“War!” a singer once shouted. “What is it good for?” Well, that depends. In the music industry, what might seem like big ideological clashes are usually just messy public negotiations over money. But that doesn't mean they aren't brutal. And sometimes the sums at stake turn out to be worth fighting for.
The latest industry romp is the National Association of Music Publishers' clash with Spotify — call it the Battle of the Bundle — which could be worth about $150 million over the next year. On March 1, Spotify added access to audiobooks to its standard subscription to create a product it says qualifies as a bundle under the terms of the 2022 legal settlement of the Phonorecords IV rate-setting proceeding with the NMPA. Then, as the settlement says it can do, it allocates some of the subscription cost to the audiobook portion of the package in order to qualify for a lower payment to publishers.
Whether Spotify has a legit package or not, it sure does chutzpah — converting all of its US subscribers to bundle customers is a bold move. Now she has a war on her hands. Already, the NMPA has sent the company a cease and desist for allegedly unlicensed content, and the allied Mechanical Licensing Collective (MLC) has filed a class action lawsuit.
But this is only the response to the attack. Seeking to cut payments to publishers, Spotify effectively attacked the NMPA, which settled the streaming services, and its chairman and CEO David the Israelite, who actually seems to enjoy this kind of combat. Just to be clear, I don't think the Israelite literally loves fighting, but I do think he gets some satisfaction from being good at it — he was a champion debater in college and is a talented amateur poker player. He is the kind of opponent who thinks strategically, sees many moves ahead and fights on many fronts at once.
The obvious fight will be the lawsuit filed by MLC, which is likely to be long and expensive – think of it as one long disaster of a ground war. However, the cost will be borne by the streaming services as they fund the MLC's operations under the provisions of the Music Modernization Act. But the Israelite will attack on other fronts as well. The cease and desist letter signals the start of probing attacks, each one small. Spotify now licenses the works it uses, but are there a few hundred uses of certain works that might have escaped? With a maximum of $150,000 per job in statutory damages for willful infringement, these omissions add up quickly. Just as important, a slowdown in licensing for other uses, including video, could prevent Spotify from moving forward with some of its plans to compete with Apple and Amazon.
Israelite will also move forward with what one might call sanctions, trying to organize different parts of the music business against Spotify, as Universal Music Group did with TikTok. Most years, June's NMPA annual meeting features the music business version of Two Minutes Hate for an online company that doesn't pay or submit rights holders. That's in less than a month. It's hard to know how successful this will be, but it seems reasonable to assume that Spotify will have a much harder time getting booked to play their party during Grammy week next year.
Israelite also said he plans to take the fight to Capitol Hill with a legislative proposal to give publishers and songwriters more bargaining power. (If war is merely the continuation of politics by other means, viz Carl von Clausewitz it has, can't the reverse be true?) The chances of this legislation passing soon don't look that high — right now the chances of it passing Any Legislation soon doesn't seem so lofty — and if publishers and songwriters had the power to make it happen, they would have already tried. But it starts a conversation the NMPA wants to start and opens a front where the NMPA can fight with an advantage, in part because Israelite, a former Hill executive, would be fighting on home turf. Could the NMPA get a hearing on the songwriter's fee issue that would embarrass Spotify? The company could argue that it needs margin relief, and it does, but how would that look on TV?
If this sounds like an incredibly elaborate and expensive way to understand the definition of a package, you're missing the point. Because it is, but also because nobody cares. The point, for the NMPA, is to force Spotify to concede, through some combination of litigation, legislation and public relations. Powerful headlights create a harsh glare. From Spotify's perspective, the search for copyright infringement taken to the extreme may seem like an aggressively literal reading of the law. But isn't an automatic package itself aggravating?
There's also a theory that Israelite needs to get music publishers out of a situation he got them into after he supported the 2022 settlement that allowed bundles, but that's unfair. Under the decision in the rate-fixing case before it, Phonorecords III, bundles were allowed and could be taken into account by subtracting the value of one from the total price and then using the remainder to calculate royalties. According to the Phonorecords IV arrangement, packets must be calculated proportionally, which is far from ideal but a bit better. Apparently, Israelite and the NMPA thought they could get a better deal by settling the case than fighting it out in court, at great expense, and the NMPA board approved. Undoubtedly, they would have ended up fighting either way.
This raises another question: Phonorecords IV only covers the period until the end of 2027. Before then, both sides will be back in the evaluation court, each more willing to fight and less able to compromise. Whatever happens, publishers will lose predictability and Spotify will look bad, especially compared to its streaming rivals. There could be a long cold war that really won't be good for anything.
