By: William Kronblat

Few would disagree that streaming has transformed the music industry’s application and creation of copyrights. Streaming has now allowed apps like Spotify to provide an immense library of music and audiobooks at users’ fingertips. However, not everyone is a fan of Spotify. The publishing industry, in particular, has often found itself at odds with the music and audiobook streaming giant.

The MLC Lawsuit: 

Spotify has recently found itself in the courtroom battling the Mechanical Licensing Collective (MLC), a non-profit organization that issues blanket mechanical licenses to streaming services like Spotify. MLC collects royalties on those licenses and  distributes those royalties to copyright holders in the songs such as publishers, composers, and lyricists. 

In 2024,  the MLC filed its lawsuit alleging that Spotify was underpaying royalties owed to songwriters by tactfully including access to audiobooks in its “Premium” subscription. According to Spotify, this addition qualified the Premium subscription as a “bundle” and allowed Spotify to pay a “lower mechanical royalty rate under Phonorecords IV, a 2022 settlement between music publishers and streaming services.” While the MLC was the group that formally filed a lawsuit against Spotify, they were not the only ones critical of the change. Other music entities like the National Music Publishers Association called the change a “cynical and potentially unlawful move,” and the Nashville Songwriters Association International claimed that the move “counters every statement Spotify has ever made of claiming the company is friendly to creators.”

A Legal and Economic Victory for Spotify:

At least for the foreseeable future, it seems as if Spotify will continue to cash in on these big-time “bundle” savings because on Wednesday, January 29^th, 2025,  United States District Judge Analisa Torress granted Spotify’s Motion to Dismiss. In her order, Judge Torres noted that the definition of a “Bundled Subscription Offering” under the Code of Federal Regulations (§ 385.2 Definitions) and the language of  §115 of the Copyright Act states qualifying digital music is to be granted compulsory blanket licenses, and its implementing regulations, are unambiguous. Torres went on to say, “the only plausible application of the law supports Spotify’s position” and “Premium is … properly categorized as a Bundle, and the allegations of [the MLC’s] complaint do not plausibly suggest otherwise.”

The MLC acknowledged Judge Torres’ decision, but noted that it is “concerned that Spotify’s actions are not consistent with the law … [and] is reviewing the decision and evaluating all available options, including [their] right to appeal.” On the other hand, Spotify welcomed the ruling and described it as a validation of its business model. 

This decision not only presents a substantial legal victory for Spotify, but it also presents a very profitable opportunity for Spotify and similar streaming services they may want to file suit. Billboard estimated that this move would result in Spotify saving over $150 million over the next year, and the MLC argued that Spotify’s move would reduce its “payments to songwriters by as much as 50%.” Notably, Spotify did report its first-ever net profit in its 2024 year-end results after implementing this change. 

The Future  of Streaming Royalties: 

While Judge Torres’ interpretation of the law favors Spotify for now, the MLC may still appeal this decision and continue to challenge the streaming giant in the courtroom. Additionally, the Phonorecords IV agreement that was cited in Judge Torres’ opinion is only set to last till December 31, 2027. The agreement was made between the National Music Publishers’ Association, Inc., Nashville Songwriters Association International, Sony Music Entertainment, Universal Music Group Recordings, Inc., and Warner Music Group Corp. The agreement is filled with parties likely to fall on both sides of this lawsuit. The National Music Publishers’ Association, Inc. and Nashville Songwriters Association International have already expressed their disdain over Spotify’s bundling practices, while UMG recently signed a new deal with Spotify.  

Thus, when the Phonorecords IV deal expires, the various stakeholders for the new agreement will likely have their fair share of opinions on Spotify and its bundling practices related to license royalties. We can expect the new deal to impact how royalties are set from 2028 onward. This may result in Spotify having to change its practices if a new agreement or policy drastically changes how a bundle is defined or how royalties are set.