Spotify’s Court Win Exposes Gap in Streaming Royalty Debate

Spotify USA Inc.’s victory over claims it contrived the premium subscription plan to reduce songwriter royalties creates a blueprint for other streaming services and leaves publishers scrambling for recourse to preempt further revenue loss.

The non-profit royalty clearinghouse Mechanical Licensing Collective failed to show Spotify’s new “bundled” Premium plan, which offers music and audiobooks, violated the Copyright Act and its implementing regulations, Judge Analisa Torres ruled in a Jan. 29 opinion. The ruling, in the US District Court for the Southern District of New York, opens the door for providers like Apple Inc. and Amazon.com Inc. to mimic Spotify’s royalty-slashing strategy, but also exposes regulatory gaps publishers could address through administrative channels.

“Any other streaming platform could do what Spotify has done and should be able to reduce its payout to the MLC,” said Joseph Fishman, music and intellectual property law professor at Vanderbilt University.

“It does seem like it succeeded, but it also really made itself an enemy of the publishing industry in doing so,” he added.

The songwriting and music publishing industry has expressed deep-seated dissatisfaction about how they’re paid for their work, especially in the wake of on-demand streaming platforms like Spotify and Apple Music. Although landmark legislation passed in 2018—the Music Modernization Act—resolved some of the angst, songwriters have continued to push for more control over their music.

The MLC, established by the MMA to distribute royalties from streamers to songwriters, has been at odds with Spotify since May 2024. The lawsuit centered around the royalty-calculation language in regulations approved by the Copyright Royalty Board. The MLC said Spotify created its “Audiobooks Access” plan in order to lump it into its Premium subscription service with no change to the music-only plan’s price. With two services billed for the price of one, revenues collected from the plan owed to artists effectively halved.

The court’s ruling ultimately hinged on technical interpretations of bundling regulations. Torres conceded that to an ordinary consumer, Spotify’s new plan is “not a bundle—it’s a two-for-one deal,” but ruled that “regulations have not adopted the ordinary meaning of the word ‘bundle.’”

“The court’s language is even a little sympathetic,” to the MLC despite ruling against it, Kristelia García, music and IP law professor at Georgetown University, said.

Spotify said in a statement the ruling shows the premium service “is appropriately categorized.”

“Bundle offerings play a critical role in expanding the interest in paying for music and growing the pie for the music industry,” the company said.

Administrative recourse

The MLC failed to persuade the court because regulatory language approved by the royalty board wasn’t elastic enough to accommodate its arguments, according to the opinion.

“This result is a function of the definition in the regulation,” Fishman said.

For example, the MLC argued Spotify couldn’t “bundle” its music and Audiobooks Access services because 15 hours of audiobook access was made a part of the premium subscription plan before the launch of the standalone plan. The audiobooks service wasn’t a separate, pre-existing service before it was bundled, MLC said.

“The problem for MLC is that the regulations do not say ‘other preexisting, standalone products or services,’ and the Court finds no basis to read words into the law that are not there,” Torres wrote.

But having failed in the courtroom doesn’t necessarily mean the musicians need to turn to Congress to seek a change in the law.

Because the regulations are approved by the Copyright Royalty Board, publishers may pursue an administrative recourse at the board’s rate-setting proceedings to prevent Spotify’s gamesmanship, Fishman said.

Every five years, publishers and streaming services negotiate royalty rates and terms at these meetings. The board then reviews them to approve royalty rates for songwriters. Its current rate period ends in December 2027.

Peter Nicolas, music and IP law professor at University of Washington, also predicted Spotify’s victory lap would last until the next royalty board sit-down.

“Spotify may be able to make some cash in the short term,” but songwriters and publishers will “negotiate hard” at the next board meeting, he said.

Royalty-cutting playbook

Although Spotify provided a proof of concept, it’s unlikely other streaming services will follow suit, Fishman said. There’s also a chance the MLC will appeal the ruling, in which case a court may come up with a different conclusion.

“You’re creating a risk that on appeal Spotify may lose and therefore following their strategy is a losing strategy,” Nicolas said. “You may create ill will.”

The MLC in a statement said it continues “to be concerned that Spotify’s actions are not consistent with the law, and that the decision does not align with the facts and legal principles central to this action,” adding that it was evaluating options including a possible appeal.

Songwriters already feel like they’re getting a raw deal with the current licensing setup, Nicolas said. They’ve argued the framework gives them no power to refuse a streaming service from using their song—unlike recording artists and record labels—and locks them into statutory rates approved by the Copyright Royalty Board instead of negotiating in the free market.

The National Music Publishers Association urged Congress to change that licensing architecture last year, right as songwriters began submitting comments to the US Copyright Office about the MLC, which is up for a periodic evaluation.

“Spotify may have won the battle, but lost the war,” Nicolas said.

The case is Mechanical Licensing Collective v. Spotify USA Inc., S.D.N.Y., No. 1:24-cv-03809.