Spotify Sued Over New Audiobook Bundled Plans

Published: May 21, 2024

Spotify Sued Over New Audiobook Bundled Plans

By Movieguide® Contributor

The Mechanical Licensing Collective (MLC) filed a lawsuit against Spotify after the streamer announced a new music-audiobook bundle that would result in lower royalties.

“On March 1, 2024, without advance notice to the MLC, Spotify unilaterally and unlawfully decided to reduce the Service Provider Revenue reported to the MLC for Premium by almost 50 percent, by improperly characterizing the service as a different type of Subscription Offering,” the lawsuit stated. “[This resulted in] underpay[ed] royalties, even though there has been no change to the Premium plan and no corresponding reduction to the revenues that Spotify generates from its tens of millions of Premium subscribers.”

“The MLC believes that Spotify’s position does not comply with applicable law and regulations,” the group continued. “[The MLC] has statutory authority to address Spotify’s noncompliance with its royalty payment obligations. The MLC is taking legal action to enforce these obligations and ensure that Spotify pays all royalties due from its use of songs on Premium plans.”

Spotify launched the audiobook leg of the company last fall, offering paid subscribers 15 hours of free content before requiring users to purchase more hours.

While the change Spotify made in March undeniably cut the royalties paid out, the company asserts that it will lead to more users, resulting in a higher overall payout of royalties.

“The lawsuit concerns terms that publishers and streaming services agreed to and celebrated years ago under the Phono IV agreement,” Spotify said in a response. “Bundles were a critical component of that settlement, and multiple DSPs including 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,” the statement continued. “We look forward to a swift resolution of this matter.”

While Spotify has faced criticism in the past for the low royalties it distributes, the lawsuit from the MLC is significant as it is the only entity that has been designated by the Register of Copyrights to be able to legally enforce the payment of royalties. Its unique position could force a large payout from the streamer.

Despite being one of the largest players in the music streaming industry, Spotify has struggled to create a profitable business. Last year the company laid off over 2,300 employees – roughly a quarter of its workforce – before turning a slight profit in Q3.

Movieguide® previously reported:

2023 was the greatest year for the music industry ever, but rather than going to the artists, most profits landed in the pockets of streaming services.

According to a year-end study from The Recording Industry Association of America, last year was the eighth consecutive year of growth for the music industry, with revenue topping $17.1 billion. As is the current trend with all entertainment, streaming was the top dog, accounting for over 80% of all revenue.

Within the streaming space, subscriptions for services like Spotify were by far the largest pull, with the average number of subscribers over the year landing just below 97 million. Collectively, subscriptions generated over $11 billion in revenue.

While paid subscriptions are cash cows, ad-supported models are not to be overlooked. Spotify’s free service, YouTube and other ad-supported streaming platforms collected $1.9 billion over the year. Meanwhile, online radio services such as Pandora and SiriusXM generated $1.3 billion.

Despite their dominance in the music industry, business for streamers is not all smooth sailing. The top platforms feel the pressure to continue adding new features, including adding audiobooks to Spotify and Apple’s Music Replay to summarize your year in music. However, these additions are not enticing enough, and streaming services are struggling to find a profit.