Spotify faces lawsuit over alleged unpaid royalties after “bundling” move
The MLC states that Spotify’s ‘improper characterisation’ of its paid subscription services has resulted in a near 50% cut in royalty payments to musicians and publishers.
The Spotify logo is being displayed on a smartphone with Spotify visible in the background in this photo illustration in Brussels, Belgium, on February 11, 2024. (Photo by Jonathan Raa/NurPhoto via Getty Images)
Spotify has been sued in a United States federal court for allegedly underpaying royalties to songwriters and publishers by tens of millions of dollars.
According to Music Business Worldwide, the lawsuit, filed last Thursday by non-profit organisation Mechanical Licensing Collective (MLC), stems from Spotify’s decision in March to reclassify its Premium Individual, Duo, and Family subscription plans as “bundles” because they now include audiobook access.
The tech giant added 15 hours of audiobook access to its premium plan last year, before launching a standalone audiobooks subscription this March.
Per the 2022 Phonorecords IV settlement, bundled services in the United States can pay lower mechanical royalty rates to publishers and songwriters than standalone music subscriptions.
In the suit, MLC argues that after adding audiobook access, Spotify “improperly” categorised its service in a way that would significantly reduce the amount of royalties it paid despite there being “no change to the Premium plan and no corresponding reduction to the revenues that Spotify generates.”
“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,” states the complaint. “[This was done] by improperly characterising the service as a different type of Subscription Offering and underpaying royalties.”
Nothing else “about the Premium service has actually changed,” MLC adds.
In a statement responding to MLC’s legal action, Spotify says: “The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago under the Phono IV agreement. 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.”
Legal woes aside, the streaming giant has also made headlines recently after users accused its new AI Playlist feature of being homophobic.
