The fifteen hours of audiobook access that Spotify now provides as part of its premium subscription has “more than token value”, says the streaming giant, adding that this position is simple “common sense”.
The claim is made in a letter from Spotify to the judge overseeing the lawsuit filed against the streaming service by US collecting society the MLC.
The MLC filed a lawsuit in May over the streaming company’s new music + audiobooks bundle, which has significantly reduced the amount of money Spotify is paying to songwriters and music publishers under US mechanical licensing rules. In the US, mechanical licensing royalty rates are set by the Copyright Royalty Board via a compulsory licence administered by the MLC.
In its letter, Spotify goes on to lay out some of the “common sense” facts that prove the value of its audiobooks offering. Americans pay over $2 billion a year for audiobooks annually, it says, and Amazon’s Audible service alone generates more than $1 billion in US revenues from two subscription tiers priced at $7.95 and $14.95 respectively.
Therefore, says Spotify, giving its subscribers access to over 200,000 audiobooks has “obvious and significant independent value”.
If the court agrees that the audiobooks component of a Spotify subscription has more than token value, this will give the streaming service a legal mandate in the US to formally classify its premium subscription product as a music +audiobooks bundle.
That will allow Spotify to continue to take advantage of the bundling discount that is available as part of the compulsory licence.
However, in its lawsuit, the MLC argues that Spotify Premium should not be considered a bundle and that the streaming service should not be able to take advantage of the bundling discount. Spotify insists that the MLC is wrong and its lawsuit should be dismissed.
The letter from Spotify is the latest development in the bundling bust up between the streaming service and the music industry. The letter provides a story-so-far summary of the fight.
At the end of last year, Spotify added fifteen hours of audiobook access to its premium subscription package, initially at no extra cost. It subsequently increased the price of that subscription product by a dollar a month to $11.99. In March this year, it launched an audiobook-only product in the US for $9.99 a month and more recently added a music-only option with no audiobook access, priced at $10.99 a month.
This is an important issue for the American music industry because the compulsory licence includes a provision for bundles which reduces what streaming services have to pay to writers and publishers.
These differing price points Spotify is now offering - audiobooks only, music only, music + audiobooks - feed into the calculation that is used to determine the reduced ‘bundling’ royalty rate that Spotify can rely on if the court decides this current dispute in its favour.
In its letter, Spotify gives a back-to-basics explanation of how this works, noting that under the compulsory licence a streaming service is obligated to pay a portion of its revenues to writers and publishers via the MLC. However, where a digital service provider “bundles a music service and some other product or service together in a single transaction”, the portion of revenues it must pay the MLC is only applied to the revenue which is directly “attributable to the music streaming component”.
Spotify officially reclassified its main ‘music + audiobooks’ premium subscription product as a ‘bundle’ in March, which it claims allows it to reduce payments to the MLC. The music publishers whose royalties flow via the MLC have been scathing of that reclassification, with David Israelite, boss of the US National Music Publishers Association dubbing it “a cynical, and potentially unlawful, move” that puts Spotify back at war with American songwriters after a few years of relatively good relations.
The MLC started legal action against Spotify in the US courts in May. The main focus of that lawsuit is how the compulsory licence views bundling. In particular, the MLC highlighted the requirement that, when a bundle is offered that includes music alongside another product or service, that other product or service must have “more than token value” if mechanical royalties are to be reduced.
The MLC argues that Spotify originally providing audiobook access to premium subscribers for free demonstrates that that access does not have “more than token value”. Spotify argues in its letter that this is not relevant, adding that “the relevant question is whether fifteen hours of audiobook streaming has more than token value to consumers”, and not “whether Spotify chose to immediately leverage that value by raising prices”.
It adds that it is established legal precedent that the court should employ “judicial experience and common sense” in assessing the value of the audiobook access. Part of this “common sense”, it argues, is that “fifteen hours of audiobook streaming has more than token value”, and “it is simply implausible to suggest that streaming of books created and licensed by another set of copyright owners is worthless”.
The music publishers have also criticised the fact that Spotify’s standalone audiobook and music subscriptions are hard to find. They argue Spotify doesn’t really want people to sign up for those options, which have basically been created to justify the main subscription product being a bundle.
But that too is irrelevant, Spotify’s letter argues, adding, it “is not required to make available its separate audiobook access product at all, let alone market it in any particular way”.