MLC sues Spotify for bundling, royalty cut for publishers and songwriters

The Mechanical Licensing Collective (the MLC) has filed a lawsuit against Spotify, calling the way the streamer rebranded its premium, duo and family plans as “bundles” and began paying a reduced royalty rate to publishers and songwriters “inappropriate ».

“The economic consequences … are enormous for songwriters and music publishers,” MLC writes in the suit.

News of the lawsuit comes just a week later Advertising sign released its estimate that publishers and songwriters will earn about $150 million less from US mechanics next year compared to what they would have been owed if the services hadn't been bundled.

The root of the conflict began late last year, when Spotify added 15 hours of free audiobook listening to Spotify premium, duo and family plans in the United States and other markets. At the time, this was a free add-on for subscribers, and Spotify continued to pay the original full royalty rate for musical works in the United States.

Since March, however, Spotify quietly launched an audiobook-only plan, and then began reclassifying its premium, duo, and family plans as bundles because audiobooks were included. Under Phonorecords IV, the agreement that dictates US engineering royalty rates for 2023-2027, multi-product bundles are inherently a different type of subscription and therefore use a different, lower royalty rate, since multiple offers must be paid by the same subscription price.

In the lawsuit filed by MLC, which processes and distributes mechanical rights to publishers and songwriters in the United States, the organization argues that “premium is exactly the same service” as in the past. “Prior to March 1, Spotify paid mechanical royalties on all Premium revenue, subject to certain specific reductions identified in Section 115, despite the fact that Premium subscribers also had access to the same number of hours of audiobooks that they now have Audiobooks Access subscribers,” the lawsuit states.

“On March 1, 2024, without prior notice to MLC, Spotify unilaterally and unlawfully decided to reduce the Service Provider Revenue reported to MLC for Premium by nearly 50 percent,” the complaint states. “[This was done] inappropriately characterizing the service as a different type of subscription that offers and does not pay royalties, even though there has been no change to the premium program and no corresponding reduction in the revenue Spotify generates from its tens of millions of Premium subscribers.”

Spotify gave a statement to Billboard in response to the lawsuit, saying, “The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago as part of the Phono IV deal. Bundles have been a critical component of this arrangement, and many DSPs include bundles as part of their subscription offering mix. Spotify paid a record amount to publishers and labels in 2023 and is on track to pay an even larger amount in 2024. We look forward to a speedy resolution to this matter.”

Reports of Spotify changing its royalty rate structure for premium, duo and family plans first arrived in April. Immediately, the National Music Publishers Association (NMPA) began speaking out against Spotify's reclassification, calling it “the end of a period of relative peace” and “potentially illegal.”

On Wednesday (May 15), the NMPA launched a campaign against Spotify by sending the company a cease-and-desist letter regarding a separate issue: allegedly unlicensed lyrics and videos. In the letter, NMPA general counsel/executive vice president Danielle Aguirre it was also mentioned that there may be some post content that will “soon become unlicensed” by its members. Spotify hit back at the letter in a statement, which read: “This letter is a press stunt filled with false and misleading claims.”

In the lawsuit filed Thursday, MLC claims that to qualify for the bundled subscription rate, “an offer must include at least two different products or services. Premium doesn't,” adding, “Premium is already unlimited music and access to other audio products, including up to 15 hours of audiobook listening,” as well as other offerings like podcasts.

MLC further argues that Spotify's audiobook-only plan launched in March is not a different product, saying it offers more than just audiobooks. “New subscribers to Access Audiobooks are given access to 15 hours of audiobook listening and the same access to unlimited, ad-free, on-demand music that Premium subscribers get. The only difference is that Access Audiobooks subscribers pay $9.99 per month, instead of $10.99, to receive the same product,” the complaint states.

MLC also complains that “the audiobook access subscription page does not appear to be directly accessible from Spotify's website” — noting that the offer is hard to find. Consequently, MLC says it believes there is “no doubt that the number of subscribers who will sign up to Access Audiobooks is likely to be a fraction of Premium subscribers”.

A few months ago, MLC also sued Pandora, another streaming service from which it collects mechanical royalties in the United States, for what it believes is a failure to properly pay streaming royalties. This trial is ongoing.

The MLC and the Digital Licensee Coordinator (DLC) — the body intended to represent the majority interests of digital music providers affected by the general license created by the Music Modernization Act (MMA) — are also in the process of the first five – a one-year review (called a “re-determination” process) to ensure that both are effectively fulfilling their duties. This regular, five-year review, conducted by the US Copyright Office, allows the two organizations to self-report on their progress and gives key stakeholders — including the Digital Media Agency (DiMA) and MLC — an opportunity to speak on the strengths and weaknesses of organizations.

MLC's operating expenses are paid by DiMA members, including Spotify, Pandora, Apple Music, Amazon Music and others, as defined by the Music Modernization Act (MMA). In a March blog post, DiMA CEO/President, Graham Daviespointed out that MLC is “suing one of the licensees [Pandora] that pays for it.” The NMPA responded to this post by defending the MLC, saying streamers “don't want what's in the best interests of music publishers or songwriters,” calling DiMA's “new…strategy”…an attempt by the world's biggest digital companies to leverage their power to pay less.”

NMPA President/CEO; David the Israelite provided a statement of support for MLC's lawsuit, saying, “we applaud MLC for standing up for songwriters and not letting Spotify get away with its latest trick to pay creators. MLC is tasked with challenging services that falsely report royalties and we commend their swift action. The lawsuit sends a clear message that platforms can't improperly manipulate usage — in this case, unilaterally rebranding services as a bundle — in order to devalue music. We strongly support MLC and will continue to pursue justice.”