Spotify’s decision to divide its premium subscription tiers into bundles (i.e. music streaming plus audiobooks) has upset many in the music industry because it means less mechanical royalties will be paid to U.S. publishers and songwriters.
The latest estimates from one of the big players in music publishing suggest that the financial hit will certainly not be welcomed — but not entirely. Business sabotage, either.
independent music company reservoir mediaThe Nasdaq-traded company on Wednesday (July 31) expected Spotify to suffer losses from lower mechanical royalties. $1.2 million–$1.5 million Annual revenue loss this year.
According to reservoir forecast $148 million–$152 million Revenue for the current fiscal year (the Company’s fiscal year 2025, ending March 31, 2025) is approximately equivalent to 0.8% arrive 1% Annual income.
Spotify Suite’s projected clicks in fiscal year 2025 will be 1.2% arrive 1.6% Reservoir’s publishing revenue for fiscal year 2024 was $96.2 million. (Reservoir generates revenue from recorded music and publishing, but Spotify’s mechanical royalty move will only impact the publishing side of the business. Reservoir did not disclose publishing revenue in its fiscal 2025 guidance.)
That small number can still have a significant impact for a company like Reservoir, which reported operating income of $24.6 million FY2024.
During Reservoir’s fiscal 2025 first-quarter earnings call on Wednesday (July 31), the company’s chief financial officer said Jim HeindelmeierEmphasizing that RSVR is “very opposed” to Spotify’s bundling move. Reservoir has factored lower machinery royalties into its forecast for this year, he added.
Spotify tells Machinery Licensing Collective (MLC) in March it now counts its premium (i.e. paid) subscription tiers as bundled products, as they have included 15 hours of audiobook time per month since November.
This means a financial blow to music publishers and songwriters in the United States. Early estimates suggest Spotify’s move will disenfranchise certain rights holders US$150 million annual income.
A recent regulatory filing from Spotify estimated that the streaming service would have to pay some fees. $38 million If the case is lost, additional royalties will be paid for the second quarter of 2024 (plus additional penalties). This means that Spotify’s loss from this move will be close to US$150 million Per year.
In accordance with the provisions of the U.S. Copyright Royalty Board Disc IVrules that digital service providers (DSPs) can pay lower mechanical royalties from bundled subscription plans than standalone music plans, provided the services bundled with the music are of “more than token value.”
The condition is at the center of the MLC’s lawsuit against Spotify, in which the rights collection group argued that the increase in audiobooks amounted to nominal value.
“We can’t really predict where this lawsuit will go and how long it will take, but we will fight the good fight and we will defend our songwriters.”
Gornar Khosrowshahi Reservoir
In a recent motion to dismiss the lawsuit, Spotify rejected that argument, saying audiobooks are a major business not only for Spotify but also for various other DSPs. (The MLC countered that such arguments were inappropriate for a pretrial motion to dismiss and urged the court to proceed with the case.)
“We can’t really predict where this lawsuit will go and how long it will take, but we will fight the good fight and we will defend our songwriters,” the Reservoir executive said. Gornar Khosrowshahi said on an earnings call.
“But as Jim said, our forecasts and budgets reflect the reality of where we live today.”
Khosrowshahi went on to mention a move by Spotify that could offset the losses from the bundling move: The streaming service plans to launch a “super premium” subscription package that will provide users with additional features and support. Music and Artist Access, and Spotify CEO Daniel Ek It is suggested that it may cost approx. 5 USD More per month than the current premium tier.
Khosrowshahi noted that Spotify’s estimates “are very important for how many people will switch to the product.”global music business
