📑 CMU Digest: Spotify hits back at MLC lawsuit + Q2 financial updates

CMU Digest is our weekly round-up of the most interesting music business news stories from the last seven days.

This week: Spotify hits back at the MLC’s lawsuit over its sneaky bundling tactics, insisting in a letter to the court that the fifteen hours of audiobooks access it now provides all premium subscribers clearly has more than “token value”. The major record companies criticise Canada's new 5% streaming levy, dubbing it “outdated thinking”. More corporate dramas in the world of K-pop as Ador continues its legal and PR battle with parent company HYBE. Plus Spotify and Universal Music’s Q2 financial updates.

ICMYI: Manchester Arena bombing conspiracy theorist in court; Kobalt sues basketball teams over uncleared music in social posts; NTIA study on noise complaints; AEG and Dodger Stadium sued over car park assault at Elton John show; Live Nation hits back in US government’s antitrust lawsuit; court tentatively rejects Katherine Jackson’s objections to big Sony deal with Michael Jackson estate.

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Spotify hit back at the MLCs lawsuit over bundling

In March, Spotify reclassified its main subscription product in the US as a music + audiobooks bundle, having added audiobooks access in late 2023. This allows it to reduce what payments it makes to songwriters and music publishers in the US, because those payments are set out in the mechanical rights compulsory licence that is available under American copyright law, and that licence provides a discount for bundled services. The publishers have been scathing about Spotify’s move to reduce royalty payments and the MLC, which administers the compulsory licence, filed a lawsuit in May.

The lawsuit centres on a provision in the compulsory licence that says, for a product to qualify as a bundle, whatever content or service is provided beyond music must have “more than token value”. The MLC argues that the fifteen hours of audiobook access now provided to Spotify subscribers does not have more than token value, in part because that access was initially provided for free. In a letter to the court, Spotify said it’s simple common sense that the audiobook access has “more than token value”, noting that the US audiobooks market is worth over $2 billion a year.

The major record companies criticised Canada’s new streaming levy

Music Canada, the trade body for the majors, said that the plan to force streaming services in the country to hand over 5% of their revenues to various funding initiatives was “unprecedented” and “staggering”. Under the plan devised by Canadian media regulator the CRTC, money handed over by audio streaming services will be split between schemes supporting independent artists and labels, and initiatives to support community radio and commercial radio news. Music Canada was particularly scathing about streaming services subsidising traditional radio, which it said was “outdated thinking”.

The independent label community in Canada has welcomed the levy, which will provide more money for important funding schemes in the country. However, the majors join the streaming services in criticising the plan. Music Canada said the levy will likely increase the cost of streaming subscriptions for Canadian consumers and could result in streaming services reducing their investments in the country.

There were more dramas in the Ador v HYBE feud in South Korea

NewJeans label Ador has been involved in a legal and PR battle with its parent company HYBE for months now, with HYBE bosses trying to remove Ador CEO Min Hee-jin. This week Ador published a lengthy statement about allegations that recent NewJeans single ‘Bubble Gum’ rips off the 1982 song ‘Easier Said Than Done’ by British band Shakatak. It denied the song-theft claim, but also used the letter to criticise HYBE, which should have been handling media communications relating to that claim.

“Not only did HYBE not look to minimise negative press coverage, but they actually demonstrated a lukewarm and even passive attitude toward the issue”, the letter stated. HYBE also told Ador that there was little it could do about “misinformation, hateful comments and defamatory content” about NewJeans posted on internet forums like DC Inside. But when Min reached out to DC Inside CEO Kim Yusik, she discovered there was a "hotline" that companies like hers can use to try to tackle defamatory content.

As well as going public over HYBE’s handling of the song-theft allegations, Min also filed a legal complaint against executives at HYBE, accusing them of defamation and business obstruction in relation to an April audit of her label. According to Min, in that audit HYBE seized private messages from the Ador servers which were then “edited and distorted to turn public opinion against her”.

Spotify's Q2 earnings painted a mixed picture

Total revenue for the quarter was up 21% year-on-year, hitting €3807 million. The number of premium subscribers was up 7 million and, on the free tier, ad income improved after a disappointing Q1 in that domain. However, ad sales bring in just under 12% of total Spotify revenues, despite previous promises from CEO Daniel Ek that they’d reach 20%. And while the number of premium subscribers is up, the rate of growth in premium is down, at 2.93% quarter-on-quarter in Q2 this year, compared to 3.3% and 4.43% in the second quarters of 2022 and 2021 respectively.

Back to the positives, Spotify’s profitability metrics are showing significant improvement, as you would expect given the significant down-sizing instigated at the streaming business last year. In Q4 2022 the company had 10151 employees, today it is just 7372.

Trying to put a positive spin on the future, Ek said that the company is now employing a new growth strategy in more mature markets, looking to drive more income out of existing premium subscribers rather than focusing on signing up new users, and converting free tier subscribers into paying subscribers. To that end, Ek confirmed that the much rumoured higher priced supremium tier is getting closer to launch, and will likely have a $17 or $18 a month price point.

Universal Music's share price tanked after Q2 investor update

There were some positives in the major music company’s figures for Q2 2024. Revenue was up 10%, adjusted EBITDA was up 11%. CEO Lucian Grainge noted that that meant the company has achieved “twelve consecutive quarters of at least high single-digit revenue growth since listing” and a “seventh consecutive quarter of double-digit increase in adjusted EBITDA”. However, growth levels in subscription streaming - the key revenue stream - were slower than expected. CFO Boyd Muir said that was because of the “slowdown in subscriber growth at certain platforms”.

Grainge added, “our second quarter results reflect the varied performances of our diverse portfolio of streaming platform partners. Their performances, some more positive than others, vary as a consequence of their having different strategies for growth”. However, Grainge said, those streaming services that are working with Universal to identify “win-win” strategies will continue to deliver growth in the long-term.

Despite Grainge’s attempts at optimism, and his efforts to talk up the fact that Universal has now lots of revenue streams, investors were clearly concerned about the disappointing growth levels in subscription streaming, which is what clearly powers the modern record industry. As a result, the next day, Universal’s share price fell off a cliff, dropping by as much as 30% and erasing nearly €16 billion in shareholder value.