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“Whereas the MLC can not quantify the quantity of underpaid royalties… Spotify may withhold as much as $150 million in unpaid royalties throughout 2024 alone.”
On Might 16, the Mechanical Licensing Collective (MLC), a non-profit entity chargeable for administering blanket licenses enacted by the Music Modernization Act (MMA), filed a lawsuit within the Southern District of New York alleging that Swedish streaming media firm Spotify has failed to satisfy its royalty obligations for MMA blanket licenses. The MLC alleges that Spotify’s latest determination to reclassify its Premium subscription service as a bundled subscription providing, main the streaming firm to scale back service income reported to the MLC by almost 50%, relies on a defective rationale that violates Spotify’s income reporting obligations for the service.
Spotify Reclassifies Premium Service Regardless of No Change in Performance or Content material
When the MMA was enacted in 2018, the legislation established blanket licenses for digital makes use of codified at 17 U.S.C. § 115(d) to function a brand new type of mechanical obligatory license within the digital streaming context. An in depth define of royalty calculations for on-demand streaming companies has been additional promulgated by the MLC at 37 CFR § 385.21 for numerous sorts of subscription companies, together with standalone, bought content material, blended service and bundled subscription choices. For standalone subscriptions, streaming media firms like Spotify should report all finish consumer income, whereas firms providing bundled subscriptions report a fraction of the aggregated companies. Additional, bundled subscriptions take pleasure in a decrease calculation prong for reporting complete quantities expensed for rights to make streams out there, and a royalty ground of about half the ground utilized to standalone subscriptions.
Supply: MLC grievance
In April of this yr, throughout Spotify’s common month-to-month reporting obligations below the MMA, the streaming firm for the primary time reclassified its Premium service as a bundled subscription providing. In making this declare whereas reporting its streaming revenues for the month of March, Spotify pointed to the creation of a brand new Audiobooks Entry standalone subscription service to assist its argument that Premium, which provides entry to audiobook content material, qualifies as a bundled subscription service eligible for decrease income reporting necessities.
The MLC’s lawsuit challenges Spotify’s reclassification of its Premium subscription service, noting that nothing concerning the performance of the service or the out there content material has modified. Spotify allegedly first started providing entry to audiobook content material for Premium subscribers final November with out altering the month-to-month subscription charge paid by clients for Premium entry. Spotify equally has not modified the month-to-month charge for its Premium subscription service for different previous enhancements, just like the addition of podcasts and short-form movies in 2015. Whereas the MLC can not quantify the quantity of underpaid royalties till a protecting order is in place, its grievance cited a Billboard article indicating that Spotify may withhold as much as $150 million in unpaid royalties throughout 2024 alone.
Token Worth of Non-Music Content material Disqualifies Spotify Premium as a Bundled Service
Whereas Spotify has asserted that its Audiobooks Entry subscription is a standalone service, the MLC contends that the streaming music firm doesn’t promote the service via its typical subscription promotion channels. The MLC alleges that Audiobooks Entry can solely be discovered via focused searches on on-line search engines like google and yahoo, and that the touchdown web page for Audiobooks Entry contains a number of promotions for Spotify’s Premium service. The MLC additionally alleges that, though Spotify insists that Audiobooks Entry clients is not going to take pleasure in Premium options except for audiobooks, such subscribers certainly achieve entry to the corporate’s on-demand, ad-free music streaming service.
Supply: MLC grievance
For a number of causes, the MLC alleges in its lawsuit that Spotify’s Premium service can not qualify as a bundled subscription service. To represent a bundled service, Premium must supply companies apart from the eligible interactive stream which have greater than token worth, however Spotify has not claimed Premium as a bundled service previous to March 2024 regardless of the inclusion of non-music audio content material. Additional, Spotify didn’t change the month-to-month subscription charge of its Premium service when it added audiobook content material as of final November. The restricted advertising for Spotify’s Audiobooks Entry platform additional demonstrates that the platform solely has token worth to Spotify, in line with the MLC’s go well with.
The MLC’s lawsuit in opposition to Spotify is the most recent instance of the licensing collective’s train of its authority below Part 115 of U.S. copyright legislation to implement royalty obligations below blanket licenses. News reports from this January indicated that the MLC had despatched notices of intent to audit to a number of main streaming platforms providing streaming companies below the MMA’s blanket license. This February, the MLC filed a lawsuit in opposition to Pandora within the Center District of Tennessee alleging that the streaming media supplier had did not pay correct royalties for its free ad-supported streaming tier regardless of a number of ranges of consumer interactivity qualifying the service as an interactive stream.
Picture Supply: Deposit Images
Creator: andrewde
Picture ID: 563263148
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