What’s happened?
Digital service providers (DSPs) like Spotify and Netflix breathed a sigh of relief in July, when a US federal appeals court struck down the Federal Trade Commission’s planned “click-to-cancel” rule.
That rule would have mandated that cancelling a digital service like music or TV streaming has to be as easy as signing up for it in the first place.
The idea places DSPs in a bind. On the one hand, consumers have been growing increasingly frustrated with the obstacles that service providers have set up to slow down the cancellation process. Customers complaining about having a hard time cancelling their service isn’t good for a company’s image.
On the other hand, a simplified process could lead to significant revenue reductions, pose security risks and damage DSPs’ ability to understand the market for their product (we’ll discuss this in more detail below).
But just when the idea seemed to have been shot down – due to what the Eighth Circuit Court of Appeal called an procedural error by the FTC – it’s been brought back as legislation.
A group of US House representatives have introduced the Click to Cancel Act, a two-page bill that would turn the FTC’s overturned regulation into law, in exactly the same form as the FTC set it out last fall. That would allow the rule to get past the regulatory requirements the FTC faces when it makes changes to how businesses operate. For instance, the FTC has to carry out an assessment whenever it makes a rule that has an impact of more than $100 million annually (which the court said the FTC failed to do with the click-to-cancel rule). With legislation, there are no such hurdles, regardless of how much of a hit businesses might take.
Democratic US House Reps. Brad Sherman of California, Seth Magaziner of Rhode Island, and Chris Deluzio of Pennsylvania introduced the bill in the House of Representatives, while Democratic Sen. Ruben Gallego of Arizona introduced it in the Senate.
For now, DSPs don’t need to panic. With the Trump administration’s opposition to heavier regulation of businesses, and both houses of Congress controlled by Republicans, the chances of this bill passing are fairly low. But in the longer run, rules similar to the Click to Cancel Act stand a solid chance of becoming the norm, not just in the US but worldwide.
Below, we’ll take a look at the impact click-to-cancel could have on streaming services, the politics behind the Click to Cancel Act – and why DSPs would be wise to prepare for such policies to come into force, sooner or later.
How could such a rule impact music streaming services?
The plaintiffs who took the FTC to court and won over the click-to-cancel rule are among the largest companies in the US that rely at least in part on revenue from subscriptions: Telecom firms Charter Communications, Comcast, and Cox Communications, and entertainment giants Disney and Warner Bros. Discovery.
It’s safe to say they didn’t go to court simply because they didn’t feel like implementing this rule.
For one thing, click-to-cancel could be a major headwind to revenue. According to an analysis at BizTechWeekly, an increase in cancellations of just 0.5% could result in a 2-3% decrease in annual revenue forecasts. Given that many DSPs already operate on tight margins, that could have a big impact on profitability and stock prices.
The analysis notes that as the streaming subscription business has matured, streaming giants have come to rely on long-tenured subscribers for some 80% of their revenue. An increase in cancellations among these customers could be hard to claw back, requiring major new investments.
Besides revenue decreases, there could be other serious negative impacts for streamers. While there’s little doubt that subscription-driven businesses use difficult processes to reduce churn (i.e. reduce the number of subscribers who leave), there are also some other reasons for why they would throw roadblocks in the way of cancellations.
One such reason is security: It’s not hard to imagine a malicious actor using bots to game a simple unsubscribe mechanism, cancelling thousands or even millions of accounts without subscribers’ knowledge. Not only would that cost the streaming service massive amounts of revenue, it would also damage the company’s reputation as subscribers complain of having suddenly lost access to their service.
Another reason is market data. The unsubscribe process can provide valuable insight into why some customers are choosing to cancel, and those reasons are crucial for a company’s response to churn. If subscribers are leaving because they’re facing reduced incomes or a rising cost of living, that requires a very different response to – for example – customers leaving because they’re unhappy with the streaming service’s features.
All of this means that a simplified unsubscribe process would require major changes at digital service providers. From a subscriber’s perspective, making cancellation simpler looks like simply stripping away unnecessary steps. But from a DSP’s perspective, it might mean entirely new security architecture, or entirely new ways of gathering data for analytics. Not easy, or cheap.
What are the chances of the click-to-cancel coming into force?
As long as Donald Trump is in the White House and the Republicans control Congress, the chances are slim.
The Trump administration – which is more interested in deregulation than new regulations – appears to be opposed to the rule, or at least skeptical of it. The clearest sign of that is that one of the two FTC commissioners who voted against the click-to-cancel rule – Andrew Ferguson – was appointed by Trump to chair the Commission.
With Republican allies now firmly in control of the FTC, the regulator looks unlikely to pursue click-to-cancel any further. And in fact, Lina Khan, who headed the FTC under then-President Joe Biden, suggested that the Trump administration “slow-walked” the click-to-cancel rule to give the court challenge a chance to succeed.
Having lost at the appellate court, the FTC could now appeal to the Supreme Court, restart the regulation from scratch (and carry it out correctly this time), or abandon the effort. It appears the FTC has chosen to abandon the effort.
As for the legislation, barring the support of at least some Republicans, the Democrat-led Click to Cancel Act is unlikely to pass through both houses of Congress, and equally unlikely to be signed into law by President Trump.
But this could change. If Democrats take control of Congress in the 2026 mid-term elections, the Click to Cancel Act could be brought back a few years from now. And if a Democrat wins the White House in 2028 and reshapes the FTC, the click-to-cancel rule could be back with or without new legislation.
A final thought…
While the Click to Cancel Act isn’t about to become law in the United States right away, it’s important to take a look at the broader picture and understand which way the political winds are blowing. And they’re blowing in the direction of making it easier to cancel subscriptions.
US states and countries worldwide have in recent years passed various consumer protection laws that pressure DSPs to make unsubscribing easier.
California’s updated Automatic Renewal Law states that subscribers should be allowed to cancel “without any further steps that obstruct or delay the consumer’s ability to terminate the automatic renewal or continuous service immediately.” That law has been subject to numerous challenges in courts.
Other states are either deliberating or have passed similar laws. Legal advice publisher Nolo estimates that 20 US states have laws regulating automatic subscription renewals which include click-to-cancel rules that are “similar and, in some cases, more burdensome” than what the FTC’s rule.
Outside the US, the European Union’s Digital Services Act, which has been in full effect since last year, includes a ban on the use of “dark patterns,” which the EU defines as “designing online platforms to trick users into doing things they otherwise would not have considered, often but not always involving money.” One of the examples of a dark pattern is “making it difficult to unsubscribe to newsletters and more.”
Depending on how regulators in EU member states and courts interpret the law, some of the cancellation processes used by DSPs might already be illegal in Europe.
Meanwhile, in the UK, the 2024 Digital Markets, Competition and Consumers Act requires providers to allow consumers to cancel contracts “in a way which is straightforward, and without having to take any steps which are not reasonably necessary for bringing the contract to an end.” (The law also requires DSPs to send reminders to customers before a subscription auto-renews.)
And in South Korea, the country’s Fair Trade Commission has been cracking down on major DSPs, including Spotify and the Korean affiliate of Netflix, alleging that they have not provided users with the ability to terminate their subscriptions mid-billing cycle, or have failed to inform consumers of their refund rights.
These are all signs that patience is wearing thin – among consumers, regulators and politicians – with the complex cancellation processes that many DSPs have implemented. In light of that, it might be a good idea for businesses that rely on subscription revenue to prepare for the day when cancelling has to be as easy as signing up – however costly that may be.
Reservoir (Nasdaq: RSVR) is a publicly traded, global independent music company with operations across music publishing, recorded music, and artist management. Music Business Worldwide
