A US court has given collecting society The MLC permission to amend its lawsuit against Spotify over the streaming giant’s audiobook bundling tricks, reopening a case that was previously dismissed back in January.
Spotify is accused of cynically and incorrectly exploiting a bundling provision in the compulsory licence that the MLC administers to reduce what it pays to songwriters and music publishers.
That accusation came after the streaming company introduced audiobook access within its premium subscription packages back in 2023, giving subscribers access to audiobooks within their existing subscriptions. That then allowed Spotify to subsequently and significantly rejig the way it slices up revenue from US premium subscribers when calculating what mechanical royalties are due.
Judge Analisa Torres last week ruled that the collecting society can file an amended lawsuit after concluding that new claims it has made against Spotify are “neither futile, delayed, dilatory, made in bad faith nor unduly prejudicial”.
That’s despite the earlier lawsuit being thrown out by the judge ‘with prejudice’, which meant that The MLC was unable to refile its case. However, because the society has raised other concerns about Spotify’s bundling tactics, Torres agrees that those open the door to a revised filing.
Unsurprisingly, a spokesperson for The MLC welcomed that development, stressing that this “is an important case” that is being pursued in order to “ensure streaming royalties are properly paid under the law”. They then added, “we look forward to further demonstrating the merit in our claims”.
Since Torres dismissed The MLC’s original lawsuit, all three major music publishers - Universal Music Publishing, Sony Music Publishing and Warner Chappell - and Kobalt have signed new direct licensing deals with Spotify that cover the mechanical rights in their Anglo-American catalogues within the US.
Those deals mean they are no longer paid mechanical royalties under the MLC-administered licence, receiving what are presumed to be more favourable rates under the terms of their direct agreements. However, other indie publishers and unpublished songwriters are still being paid via The MLC.
The terms of the compulsory licence that covers the exploitation of the mechanical rights in songs within the US are set by the Copyright Royalty Board.
The licence includes a bundling provision which allows a digital platform that bundles music and other content into one product to allocate a portion of the subscription price to music, and then only apply the revenue share mechanical royalty rate to the portion allocated to music.
Spotify added fifteen hours of audiobooks access to its main premium subscription package in October 2023, initially with no extra charge. The following year it launched a standalone product called Audiobooks Access offering the same fifteen hours of audiobooks without full music access for $9.99.
It then increased the price of premium to $11.99, but with the option for existing users to switch to a Basic subscription package without audiobooks at the old premium price of $10.99.
After all that was done, Spotify reclassified its main premium package - to which the vast majority of its users were subscribed - as a bundle allowing it to apply the bundling discount under the compulsory licence and reduce what it paid writers and publishers.
That prompted The MLC’s original lawsuit, which pointed out that - for a subscription product to qualify as a bundle under the compulsory licence - the non-music content must have “more than token value”. The society argued that the fifteen hours of audiobook access did not offer more than token value.
But Spotify and - more importantly - Judge Torres did not agree, which is why The MLC’s initial lawsuit was dismissed with prejudice in January.
However, Torres noted in her judgement last week, The MLC has other additional issues with Spotify’s bundling tricks, crucially how it is valuing the audiobooks element of Spotify Premium in order to work out how big a discount it can apply when paying writers and publishers.
The judge wrote that The MLC “now alleges that even if premium is a bundle, Spotify is still unlawfully using Audiobooks Access to lower its royalty payments to songwriters and music publishers”.
According to the compulsory licence, where a digital platform is bundling together different kinds of content that are also available as standalone products, it should work out what the total cost of the standalone products would be and what percentage of that is the music product. Then it must pay mechanical royalties on that percentage of the bundle subscription price.
Torres gives an example in her ruling. “If a bundle priced at $18 per month combines a music streaming subscription that is ordinarily valued at $10 per month with a television-streaming subscription ordinarily valued at $10 per month, the bundle offeror would be required to report to MLC that 50% of the bundle’s total revenue is attributable specifically to music streaming”.
The MLC argues that Spotify launched Audiobooks Access simply to game the system, so that it could increase the portion of the premium subscription price allocated to audiobooks, in order to reduce the portion of the price where music royalties would be due.
The society points out that Audiobooks Access is only available in the US, was never really promoted, is actually quite hard to find on Spotify's website, and seems overly expensive when compared to Amazon’s Audible Plus product, which offers unlimited access to audiobooks for $7.95 a month.
In addition to that, the promo blurb for Audiobooks Access also tells users that they’ll get “ad-supported access to music and podcasts” in addition to the audiobooks.
That basically means Spotify is bundling its existing free tier in with the audiobooks product, but The MLC argues that that means Audiobooks Access is itself a bundle, and therefore can’t be used as a standalone product for the purposes of calculating what royalties are due on premium.
It’s these arguments that The MLC wants to pursue through its amended lawsuit. Spotify presented various arguments for why January’s ruling dismissing The MLC’s original lawsuit with prejudice should stand, but Torres rejected those arguments, allowing the collecting society to submit its amended complaint raising these extra issues. Which means The MLC v Spotify legal battle now continues.