Spotify Responds to MLC Lawsuit + Q2 Financial Update

CMU Digest is a weekly summary of the most interesting music news from the last seven days.

This week: Spotify responds to MLC lawsuit over its underhanded bundling tactics, insisting in a letter to the court that the 15 hours of audiobook access it now provides to all premium subscribers clearly have more than “symbolic value.” Major record labels slam Canada’s new 5% streaming tax, calling it “outdated thinking.” More corporate drama in the world of K-pop as Ador continues its legal and PR battle with parent company HYBE. Plus Q2 financial updates from Spotify and Universal Music.

If my memory serves me right: Manchester Arena bombing conspiracy theorist faces trial; Kobalt sues basketball teams over obscure music in social media posts; NTIA investigates noise complaints; AEG, Dodger Stadium sued over Elton John concert parking lot assault; Live Nation responds to U.S. government antitrust lawsuit; court preliminarily dismisses Katherine Jackson’s objections to major Sony deal with Michael Jackson’s estate.

Spotify responds to MLC’s bundling lawsuit

In March, Spotify reclassified its main U.S. subscription product as a music + audiobooks bundle, adding access to audiobooks in late 2023. This allows for reduced payments to songwriters and music publishers in the U.S. because those payments are set forth in a compulsory mechanical rights license available under U.S. copyright law, and that license provides a discount on the bundled services. Publishers have been sharply critical of Spotify’s move to reduce the royalty payments, and the MLC, which administers the compulsory license, filed a lawsuit in May.

The lawsuit centers on a provision in the compulsory license that states that for a product to qualify as a bundle, any content or service provided beyond the music must be of “more than nominal value.” The MLC argues that the fifteen hours of audiobook access currently provided to Spotify subscribers are of no more than nominal value, in part because that access was initially provided free of charge. In a letter to the court, Spotify argued that it is common sense that access to audiobooks is of “more than nominal value,” noting that the U.S. audiobook market is worth more than $2 billion annually.

Major record labels criticize Canada’s new streaming tax.

Music Canada, the industry body for the majors, said the plan to force streaming services in the country to donate 5% of their revenue to various funding initiatives was “unprecedented” and “mind-boggling.” Under the plan, drawn up by Canada’s media regulator CRTC, the money given to streaming audio services would be split between schemes that support independent artists and labels and initiatives that support community radio and commercial radio news. Music Canada was particularly scathing about streaming services subsidizing traditional radio, which it said was “outdated thinking.”

Canada’s independent label community has welcomed the tax, which will provide more money for important funding programs in the country. But major companies are joining streaming services in criticizing the plan. Music Canada said the tax would likely increase the cost of streaming subscriptions for Canadian consumers and could cause streaming services to reduce their investment in the country.

There was more drama in the Ador vs. HYBE dispute in South Korea

NewJeans brand Ador has been embroiled in a legal and PR battle with its parent company HYBE for months, with HYBE executives trying to oust Ador CEO Min Hee-jin. This week, Ador released a lengthy statement addressing allegations that NewJeans’ latest single, “Bubble Gum,” is a rip-off of the 1982 song “Easier Said Than Done” by British band Shakatak. He denied the accusations that he stole the song, but also used the letter to criticize HYBE, which should have handled the media communications surrounding the claim.

“HYBE has not only failed to minimize negative press, but has taken a lukewarm, even passive, approach to the issue,” the letter stated. HYBE also told Ador there was little it could do about “misinformation, hateful comments, and defamatory content” about NewJeans posted on online forums like DC Inside. But when Min contacted DC Inside CEO Kim Yusik, she discovered there was a “hotline” that companies like hers could use to try to address defamatory content.

In addition to publicly exposing how HYBE dealt with allegations of song theft, Min also filed a legal complaint against HYBE executives, accusing them of defamation and obstruction of business in connection with an audit of her label conducted in April. According to Min, during that audit, HYBE seized private messages from Ador’s servers, which were then “edited and distorted to turn public opinion against her.”

