Spotify under fire: NMPA calls out alleged deceptive practices, calls for FTC action

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

In a June 12 letter to Federal Trade Commission (FTC) Chairwoman Lina M. Khan, the National Music Publishers' Association (NMPA) expressed serious concerns about Spotify's practices, alleging that the streaming giant engages in illegal conduct harmful to consumers and the music market.

The NMPA letter urges the FTC to investigate and stop Spotify's misconduct to protect consumers and ensure a fair competitive environment in the music streaming industry. If nothing is done, 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 competitors.

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 NMPA's 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, called bait and switch, includes increasing the cost of the subscription and making it difficult for users to return to their original plans or cancel their subscription.

• 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 lead to financial hardship and frustration for users who find it difficult to cancel their subscriptions due to confusing and misleading website interfaces.

• Legal issues: These actions could violate the FTC's regulations on opt-out marketing, which require clear disclosures and simple opt-out mechanisms.

2. Impact on the music royalty system

Spotify's addition of audiobooks to its Premium plans is reportedly a strategy to reduce royalty payments to music publishers and songwriters. By categorizing its subscription as a package, 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 their main source of income. The NMPA estimates a reduction of approximately $150 million in music royalties during the first year of the new bundled packages.

• Market competition: Competitors who offer simple music-only subscriptions could be at a disadvantage because they cannot reduce their costs in the same way Spotify can by manipulating royalty payments.

3. Compliance with consumer protection laws

The NMPA claims that Spotify's practices violate several provisions of the Restore Online Shoppers' Confidence Act (ROSCA), including failing to disclose all material terms of subscription changes, obtaining informed consent from users, and provide a simple undo mechanism.

• Disclosure failures: Spotify's initial addition of audiobook content at no additional cost may have misled consumers into believing that this change would not negatively affect them, thereby masking the resulting price increase.

• Informed consent: Automatically converting to a more expensive plan without user consent is a direct violation of ROSCA, which could warrant regulatory review and potential sanctions.

• Dark patterns in the undo process: The complex and obstructive cancellation process, involving multiple steps and repeated dissuasive messages, illustrates 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 stated 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 large market share means its practices could have far-reaching effects on the music industry, including reduced innovation, less new business creation, and lower overall quality and availability of music.






• Damage for the consumer: The ultimate victims of these practices are consumers, who may face higher costs, fewer choices and lower quality from their music streaming services.

The NMPA letter calls on the FTC to investigate and end Spotify's practices aimed at protecting consumers and maintaining a fair music marketplace.

Spotify response

In response to the NMPA allegations, a Spotify spokesperson said:

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

INSIDER OPINION

The NMPA's allegations against Spotify highlight critical issues related to consumer rights, fair competition, and the fair treatment of content creators. The allegations, if substantiated, underscore the need for regulatory oversight to ensure that large companies like Spotify comply with 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 increased 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 stricter regulations and oversight.

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

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