Why is Spotify being sued by the Mechanical Licensing Collective?

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Spotify Faces Lawsuit Over Alleged Underpayment of Songwriter Royalties

The Mechanical Licensing Collective (MLC) has filed a lawsuit against Spotify in a US federal court, alleging that the music streaming service significantly underpaid songwriters, composers, and publishers by tens of millions of dollars. The core of the dispute centres on Spotify's reclassification of its paid subscription services on March 1, which MLC claims led to a nearly 50 per cent reduction in royalty payments without prior notification.
Reclassification of Subscription Plans

MLC asserts that Spotify reclassified its Premium Individual, Duo, and Family subscription plans as "Bundled Subscription Offerings" due to the inclusion of audiobooks. This reclassification is critical because royalty rates for bundled services are substantially lower than those for non-bundled offerings. MLC contends that these premium subscribers already had access to audiobooks, and therefore, the service essentially remained unchanged, making the bundling designation inaccurate and the subsequent royalty reduction unjustified.
Impact on Music Creators

The lawsuit highlights the substantial financial repercussions for songwriters and music publishers resulting from Spotify's alleged failure to adhere to its statutory obligations. MLC projects that if this practice continues unchecked, the total underreporting could amount to hundreds of millions of dollars, severely impacting the livelihoods of music creators. This situation underscores the complex royalty structures within the digital music industry and the potential for disputes over how services are categorized.
Spotify's Defense and Royalty Payments

Spotify has responded by stating that the lawsuit pertains to terms that publishers and streaming services had previously agreed upon. The company also emphasized its commitment to royalty payments, noting that it disbursed a record amount to musicians and publishers last year and is projected to pay out an even larger sum in 2024. Specifically, Spotify reported paying US$9 billion to musicians and publishers in the previous year, indicating a significant financial commitment to the music ecosystem.

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Why is Spotify being sued by the Mechanical Licensing Collective?

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