Spotify’s Q2 results paint a mixed picture

Total revenue for the quarter grew by 21% year-on-year, reaching €3,807 million. Premium subscribers grew by 7 million, and advertising revenue improved in the free tier after a disappointing first quarter in that domain. However, advertising sales contribute just under 12% of Spotify’s total revenue, despite earlier promises by CEO Daniel Ek that they would reach 20%. And while premium subscribers are growing, premium growth is slowing, coming in at 2.93% quarter-on-quarter in the second quarter of this year, compared to 3.3% and 4.43% in the second quarters of 2022 and 2021, respectively.

On the positive side, Spotify’s profitability metrics are showing significant improvement, which is to be expected after the significant downsizing in the streaming industry initiated last year. In Q4 2022, the company employed 10,151 people, today it has just 7,372.

In an attempt to be positive about the future, Ek said the company is now pursuing a new growth strategy in more mature markets, looking to generate more revenue from existing premium subscribers rather than focusing on signing up new users and converting free tier subscribers into paying ones. To that end, Ek confirmed that the rumored more expensive Supremium tier is getting closer to launch and will likely be priced at $17 or $18 per month.

Universal Music share price falls after Q2 investor data update

There were some positives in the music major’s second-quarter 2024 results. Revenue rose 10% and adjusted EBITDA rose 11%. CEO Lucian Grainge noted that this meant the company had achieved “twelve consecutive quarters of at least high-single-digit revenue growth since listing” and “the seventh consecutive quarter of double-digit adjusted EBITDA growth.” However, growth levels in subscription streaming — a key revenue stream — were slower than expected. CFO Boyd Muir said that was due to “a slowdown in subscriber growth on some platforms.”

Grainge added that “our second-quarter results reflect mixed results from our diverse portfolio of streaming platform partners. Their results, some more positive than others, vary as a result of their different growth strategies.” However, Grainge said those streaming services that work with Universal to identify win-win strategies will continue to deliver growth over the long term.

Despite Grainge’s attempts to be upbeat and his efforts to talk about how Universal now has multiple revenue streams, investors were clearly concerned about the disappointing level of growth in subscription streaming, which is clearly what drives the modern music industry. As a result, the next day, Universal’s share price plummeted, falling by as much as 30% and wiping out almost €16 billion in shareholder value.

In case you missed it:

🛸 The trial of two victims of the 2017 Manchester Arena bombing is underway this week against a conspiracy theorist who claims the terror attack was an “elaborate hoax”. The man promoting the conspiracy theory is accused of harassment and breaching privacy and data protection laws.

🏀 Kobalt is the latest music company to file a lawsuit against a brand that used its music in unlicensed social media posts. Kobalt has filed multiple lawsuits, all aimed at NBA teams and all making roughly the same copyright infringement claims.

🔇 The British Nightlife Industries Association has published a study into noise complaints against nightlife businesses in London, which have risen by 53% since the pandemic, adding that disputes between clubs and venues and local residents are putting pressure on businesses and could be avoided with better licensing and planning systems.

🚀 AEG and Los Angeles’ Dodger Stadium are accused of negligence in a new lawsuit filed by a couple who were attacked after attending an Elton John concert. Concertgoers say there weren’t enough security guards on site, emboldening two men who attacked them in the stadium parking lot during an argument over a damaged vehicle.

💼 Live Nation recently launched the first salvo to fend off the U.S. government’s antitrust lawsuit, laying out a technical defense, disputing the Justice Department’s claims of a “tying arrangement” and arguing that the claims it makes under state law are “questionable and vague.”

🗙 Michael Jackson’s mother, Katherine Jackson, has worked hard to block Sony Music’s proposed deal to buy half of the late pop star’s music catalog. However, a U.S. appeals court recently initially sided with Jackson’s executors, ruling that they have the right to close the deal.