Goldman Sachs analysts said Tuesday they believe that the financial impact of Spotify's (NYSE:SPOT) recent reclassification of its Premium subscription plans to "bundles" will be marginal.
This reclassification affects mechanical streaming revenues paid to publishers and songwriters in the US, which are governed by rates set by the Copyright Royalty Board (CRB).
Spotify's change comes in the wake of launching a new audiobooks-only plan for $9.99 in March 2024.
By reclassifying its Premium plans, Spotify aims to benefit from lower royalty rates for bundles compared to standalone music subscriptions, a move that has sparked a lawsuit from the Mechanical Licensing Collective (MLC), alleging underpayment of royalties, and potential action from Sony Music Publishing.
“We calculate that the reclassification may result in an overall reduction in mechanical royalty payments of c.$158mn on an annualized basis, which would represent c.100bps gross margin boost to Spotify and a small negative impact on UMG/WMG group EBITDA,” analysts at Goldman Sachs said in a note.
Despite these reductions, the impact on major labels like Universal Music Group (UMG) and Warner Music Group (WMG) “will likely be limited,” the team at Goldman Sachs noted, with projected revenue impacts of -0.3% on their 2024 group revenues and EBITDA.