Spotify Wins Landmark 'Bundling' Lawsuit

A Major Blow to Songwriters' Royalties

In a significant ruling that could reshape music streaming economics, Spotify has emerged victorious in its legal battle with the Mechanical Licensing Collective (MLC) over royalty payments. On Wednesday, January 29, Judge Analisa Torres of the US District Court for the Southern District of New York dismissed the MLC’s lawsuit “with prejudice,” potentially setting a concerning precedent for songwriter compensation.

The Controversy: How Spotify’s “Bundle” Strategy Affects Royalties

The dispute centers on Spotify’s strategic decision in March 2024 to reclassify its Premium subscription tiers as “bundles” after adding 15 hours of monthly audiobook access. This seemingly minor administrative change carries major financial implications: under the 2022 Phonorecords IV settlement, bundled services can pay lower mechanical royalty rates to publishers and songwriters compared to standalone music subscription services.

The financial impact could be staggering. According to Billboard reports cited in court documents, this reclassification could cost songwriters nearly $150 million in just the first year following the change.

The Court’s Decision

Judge Torres sided with Spotify, ruling that “audiobook streaming is a product or service that is distinct from music streaming and has more than token value. Premium is, therefore, properly categorized as a Bundle.” The court found that Section 115 regulations (which govern compulsory licensing) were “unambiguous” and that “the only plausible application of the law supports Spotify’s position.”

The MLC’s Response and Concerns

The MLC, a non-profit organization designated by the US Copyright Office to ensure proper mechanical royalty payments, expressed serious concerns about the ruling. In their statement, they emphasized that the decision “does not align with the facts and legal principles central to this action” and are currently evaluating their right to appeal.

Why This Matters for Songwriters

This ruling represents a significant setback for songwriters’ compensation in the streaming era for several reasons:

1. It validates a strategy that effectively reduces songwriter royalties without any corresponding reduction in Spotify’s revenue

2. It sets a precedent that could encourage other streaming services to adopt similar “bundling” approaches

3. It highlights the vulnerability of songwriter royalties to corporate structuring decisions

Spotify’s Position

Spotify maintains that their bundling strategy is legitimate and beneficial for the industry. A company spokesperson stated, “Bundle offerings play a critical role in expanding the interest in paying for music and growing the pie for the music industry.” They emphasized that their recent deal with Universal Music Publishing Group (UMPG) demonstrates how direct licenses can create flexibility and additional benefits.

The Bigger Picture

This case underscores the ongoing tension between streaming platforms and music creators over fair compensation. It’s particularly noteworthy that while record labels can negotiate directly with streaming services, publishers and songwriters are bound by compulsory licensing rates – a disparity that the National Music Publishers Association has urged Congress to address.

The dismissal of this lawsuit with prejudice means the MLC cannot refile the same claims, though they retain the right to appeal. For songwriters and publishers, this ruling represents not just a financial setback but also raises questions about the effectiveness of current copyright law in protecting their interests in an evolving digital marketplace.

The music industry will be watching closely to see if this decision prompts legislative action or inspires other streaming services to adopt similar bundling strategies, potentially further impacting songwriter revenues in the years to come.