Senators Demand FTC Investigation into Spotify's Bundled Subscription and Royalty Practices

In a significant move highlighting growing scrutiny over digital subscription practices and creator compensation, two U.S. senators have formally called upon the Federal Trade Commission (FTC) to investigate Spotify. Senators Marsha Blackburn (R-TN) and Ben Ray Luján (D-NM) have raised serious allegations regarding Spotify's recent changes to its premium subscription tiers, specifically focusing on the bundling of music streaming with audiobooks.

The core of the senators' concern, outlined in a letter sent to the FTC on Friday, June 20, centers on two main points: the alleged lack of consumer consent in transitioning users to a more expensive bundled plan and the potential impact of this strategy on royalty payments to music creators.

The Bundling Controversy: Unwanted Upgrades and Price Hikes

According to the senators' letter, Spotify converted existing standard premium subscriptions into higher-cost bundled subscriptions without adequately informing consumers or obtaining their explicit consent for the change. This transition occurred in March 2024, when Spotify restructured its Premium offerings. The updated individual Premium plan, now priced at $12 per month (up from $11), includes 15 hours of audiobook listening per month alongside unlimited music streaming. Family plans also saw a price increase, rising to $20 per month.

The senators argue that this change effectively forced users into a more expensive tier that included a service (audiobooks) they may not have wanted or agreed to pay extra for. While Spotify stated that users were notified a month in advance about the price increase and the inclusion of audiobooks, and that the platform offers "easy cancellations as well as multiple plans for users to consider," the senators contend that simply notifying users of a change that automatically upgrades them to a higher price point without requiring an opt-in constitutes a potentially unfair or deceptive practice.

Consumer consent is a critical aspect of subscription services. Best practices and regulatory expectations often lean towards requiring affirmative consent for significant changes, especially those involving price increases or the addition of new, potentially unwanted services. The senators' complaint suggests that Spotify's approach may have fallen short of these standards, leaving consumers feeling as though they were automatically enrolled in a more expensive service they did not actively choose.

The letter highlights the financial impact on consumers, who are now paying more for a service bundle they may not fully utilize. This raises questions about transparency and fairness in how digital platforms manage subscription changes, particularly when those changes involve automatic enrollment in higher-cost tiers.

Royalty Implications: A Strategy to Reduce Creator Pay?

Beyond the consumer impact, a significant part of the senators' concern revolves around the potential effect of this bundling strategy on royalty payments to songwriters and music publishers. The letter explicitly states, "Spotify’s intent seems clear — to slash the statutory royalties it pays to songwriters and music publishers."

This allegation is rooted in existing U.S. regulations governing mechanical royalty rates for digital music providers. Specifically, the Phonorecords III ruling, issued by the Copyright Royalty Board, established mechanical royalty rates for interactive streaming. However, these regulations include provisions that allow digital music providers to pay a reduced music royalty rate if the subscription is bundled with other legitimate offerings, such as audiobooks.

The senators and representatives of the music publishing community argue that by bundling audiobooks into the standard Premium subscription, Spotify is attempting to reclassify a significant portion of its revenue as non-music revenue, thereby reducing the overall percentage of revenue subject to mechanical royalties for songwriters and publishers. This interpretation suggests that the bundling isn't just about offering more value to consumers but is a strategic financial maneuver to lower costs related to music licensing.

The mechanical royalty is a payment made to songwriters and music publishers whenever a song is reproduced, which includes digital streams. These royalties are distinct from performance royalties paid to performers and sound recording copyright holders. The rates and terms for mechanical royalties in the U.S. digital market are set by the Copyright Royalty Board, and the Phonorecords III ruling aimed to increase these rates over a period of years. The potential for platforms to reduce these payments through bundling has been a point of contention within the music industry.

The Creative Community's Perspective: Alleged Financial Harm

The senators' letter echoes concerns previously voiced by organizations representing music creators. The National Music Publishers' Association (NMPA), for instance, has been vocal about the negative financial impact of Spotify's bundling strategy on its members.

According to Danielle Aguirre, executive vice president of the NMPA, the change has reportedly caused publishers to lose a substantial amount of revenue. She estimated that publishers could lose $230 million in the first year alone due to Spotify's reclassification of revenue under the bundled plan. This figure underscores the significant financial stakes involved for songwriters and publishers, who rely on these royalties for their livelihoods.

The Mechanical Licensing Collective (MLC), an organization established under the Music Modernization Act to collect and distribute mechanical royalties in the U.S., has also been involved in disputes with Spotify regarding royalty payments. Last year, the MLC sued Spotify, alleging undercompensation of songwriters and publishers. While that specific lawsuit was dismissed in January, the underlying tensions and disagreements over how royalties are calculated and paid persist. The senators' call for an FTC investigation brings renewed attention to these ongoing issues between the streaming giant and the music publishing industry.

