEC filing from April.

The streaming company has also disclosed in the same SEC filing that MLC (Mechanical Licensing Collective) has requested to file an amended complaint, accusing Spotify USA Inc. of improperly valuing the components of the Premium Service bundle and misreporting royalties for the Audiobook Access tier product. MLC previously filed a lawsuit against Spotify regarding the reclassification of its Premium Subscription bundles in May 2024; however, it was dismissed in court this January.

Even more important than the money already lost is the money at stake due to future developments. While the Phonorecords IV agreement remains valid until 2027, Aguirre cautioned at the Annual Meeting that Phonorecord V negotiations are approaching and “will determine mechanical royalty rates for 2028 through 2032, a five-year period.”

“We must make sure that digital companies cannot continue to use compulsory licenses to push down our royalty rates. One of the biggest challenges continues to come from Spotify’s mischaracterization of its music service into bundles, which forced the conversion of over 44 million subscribers into bundle platforms that those subscribers did not request. This negatively impacted mechanical royalty payments by attempting to exploit a loophole in the Section 115 regulations,” Aguirre stressed.

According to NMPA’s estimates, if the same conditions persist through the Phonorecords V agreement, the total loss for songwriters and publishers from bundling would amount to approximately $3.1 billion in 2032. Subsequently, the projected mechanical royalties from 2021 to 2032 would reach $14 billion.

What significantly adds to the issue is the ongoing risk that other streaming services will decide to follow Spotify's lead and bundle their Premium music subscriptions, too. The first to do so was Amazon Music. Just like Spotify, it chose to bundle audiobooks with its music subscription in November of last year.

“Last year, [the NMPA] warned that if left unchecked, other services will try the same tactics as Spotify. And that has now happened. Amazon recently followed suit and has forcibly converted their music subscribers into similar bundled plans,” the NMPA’s exec revealed.

As a result, just over the past three months, publishers and songwriters have experienced a 40% drop in music revenue from Amazon. The total music revenue would decline further if other major platforms, such as Apple Music or YouTube Music, followed in the same footsteps.

For now, mechanical revenue for songwriters and publishers is growing, with mechanical royalties projected to reach $14 billion by 2025. However, as Aguirre pointed out, their growth should not be mistaken for “appropriate growth or fair growth, or healthy growth.”

“You can be growing, but not representing true value…Imagine how much that growth [from 2024 to 2025] could have been if those [bundling] tactics had not been deployed.”

Now, while Spotify and Amazon Music should take responsibility for their bundling practices—especially since Spotify has been confronted by NMPA, MLC, and the wider public—it’s important to recognize that the current rules allow for this. Essentially, the CRB/Phonorecord IC formula has opened the door for this kind of strategic bundling pricing implemented by streaming platforms, whether intentionally or not.

This ultimately emphasizes the critical importance of negotiating better conditions and regulations in the upcoming Phonorecords V agreement so that songwriters and publishers are not adversely affected by loopholes and thereby continuously suffer from low mechanical royalties.

Independent artists and small publishers rely heavily on mechanical royalties for digital income, making them particularly vulnerable to bundling practices. Unlike major rights holders, they have less leverage and fewer alternative income streams. As a result, if the same or similar rules and conditions apply in Phono V, this could severely harm the total revenue or even the livelihood of these artists and publishers.

“[...] the CRB V proceeding is critical to the success of our industry. This is an important moment for future rights and fair compensation, and we are preparing for the battle ahead,” Aguirre said with eagerness. Hopefully, the future of mechanical royalties will be more promising than the current situation, and first and foremost, benefit songwriters and publishers worldwide.