Netflix and Spotify – Price-adjustment clauses are ineffective
Background and legal development
Part of the business model of streaming services, such as Netflix and Spotify, is to simply inform their customers that the prices will shortly be increased. The streaming service companies view the relevant contractual clauses as the legal bases that give them the right to adjust their subscription prices. That is why the Federation of German Consumer Organisations (Verbraucherzentrale Bundesverband, vzbv) brought a legal action before the regional court of Berlin on the grounds that such clauses unreasonably disadvantaged consumers. The streaming providers subsequently lodged appeals. These have now however been rejected by the highest state court for the city-state of Berlin (Kammergericht) in its rulings of 15.11.2023 (case references: 23 U 15/22 and 23 U 112/22) and the decisions of the regional court of Berlin have thus been confirmed.
Inadmissible clauses
According to the rulings of the courts, in the case of ongoing agreements one-sided price adjustments are only allowed if they are structured fairly and transparently. The courts had to rule specifically on the reservation provisions of the streaming services in their GT&Cs according to which they would be allowed to “adjust their subscription offers from time to time as [they] reasonably see fit in order to reflect the effects of changes in the overall costs associated with [their] services.” In this respect, it was decided that the use of such clauses in business transactions with consumers was at any rate prohibited insofar as this was supposed to take account of an increase in overall costs.
Legal and business implications
These rulings will have far-reaching consequences for the practices that relate to the GT&Cs of the streaming services because it will no longer be possible to automatically push through price increases. Customers will first have to be asked to consent to these. If consent is not given then the providers would be free to cancel the contractual relationship. However, the users could also make use of their special right of cancellation, or claim a refund of the additional costs.
Outcome: In any case, it is no longer possible to extend a contractual relationship via ‘tacit consent’. This will entail a considerably greater effort on the part of the streaming service companies when higher prices are supposed to be pushed through. It is likely that this ruling will be important for other sectors, too, where similar GT&C clauses are used.