Updated: This article has been updated to include a response from Spotify.

In a June 12th letter addressed to Federal Trade Commission (FTC) Chair Lina M. Khan, the National Music Publishers’ Association (NMPA) has raised significant concerns about Spotify’s practices, alleging that the streaming giant is engaging in unlawful conduct that is detrimental to consumers and the music marketplace.

The NMPA’s letter urges the FTC to investigate and halt Spotify’s misconduct to protect consumers and ensure a fair competitive environment in the music streaming industry. If unchecked, the NMPA warns that Spotify’s actions will continue to cost consumers millions of dollars, undermine the music royalty system, and harm competition by giving Spotify an unfair advantage over its rivals.

The outcome of this call to action could have significant implications for consumer rights and the future of the music industry.

Key Points Raised in the NMPA Letter to the FTC:

1. Alleged Deceptive Subscription Practices

The NMPA accuses Spotify of automatically converting subscribers from music-only plans to bundled audiobook-and-music plans without their consent. This tactic, referred to as a bait-and-switch, includes increasing the subscription cost and making it difficult for users to revert to their original plans or cancel their subscriptions.

• Implications for Consumers: This practice undermines consumer autonomy and choice, forcing them to pay for services they did not agree to. It is also likely to result in financial strain and frustration for users who find it challenging to cancel their subscriptions due to confusing and misleading website interfaces.

• Legal Concerns: These actions could violate FTC regulations on negative-option marketing, which require clear disclosures and easy cancellation mechanisms.

2. Impact on the Music Royalty System

Spotify’s addition of audiobooks to its Premium Plans is allegedly a strategy to reduce royalty payments to music publishers and songwriters. By categorizing its subscription as a bundle, Spotify can claim that subscribers are paying for more than just music, thereby justifying lower royalty payments.

• Financial Impact on Songwriters and Publishers: This maneuver could significantly reduce the income of music creators, who rely on royalties as a primary revenue source. The NMPA estimates a reduction of approximately $150 million in music royalties in the first year of the new bundled plans.

• Market Competition: Competitors who offer straightforward music-only subscriptions might be disadvantaged, as they cannot reduce their costs in the same way Spotify does by manipulating royalty payments.

3. Compliance with Consumer Protection Laws

The NMPA contends that Spotify’s practices violate several provisions of the Restore Online Shoppers’ Confidence Act (ROSCA), including the failure to disclose all material terms of the subscription changes, obtain informed consent from users, and provide a simple cancellation mechanism.

• Disclosure Failures: Spotify’s initial addition of audiobook content without extra charge may have misled consumers into believing that this change would not affect them negatively, masking the subsequent price increase.

• Informed Consent: The automatic conversion to a more expensive plan without user consent is a direct violation of ROSCA, which could warrant regulatory scrutiny and potential penalties.

• Dark Patterns in Cancellation Process: The complex and obstructive cancellation process, involving multiple steps and repeated deterrent messages, exemplifies the dark patterns the FTC aims to eliminate.

4. Potential Unfair Competition

The NMPA also argues that Spotify’s actions constitute an unfair method of competition, as outlined in the FTC’s November 2022 Policy Statement on unfair methods of competition. By artificially inflating the value of its bundled services, Spotify can reduce its royalty obligations and gain an unfair advantage over its competitors.

• Economic Power and Market Impact: Spotify’s significant market share means that its practices could have wide-reaching effects on the music industry, including reduced innovation, fewer new business formations, and lower overall quality and availability of music.
• Consumer Harm: The ultimate victims of these practices are consumers, who may face higher costs, less choice, and decreased quality in their music streaming services.

The NMPA’s letter calls for the FTC to investigate and halt Spotify’s practices to protect consumers and maintain a fair music marketplace.

Spotify’s Response

In response to the NMPA’s allegations, a Spotify spokesperson stated:

“Spotify’s approach to expanding its offering and raising prices is industry standard. We notify users a month in advance of any price increases and offer easy cancellations as well as multiple plans for users to consider. In short, we categorically reject the NMPA’s baseless accusations and will continue to provide consumers incredible value and a best-in-class experience.”

INSIDER TAKE

The NMPA’s allegations against Spotify highlight critical issues of consumer rights, fair competition, and the equitable treatment of content creators. The allegations, if substantiated, highlight the need for regulatory oversight to ensure that large corporations like Spotify adhere to consumer protection laws and maintain fair competition practices.

• Regulatory Action: The FTC may need to take decisive action against Spotify if these allegations are proven, which could include fines, mandatory changes to business practices, and enhanced scrutiny of subscription services across the industry.

• Industry Impact: This case could set a precedent for how digital service providers manage subscription models and royalties, potentially leading to more stringent regulations and oversight.

• Consumer Awareness: Increased consumer awareness and advocacy could pressure companies to adopt more transparency, ensuring that users are fully informed and consenting to the services they pay for.

The outcome of this case could have significant ramifications for the music streaming industry and beyond.