US collecting society the MLC is suing Spotify over its sneaky audiobook bundling trick, while activist songwriter George Johnson has filed a formal complaint with the US Copyright Royalty Board about the same issue.
The MLC says that Spotify can't simply reclassify its main premium product as a ‘bundle’ just because it now has a standalone audiobooks product. Even if premium also includes some audiobooks access, the premium product hasn't actually changed.
The MLC administers the compulsory blanket licence that streaming services utilise on the songs side in the US. The terms of the licence are reviewed by the Copyright Royalty Board every five years and include provisions covering services that bundle music with other content.
“Spotify’s position does not comply with applicable law and regulations”, the society said in a statement alongside its lawsuit. The MLC says that it has the “statutory authority” to take action against Spotify on the matter. It is suing, it says, in order to ensure that the streaming service meets its obligations under the licence and “pays all royalties due from its use of songs on premium plans”.
The National Music Publishers Association has welcomed the MLC’s legal action against Spotify, which should come as no surprise. As the dispute has escalated in recent weeks the NMPA has been scathing about Spotify’s attempt, via the bundle, to reduce royalties to songwriters and publishers. NPMA CEO David Israelite says, “We applaud the MLC for standing up for songwriters and not letting Spotify get away with its latest trick to underpay creators”.
“The MLC is tasked with challenging services who falsely report royalties”, he continued, adding, “The lawsuit sends a clear message that platforms cannot improperly manipulate usage. We strongly support the MLC and will continue to pursue justice”.
Spotify added fifteen hours of audiobook access to its main premium subscription package last year. It then launched a standalone audiobooks subscription product in March, and promptly said that - because the main premium subscription now combined music and audiobooks - it was a bundle. Under the terms of the compulsory licence, that allows it to significantly cut its payments to publishers and writers.
The MLC's lawsuit explains that the compulsory licence sets out rules for how streaming services should report revenue when music is sold as a bundle with “non-music products or services”, like audiobooks (just for example). Under those rules, mechanical royalties on a bundle are only paid on “the pro-rata portion of the music-related component” of the subscription.
The basis of the MLC lawsuit is that Spotify has artificially reshuffled its subscription products in a cynical bid to cut its payments to the songwriters and publishers in the US.
Spotify’s standalone audiobooks subscription, which is priced at $9.99, also offers fifteen hours of audiobook access. Given the main premium product offers music, podcasts and audiobooks for $10.99, it is hard to believe that Spotify expects many people to opt for the books-only product. Indeed, that standalone audiobook streaming product is somewhat hard to find, and, as the MLC's lawsuit points out, the streaming service does not seem to be marketing that standalone offering in any proactive way.
The key technicality in the compulsory licence is that, for a product to be treated as a bundle, users must get access to music and something else that has “more than token value”.
The argument underpinning the lawsuit is that Spotify premium subscribers had fifteen hours of audiobooks added to their existing subscriptions.
Given there was no price increase for subscribers when audiobooks were added this means that the audiobooks element of the bundle has no more than a token value.
Spotify would likely argue that the $9.99 standalone audiobooks subscription shows that fifteen hours of audiobooks has significant value - and not just token value - and so justifies the decrease in royalties to songwriters and publishers.
Responding to the MLC’s legal action, a Spotify spokesperson says, “This lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago” when the most recent version of the compulsory licence was agreed in 2022. “Bundles were a critical component of that settlement, and multiple streaming services include bundles as part of their mix of subscription offerings”.
It's the second lawsuit the MLC has filed this year in a dispute over how digital platforms are choosing to interpret the compulsory licence. Back in February it sued Pandora, over the royalties due on that platform’s ad-funded personalised radio service.
Responding to that action, Pandora argued that it is not for the MLC to decide how the compulsory licence is interpreted. It’s likely that Spotify may also use that argument. The MLC is funded by digital platforms like Spotify and Pandora. This means that, technically speaking, the streaming platforms that contribute to the costs of the MLC are effectively providing the funds for the MLC to sue two of those streaming services.
Perhaps anticipating that argument, MLC CEO Kris Ahrend's statement announcing the lawsuit sets out his position regarding the role of his organisation. He said that the collecting society was designated to administer the compulsory licence and is therefore the only entity able to “take legal action to enforce royalty payment obligations”.
“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”, he adds.
If it turns out that the MLC isn’t meant to be filing lawsuits on things like this (or, in Pandora's words, “pursue legal frolics and detours” at the digital platforms’ expense), then another option is to take the dispute to the Copyright Royalty Board.
Songwriter George Johnson has already done just that. In a filing with the CRB yesterday he requests “relief from Spotify’s shocking misuse and intentional misreading” of the compulsory licence “to fraudulently lower songwriter rates even further than the current average $.00012 cent rate”.