Major Label CEOs Would Do Anything for Music Publishers (But They Won’t Do That)

Warner Music Group CEO Robert Kyncl (r) chatting with NMPA president & CEO David Israelite (l) at the NMPA Annual Meeting on June 12th in New York.

The major labels all have major publishing divisions — and each one of them is getting hit with serious month-over-month royalty reductions from Spotify. So why aren’t major label CEOs doing anything about it?Every year, the National Music Publishers’ Association (NMPA) hosts a memberwide meeting to celebrate songwriting, highlight publisher accomplishments, and discuss the latest financials and pressing issues. There’s always some good music and laughs. But this year, the meeting felt less like a celebration and more like a preparation for battle in a wartime bunker.

“Spotify has declared war on songwriters. Our response shall be all-encompassing,” NMPA president David Israelite pledged to the assembled, with on-screen text showing a quote from Winston Churchill’s 1940 “We Shall Fight on the Beaches” speech. Speaking to the assembled troops, Israelite outlined the ‘all-encompassing’ response that includes litigation, legislation, and content removals based on direct copyright infringement.

“Our letter was not just a warning shot,” Israelite declared, referring to a cease-and-desist involving Spotify’s use of certain lyrics on the platform and songs in podcasts. “The NMPA has never lost a lawsuit. So you will want to stay tuned.”

Sounds pretty serious, though Spotify doesn’t look intimidated.In the wake of an aggressive lawsuit lodged by the Mechanical Licensing Collective (MLC) and formal complaints sent to the FTC and other US-based regulatory agencies, the streaming giant has issued strongly-worded statements to Digital Music News challenging the NMPA’s claims. More importantly, they’ve plowed forward with bundled subscription reclassifications that have already resulted in a 44% month-to-month drop in mechanical royalty payments, according to just-released calculations from DMN Pro.

Preliminary royalty statements shared with Digital Music News also reveal that greater than 97% of all Spotify subscriptions in the United States are now classified as bundles in some form or another.“At Spotify,” the company told DMN, “our approach towards expanding our offerings and increasing pricing is industry standard. We always notify users well in advance of any price increases and offer easy cancellations as well as multiple plan options to consider.”

“We categorically reject the NMPA’s baseless accusations and will continue to provide our users incredible value and a best-in-class experience,” Spotify concluded.

Spotify Mechanical Royalty Payments Drop 44% Month-to-Month as Bundling Takes Root — Here’s a First Look at the Raw Post-Bundling Numbers

Given the pronounced revenue drops involved and battle lines drawn, you’d expect the all-powerful major label CEOs to ride into town, settle the matter, and set Spotify straight. Nothing remotely close to that is occurring.Universal Music Group chairman and CEO Lucian Grainge and Sony Music Entertainment CEO Rob Stringer have been strangely quiet. Elsewhere, Warner Music Group CEO Robert Kyncl appeared for a keynote interview at the NMPA annual event but declined to offer any serious action to reverse Spotify’s bundling moves.

Instead, Kyncl assumed more of a referee role instead of becoming a fighter in the ring.“If you look back eighteen months when I started on the job, we had no price increases [by streaming platforms] for fifteen years,” Kyncl said. “Everything was the same, lagging inflation. Since then, we’ve had price increases by everybody, some of them twice. So we’ve moved things in the positive direction to increase the pie, to grow, and that will continue.”

“This bundling is like a variation of that,” the WMG boss continued. “In theory, I’m supportive of bundling, but we just have to make sure that we sort out all the details so that it works for us, so that the value is accruing exactly the way we want.”

“So the answer is, ‘yes, but…’”

Earlier, in a WMG earnings call, Kyncl stated that he didn’t expect Spotify’s dispute with music publishers to last long, because ‘these things don’t play out well’.

At most, that suggests that Kyncl — and possibly other label chiefs — are working to diplomatically resolve the issue with Spotify while keeping the relationship intact.That falls far short of a TikTok-style’ nuclear option,’ which appears mostly unthinkable given the billions Spotify is plowing into major label bank accounts. Tellingly, not one source to Digital Music News pointed to anything near the extremity of the TikTok pullout emerging with Spotify. And the reasons appear simple.

While extremely high-profile and risky, the UMG-led TikTok removal didn’t involve a critical distribution partner generating a substantial portion of annual revenues. Instead, we quickly learned that TikTok was generating less than 1% of Universal Music Group’s total revenue despite the platform’s relative importance in the music ecosystem.

“With regard to TikTok, we’ve disclosed that our former deal generated about 1% of total UMG annual revenue,” Universal Music Group CFO Boyd Muir confirmed in the company’s Q4 2023 earnings call. In a subsequent analysis, DMN Pro revealed that paid downloads on platforms like the iTunes Store were generating more income for UMG than TikTok licensing.

The result: despite the optics and howls of protest from TikTokers, UMG could afford to make that point. And it’s unlikely to be a hammer wielded against a platform that is most certainly generating more than 1% of revenues.

But there’s a bigger elephant in the room here.Publishing and recordings are two sides of the same coin, but this is anything but a 50/50 split. Recording rights are negotiated in the free market, while pre-determined statutory rates and government tribunal determinations largely determine publishing percentages. And there’s only so much of the pie that Spotify can pay out, which means that more money paid to publishers means less money to recording rights owners.

“Streaming deals are immutably constrained by the fact that there is a finite pot of money,” industry attorney, investor, and form music publishing executive Jody Dunitz explains. “There is never more than 100% (less overhead and profits) for the streaming services to pay out. Thus, songs can never achieve their fair share until labels take less.”

And the real kicker? “Because the profit margin for labels is much greater than that earned by publishers, the umbrella music corps have no incentive to support a fight to give more to songs.”

Additionally, given that financial reality, it’s unlikely that major label CEOs want to shift towards the hybridized direct-licensing framework outlined by Israelite in a recent proposal to Congress. Giving songwriters and publishers the ability to name their prices independently — and pull their content at will — risks compromising the Spotify consumer experience and reducing the pie for major labels.

All of which strongly suggests that music publishers will be forced to make their point on their own — without the air support of their corporate parents.Kyncl and the other major label CEOs may nudge the process and bring the warring parties toward a workable resolution. But it won’t be at the expense of the bigger pie.