The creative community argues that streaming economics already present challenges for fair compensation, and strategies that appear designed to further reduce royalty payouts exacerbate these difficulties. They view the bundling maneuver not as a value-add for creators but as a tactic that diminishes their share of the revenue generated by their work.

Spotify's Defense: Notification and Choice

In response to the criticisms, Spotify has maintained that it acted appropriately. A spokesperson, in a statement shared with Variety, noted that users were notified a month in advance about the price increase and the platform offers "easy cancellations as well as multiple plans for users to consider."

Spotify's position is that the inclusion of audiobooks provides added value to the Premium subscription, justifying the price increase. They emphasize that users were given prior notice and have the option to cancel their subscription or switch to a different plan if the bundled offering does not meet their needs. This suggests that Spotify believes its actions were transparent and that consumers retained control over their subscription choices.

However, the senators' complaint, and the concerns from creator groups, indicate that the effectiveness and fairness of this notification and the ease of opting out are being questioned. The automatic nature of the upgrade, rather than requiring users to actively opt-in to the new, more expensive bundle, is a key point of contention regarding consumer consent.

The Role of the FTC: Consumer Protection and Fair Competition

The Federal Trade Commission (FTC) is the primary consumer protection agency in the United States. Its mission includes preventing unfair or deceptive acts or practices in the marketplace. The senators' request asks the FTC to investigate whether Spotify's actions related to the bundled subscription violate these principles.

An FTC investigation could examine several aspects of Spotify's conduct:

• **Deceptive Practices:** Did Spotify adequately disclose the nature of the subscription change, the price increase, and the automatic inclusion of audiobooks? Was the notification clear and conspicuous? Did the process for opting out or canceling meet standards for fairness?
• **Unfair Practices:** Did the automatic enrollment into a higher-priced bundle without explicit consent cause substantial injury to consumers that they could not reasonably avoid?
• **Impact on Competition and Market Dynamics:** While the primary focus of the senators' letter is consumer protection and creator compensation, the FTC also has a role in ensuring fair competition. The bundling strategy and its potential impact on royalty rates could have broader implications for the digital content market.

The FTC has the authority to investigate companies, issue warnings, seek injunctions, and impose penalties or require remedies if it finds violations of consumer protection laws. A formal investigation could involve gathering evidence, requesting documents from Spotify, and potentially holding hearings.

The involvement of U.S. senators adds political weight to the call for an investigation, signaling that this issue is on the radar of federal lawmakers concerned about both consumer welfare and the economic health of the creative industries.

Broader Industry Context: Streaming Economics and Creator Compensation

This controversy is set against a backdrop of ongoing debates about the economics of music streaming and how revenue is distributed among platforms, rights holders (labels, publishers), and creators (artists, songwriters).

Streaming has become the dominant mode of music consumption, generating billions in revenue. However, the complex royalty structures and the sheer volume of streams required to generate meaningful income have led many artists and songwriters to argue that they are not receiving a fair share. Issues around transparency in royalty calculations, payment delays, and the impact of free tiers or promotional bundles on overall revenue pools are frequent points of friction.

The bundling of services, while potentially offering consumers more value, can complicate these royalty calculations, particularly when different types of content (like music and audiobooks) are subject to different licensing terms and rates. The music publishing community's concern is that platforms might strategically bundle services to shift revenue away from categories with higher statutory royalty rates.

The audiobook market is also evolving rapidly, with platforms like Spotify entering the space traditionally dominated by Audible (an Amazon company). Integrating audiobooks into a music subscription is a way for Spotify to leverage its existing user base and compete in this growing market. However, the method of integration and its consequences for other stakeholders are now under intense scrutiny.

Looking Ahead: Potential Outcomes of an Investigation

An FTC investigation does not automatically mean that Spotify will be found guilty of wrongdoing. The commission will need to review the evidence and determine whether Spotify's practices violated consumer protection laws.

Potential outcomes of an investigation could range from:

• **No Action:** The FTC could find that Spotify's notifications and options were sufficient under existing law.
• **Warning Letter:** The FTC could issue a warning letter advising Spotify to improve its disclosure practices for future subscription changes.
• **Enforcement Action:** If the FTC finds evidence of unfair or deceptive practices, it could pursue legal action. This could result in a settlement requiring Spotify to change its practices (e.g., require opt-in for bundled upgrades, improve disclosure) or potentially pay fines.
• **Policy Recommendations:** The investigation could inform future FTC guidance or regulations regarding subscription services, automatic renewals, and bundling in the digital economy.

Regardless of the outcome, the senators' call for an investigation shines a spotlight on the business practices of major streaming platforms and their impact on both consumers and the creative industries. It underscores the increasing expectation from lawmakers and the public for greater transparency, fairness, and respect for consumer choice in the digital subscription landscape, while also highlighting the ongoing struggle for fair compensation for the creators whose content fuels these platforms.

The outcome of any potential FTC investigation into Spotify's bundling and royalty practices will be closely watched by consumers, creators, and the entire digital content industry, potentially setting precedents for how bundled services and subscription changes are handled in the future.