Spotify Seeks Court Dismissal of MLC Lawsuit Over Songwriter Pay Cuts

Indiefferential September 2, 2024

Spotify has petitioned a US federal court to dismiss a lawsuit filed by The Mechanical Licensing Collective (MLC) regarding the streaming giant's decision to reclassify its Premium subscription as a "bundle" that now includes both music and audiobooks. This move, initiated earlier this year, effectively reduces the mechanical royalty payments to music publishers and songwriters, igniting widespread discontent within the US music industry and prompting legal action from The MLC, the organization responsible for collecting these royalties under US law.

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Spotify had previously informed Judge Analisa Torres of the US District Court for the Southern District of New York of its intent to seek dismissal of the case—a move met with strong opposition from The MLC. In response, The MLC's legal team argued that Spotify's motion was based on mischaracterizations and new claims that contradict the original complaint, making it inappropriate for dismissal at this stage.

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Spotify's defense, filed on August 27, hinges on a central question: Is streaming audiobooks fundamentally different from streaming music, offering more than just minimal value? Spotify's lawyers argue that the answer is a clear yes, and that the lawsuit is unnecessary. They cite the Phonorecords IV regulations, which allow digital service providers to bundle music services with other digital offerings and adjust royalty payments based on the standalone value of each service, as long as the additional service has "more than token value."

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The MLC's lawsuit challenges this notion, asserting that Spotify's audiobook offering does not exceed "token value." Spotify dismissed these arguments as "nonsensical," claiming that the lawsuit devalues the contributions of the many book authors whose works are now included in the Premium subscription. The company introduced 15 hours of free audiobook listening as part of its Premium service in November 2023 and launched a separate audiobooks-only subscription tier, Audiobooks Access, in March 2024.

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In its suit, The MLC contends that Spotify's Premium plan does not meet the criteria for a bundle, partly because the company did not actually alter its subscription offerings in March when it reclassified the service. They also argue that Spotify's behavior suggests it does not consider audiobooks to have significant value, citing the lack of a price increase when audiobooks were added to the Premium plan and the difficulties users face in accessing the standalone audiobooks tier.

Spotify, in its motion to dismiss, countered that these marketing and pricing claims are irrelevant to the legal issues at hand. The company pointed out that it did raise Premium prices in August 2023, shortly before launching audiobook streaming, and again in July 2024.

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The MLC, expected to formally respond in the coming weeks, has remained tight-lipped about the ongoing litigation, reiterating their commitment to the enforcement duties assigned by Congress.

According to a recent filing with the US Securities and Exchange Commission, Spotify estimated it could owe $50 million in additional royalties if The MLC prevails in the lawsuit. This amount includes €46 million (approximately $49.52 million) in royalties and potential penalties, which would significantly impact Spotify's annual royalty payments.