The Mechanical Licensing Collective, the US collecting society that administers the compulsory mechanical rights licence used by streaming services within the US, has lost its legal fight against what music publishers dubbed Spotify’s “cynical and potentially unlawful” audiobooks bundling trick - a controversial move that has allowed the streaming service to slash the amounts it needs to pay out in royalties to songwriters and publishers.
In a ruling that delivers a significant blow to the publishers, Judge Analisa Torres dismissed the MLC’s lawsuit yesterday “with prejudice”, effectively endorsing Spotify’s creative interpretation of US mechanical licensing rules.
“We are pleased with this outcome”, said Spotify in a statement issued after the ruling. The judgement, continued the company, “demonstrates that, after careful review by the court, Spotify’s Premium service is appropriately categorised as a bundle and offers valuable content alongside music”.
The dispute was based on Spotify’s contentious reclassification of its Premium subscription offering as a “bundle” after it added fifteen hours of audiobook access to Spotify Premium subscribers’ accounts.
When this tweak was introduced back in March 2024 it was swiftly met with opposition from publishers, with the US National Music Publishers Association calling Spotify’s reclassification of its premium offering as a bundle a “cynical trick” designed purely to exploit a technical loophole in the compulsory licence. Publishers estimated that this reclassification would cost songwriters and their publishers as much as $150 million in lost royalties in the first year alone.
“The MLC brought this action to address the unprecedented steps taken by Spotify to significantly underreport royalties to the MLC”, said a MLC spokesperson. “Congress authorised the MLC to take legal actions in situations like this, to enforce the payment obligations of digital services under the compulsory blanket licence that the MLC administers. We continue to be concerned that Spotify's actions are not consistent with the law, and that today’s decision does not align with the facts and legal principles central to this action”.
The MLC had argued what seemed obvious - and important - to many in the music industry, which is that you can’t simply slap some audiobooks onto an existing music subscription and suddenly claim that it’s a bundle and that the audiobooks represent significant value within the subscription price.
The licensing collective pointed out that when Spotify first added audiobook access to Premium subscriptions it didn’t even charge anything extra for it, suggesting that the feature was worth precisely nothing to consumers.
Whilst acknowledging the “intuitive appeal” of that argument, noting that “to an ordinary consumer, that’s not a bundle - it’s a two-for-one deal”, Torres rejected the MLC’s argument, ruling that such arrangements qualify for royalty reductions under the compulsory licence as put in place by the US Copyright Royalty Board.
Judge Torres said that the rules governing music licensing bundles were “unambiguous” and that there was “no set of facts” that could support the MLC’s position. Key to the judgement was that, under the compulsory licence, the regulatory definition of a ‘bundle’ does not actually require any price increase, nor any consumer perception of value - it simply needs to combine music streaming with “one or more other products or service having more than token value”.
In her ruling, Torres was particularly dismissive of the MLC’s argument that audiobooks needed to demonstrate value through pricing. “Whether an item has token value in the ordinary sense of the phrase need not depend on the price or motive for which it is offered”, Torres wrote, adding that “an item offered for free or at a heavy discount to attract new customers may have substantial value to those customers”.
While we can safely assume that there will be the usual ongoing hooting and hollering from Spotify about this victory - and it will be interesting to see how it is presented in its imminent earnings call - it may be little more than a token victory, with the impacts of the court ruling proving remarkably short-lived.
Just days before the judge handed down her ruling, Universal Music Group announced a new multi-year agreement with the streaming service that includes a direct US licensing deal with the mega-major’s publishing arm, which basically circumvents the compulsory licence and allows the major to agree bespoke terms in relation to its Anglo-American songs repertoire, as it does in many other countries already.
Sources say that this agreement effectively remedies the controversial bundling discount for Universal-signed songwriters, with Warner Music Group expected to secure similar terms in its upcoming licensing renewal negotiations.
Indeed, Spotify addressed this in its statement after the ruling was handed down, saying “Bundle offerings play a critical role in expanding the interest in paying for music and growing the pie for the music industry. We know the regulations can be complex, but there’s plenty of room for collaboration - and our recent deal with Universal Music Publishing Group shows how direct licences can create flexibility and additional benefits”.
At one level this represents just yet another blow to the independent music ecosystem on the part of Spotify - while major publishers can negotiate their way around Spotify’s bundling strategy through direct deals, smaller publishers and independent songwriters who continue to rely on the MLC’s blanket licence will still face reduced rates brought about by the bundle.
The MLC has not yet indicated whether it will appeal the ruling - though given the case was dismissed with prejudice, meaning the case cannot be refiled - any challenge through the appeal courts would need to be focused closely on specific legal errors in the court’s interpretation, rather than introducing new arguments.
And, of course, like with so many legal rulings, the consequences of this one may also impact other pending disputes, including the MLC’s separate lawsuit against Pandora over its interpretation of mechanical licensing rules. That case, filed in February 2024, centres on how Pandora calculates royalties for its ad-supported personalised radio service under the same compulsory mechanical licence at issue in the Spotify case.
While the specifics differ - the Pandora case involves how it reports revenue from its ad-supported tier, rather than anything to do with bundle classifications - both disputes ultimately relate to how digital services interpret and apply the terms of the compulsory licence to reduce their royalty obligations. Notably, Pandora has already argued in its defence that the MLC lacks the authority to dictate how the compulsory licence should be interpreted.
Judge Torres’s ruling that there was “no set of facts” that could support the MLC’s position on bundle interpretation, combined, perhaps, with her strict reading of the compulsory licence, could strengthen Pandora’s position that it is streaming services and not the MLC that ultimately have discretion in how they apply these rules.
More broadly, however, with major publishers now securing improved “around-the-bundle” terms through direct deals, and significant consolidation in the major-controlled spheres of the industry, independent publishers and songwriters will doubtless pay very close attention to the next review of the compulsory licence by the Copyright Royalty Board. However, as we are only two years into the current tariff - ‘Phonorecords IV’ - that review - ‘Phonorecords V’ - will not start for some time, and will not come into effect until 1 Jan 2028.
In the meantime, songwriters may look for more copyright law reform to protect their interests. Though,with other significant issues - not least the impacts of AI - currently occupying a lot of attention, though, whether that sort of reform will ever happen - or, if it does, happen fast enough - is another matter entirely.
