Spotify facing lawsuit, cease and desist letters from music rights organizations

Spotify is about to learn that, despite what insurance and cable companies might say, not all bundles are a good idea. 

Earlier this year, the streaming juggernaut announced it would be bundling audiobooks with the music streaming service it’s known for. This is great for you, listeners, the company suggested, because now we can give you everything you like listening to, all for one price! Or, y’know, for free if you don’t mind commercials! This is wonderful and now you love us even more! Yay us! 

Well, no, not so fast. Because nothing Spotify does is ever for the benefit of everyone, especially musicians. 

On Thursday, the Mechanical Licensing Collective announced it’s suing Spotify, seeing “unpaid royalties due under the compulsory mechanical blanket license obtained by Spotify to reproduce and distribute” songs in the United States via its streaming infrastructure. 

Basically, the organization, suing on behalf of musicians and music writers, says Spotify is willingly and purposely paying them even less under this new offering system than it was before, in violation of law. 

The lawsuit says that, from the time Spotify started offering audiobooks, the company said its premium individual, duo and family subscriptions were now considered “bundled” because of the addition of audiobooks.  “Applying the rate formula applicable to Bundled Subscription Offerings results in a reduction of the Service Provider Revenue that Spotify reports, which results in an underpayment of royalties,” to the tune of about $150 million, a decrease of about 50%, and that’s for this year alone. 

“The MCL believes that Spotify’s position does not comply with applicable law and regulations,” the organization says. It also believes the organization has the ability and authority to take Spotify to make sure the streaming service is in compliance with all royalty payment obligations. 

“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,” said Kris Ahrend, MLC’s CEO. “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.” 

As reported by Billboard, Spotify is violating Phonorecords IV, a regulation that establishes royalty rates for the use of licensed music. “Bundles of multiple products are an inherently different type of subscription and thus use a different, lower royalty rate, given that multiple offerings must be paid for from the same subscription price.”  

Naturally, Spotify claims it is perfectly innocent and this is all just a misunderstanding, they’ve done nothing wrong. Sure. We’ve heard this before. 

In a statement provided to Billboard, the company says the bundling is part of an agreement 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 (direct service providers) 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.” 

That’s not even the only legal headache Spotify is facing this week alone. 

On Wednesday, the National Music Publishers Association filed a cease and desist letter with Spotify over the use of song lyrics in its new video function and podcast offerings and for a remix feature that allows songs to be sped up or modified to create “derivative works,” in violation of copyright laws, Variety reports. 

This is part of an ongoing struggle from the NMPA and songwriter’s union against Spotify, and the NMPA is also party to the MCL lawsuit filed Thursday. 

“It has come to our attention that Spotify displays lyrics and reproduces and distributes music videos and podcasts using musical works without the consent of or compensation to the respective publishers and/or administrators (our members) who control the copyrights in the musical compositions,” NMPA’s letter reads. “As such, these uses of musical works on the Spotify platform are not licensed or will soon become unlicensed.

NMPA is demanding Spotify remove any unauthorized use of songs or lyrics immediately. 

Spotify allegedly paid out $9 billion in royalties in 2023; in January, the company announced it would only pay royalties to artists once they reach 1,000 streams in the past year. As a point of reference, if an artist receives one million streams of their song, they would earn $3,000 to $4,000 in royalties, or a pay rate of $0.003 to $0.005 per stream.