The Mechanical Licensing Collective (The MLC) has filed a lawsuit against Spotify in the United States for allegedly underpaying royalties to songwriters and publishers.
The lawsuit, filed in the United States District Court for the Southern District of New York on Thursday (May 16), stems from Spotify’s decision at the beginning of March to reclassify its Premium Individual, Duo, and Family subscription streaming plans as Bundled Subscription Offerings because those plans now offer access to audiobooks.
Under a 2022 legal settlement – aka Phonorecords IV – music publishers and music streaming services agreed that ‘bundle’ services in the States are permitted to pay a lower mechanical royalty rate to publishers and songwriters than standalone music subscription services.
The MLC argues that by applying the rate formula applicable to Bundles to its Premium subscriptions, Spotify is underpaying royalties due to songwriters and publishers, and that Spotify’s position does not comply with the law.
The MLC is the non-profit organization designated by the US Copyright Office to ensure that music streaming services like Spotify pay the mechanical royalties they owe to songwriters and music publishers.
The org says in its lawsuit that “Spotify’s assertion that Premium is now a Bundled Subscription Offering is directly at odds with the Section 115 regulations that the MLC has primary responsibility for interpreting and applying”.
The MLC claims further in its lawsuit, which you can read in full here, that “on March 1, 2024, without advance notice to the MLC, Spotify unilaterally and unlawfully decided to reduce the Service Provider Revenue reported to the MLC for Premium by almost 50 percent”.
It argues that Spotify did so “by improperly characterizing the service as a different type of Subscription Offering and underpaying royalties, even though there has been no change to the Premium plan and no corresponding reduction to the revenues that Spotify generates from its tens of millions of Premium subscribers”.
The MLC’s legal action against Spotify on Thursday arrived on the same day that the National Music Publishers Association issued a cease-and-desist letter to Spotify on behalf of NMPA members for allegedly hosting unlicensed lyrics on its platform.
A Spotify spokesperson called the NMPA’s letter “a press stunt filled with false and misleading claims” and suggested that the music publishers’ legal threat over alleged infringement on its platform was “an attempt to deflect from the Phono IV deal that the NMPA agreed to and celebrated back in 2022”.
SPOT’s spokesperson was, of course, referring to the backlash it has received from the songwriter and publisher community over the streaming platform’s decision to reclassify its Premium tiers as ‘bundles’.
Speaking on the MBW Podcast on April 30, NMPA boss David Israeliteconfirmed that the situation would “likely end up in a legal conflict.”
“The financial consequences of Spotify’s failure to meet its statutory obligations are enormous for Songwriters and Music Publishers.”
MLC lawsuit against Spotify
The situation has indeed ended up in legal conflict, with the MLC arguing in its lawsuit on Thursday that “the financial consequences of Spotify’s failure to meet its statutory obligations are enormous for Songwriters and Music Publishers”.
The MLC also argues that “Premium is exactly the same service that Spotify offered to its subscribers before the launch of Audiobooks Access” and that “Nothing has been bundled with it”.
The complaint adds: “In the months before the purported transformation of Premium into a Bundled Subscription Offering, subscribers could listen to unlimited ad-free music and up to 15 hours of audiobooks each month in return for a $10.99 monthly payment, as well as other non-music audio content available on Spotify’s platform, such as podcasts, comedy shows and spoken word performances.
“The launch of Audiobooks Access resulted in no change at all in Premium. And prior to March 1, Spotify paid mechanical royalties on the entirety of Premium revenues, 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 as Audiobooks Access subscribers now have.
“Nothing changed on the day Audiobooks Access launched: Premium subscribers continue to get the same single product, providing the same on-demand access to tens of millions of musical works”.
The MLC seeks corrected usage reporting and associated unpaid royalties for periods dating back to March 2024, along with an order requiring compliance going forward.
“The MLC takes seriously its legal responsibility to take action on behalf of our Members when we believe usage reporting and royalty payments are materially incorrect.”
Kris Ahrend, The MLC
The MLC’s CEO Kris Ahrend, said: “The MLC was designated by the Register of Copyrights to administer the blanket license and is the only entity with the statutory mandate to collect and distribute blanket license royalties and take legal action to enforce royalty payment obligations.
“The MLC takes seriously its legal responsibility to take action on behalf of our Members when we believe usage reporting and royalty payments are materially incorrect.”
“We applaud the MLC for standing up for songwriters and not letting Spotify get away with its latest trick to underpay creators.”
Commenting on the MLC’s legal action against Spotify, NMPA President & CEO David Israelite, said: “We applaud the MLC for standing up for songwriters and not letting Spotify get away with its latest trick to underpay creators.
“The MLC is tasked with challenging services who falsely report royalties, and we commend their swift action.
“The lawsuit sends a clear message that platforms cannot improperly manipulate usage – in this case unilaterally redefining services as a bundle – in order to devalue music. We strongly support the MLC and will continue to pursue justice.”
“The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago under the Phono IV agreement.”
Spotify spokesperson
A Spotify spokesperson told us in a statement over email: “The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago under the Phono IV agreement.”
They added: “Bundles were a critical component of that settlement, and multiple DSPs include bundles as part of their mix of subscription offerings. Spotify paid a record amount to publishers and societies in 2023 and is on track to pay out an even larger amount in 2024.
“We look forward to a swift resolution of this matter.”
