*This writing is a blog post. It is not a published IPTF Journal article.
Melina Iavarone
Music has never been more accessible.[1] Digital service providers (DSPs) like Spotify and Pandora allow consumers to stream songs digitally.[2] The shift to streaming has also transformed how artists get paid.[3] Despite massively lucrative streaming careers, major names like Taylor Swift have taken issue with how mechanical copyright royalties are distributed.[4] In 2014, Swift temporarily removed her discography from Spotify, believing that the streaming service should not undercut her profits by allowing users to access her music for free.[5] Specifically, she objected to Spotify’s two-tier subscription system, in which higher royalty rates are disbursed for streams from paying listeners than from those using the free version.[6]
Congress passed the Music Modernization Act of 2018 to update copyright law to more effectively apply to streaming services.[7] One year later, the U.S. Copyright Office delegated the Mechanical Licensing Collective (MLC) to ensure that DSPs accurately distribute royalties to artists and rightsholders.[8] In addition, under Section 115 of the Copyright Act, a DSP must correctly report royalties and distribute payouts monthly at a statutory rate.[9]
In February 2024, the MLC sued Pandora in the U.S. District Court for the Middle District of Tennessee, claiming the streaming service underreported and underpaid copyright royalties in connection with its Pandora Free offering.[10] Under the Copyright Act, Pandora Free is an interactive service, so all of its streaming activity is subject to royalties.[11] The MLC found a suspicious disproportion in Pandora Free’s streams compared to its revenue, prompting the commission’s investigation.[12] This irregular per-play ratio indicated Pandora’s exclusion of Pandora Free earnings.[13] Pandora asserts that the MLC has no authority to enforce royalty payment regulations; however, pursuant to Section 115, such authority is statutorily baked into the MLC’s job description.[14] Accordingly, the MLC is seeking the court to order corrected usage reporting and future compliance, as well as recovery for unpaid royalties and late fees.[15]
In May 2024, the MLC sued Spotify in the U.S. District Court for the Southern District of New York, claiming the streaming service underpaid copyright royalties by nearly fifty percent.[16] The main allegation concerns Spotify’s re-categorization of the Premium subscription as a “Bundle Subscription Offering” by launching “Audiobook Access.”[17] This change meant that Spotify could report less revenue to the MLC, because mechanical royalties for Bundles are paid proportionally to the music-related part of the subscription.[18] Section 115 of the Copyright Act stipulates criteria to meet the Bundle requirements, including an offering of at least one additional feature.[19] The MLC asserts that Spotify Premium’s rebrand did not actually provide an additional feature because “Audiobook Access” provided the same maximum hours of audiobook listening as Spotify offered before.[20] Accordingly, the tactic appears to have been an attempt to find a legal loophole to reduce the amount of revenue subject to royalty payments.[21] The MLC estimates that the tactic’s impact on creators is $150 million within the next year.[22] As a result, the MLC is seeking a court order declaring that Spotify’s conduct violates the Copyright Act, as well as recovery for unpaid royalties, late fees, and compensatory damages.[23]
The MLC’s lawsuits reaffirm its—and the Copyright Act’s—intolerance of dubious distribution practices, and the lawsuits also highlight those practices’ economic and ethical implications.[24] The fact that one stream earns the artist less than one cent puts the dilemma into perspective.[25] Consider Meghan Trainor’s “All About That Bass.”[26] The 2014 hit single topped 178 million streams.[27] Despite major success, co-writer Kevin Kadish earned a measly $5,679 in streaming revenue.[28] Moreover, throughout the COVID-19 pandemic, Spotify’s profitability increased trifold, yet the DSP never adjusted its royalty payouts to square more fairly with its skyrocketing profits.[29]
Previous attempts to mitigate dubious distribution practices, such as congressional bills and audits, have been unsuccessful.[30] The streaming space thus needs a new, proactive approach with increased oversight.[31] The MLC is the sole entity permitted to enforce royalty payments, and it should use that permission to appoint liaisons to DSPs to work closely with the companies on a weekly basis.[32] The liaisons should focus on (1) practicing calculations using the MLC’s formula to predict monthly payouts, (2) ensuring that per-play ratios are normal, and (3) flagging suspicious activity.[33] This type of close collaboration would elevate the MLC’s approach to auditing by strengthening predictability, accountability, and mutual understanding.[34] As a result, it could give streaming a chance to redeem itself and engender the transparency that the MLC, artists, scholars, and advocates have been imploring.[35]
[1]How Streaming Changed the Music Industry, Atlanta Inst. of Music & Media (June 28, 2024), https://aimm.edu/blog/how-streaming-changed-the-music-industry.
[2]The Impact of Streaming Services on Musical Royalties, Royalty Exch. (Sep. 17, 2024), https://www.royaltyexchange.com/blog/the-impact-of-streaming-services-on-music-royalties.
[3] Id.
[4] Katie Shonk, Streaming Toward Win-Win Negotiation: Spotify Upgrades Its Negotiating Strategy, Daily Blog: Harv. L. Sch. Program on Negot. (Dec. 16, 2024), https://www.pon.harvard.edu/daily/win-win-daily/dispute-resolution-with-spotify-taylor-swift-shakes-it-off/.
[5] Id.
[6] Id.
[7] Pub. L. No. 115-264, 132 Stat. 3676.
[8] U.S. Copyright Office & The MLC, The MLC, https://www.themlc.com/usco-and-mlc#:~:text=The%20MMA%20directed%20the%20head,collective%20on%20July%208%2C%202019 (last visited Mar. 6, 2025).
[9] 17 U.S.C. § 115.
[10] Complaint at 4, Mechanical Licensing Collective v. Pandora Media LLC, No. 24-00168 (M.D. Tenn. Feb. 12, 2024).
[11] See 17 U.S.C. § 115 (noting that an interactive stream is a “digital transmission of a sound recording of a musical work in the form of a stream”).
[12] Complaintat 13, Mechanical Licensing Collective v. Pandora Media LLC, No. 24-00168 (M.D. Tenn. Feb. 12, 2024).
[13] Id. at 14.
[14] Id. at 3, 15.
[15] Id. at 2.
[16] Complaint at 2, Mechanical Licensing Collective v. Spotify USA Inc., No. 24-03809 (S.D.N.Y. May 16, 2024).
[17] Id. at 3.
[18] Id.
[19] See 37 CFR § 385.2 (noting that a Bundle requires “one or more other products or services having more than token value, purchased by end users in a single transaction”).
[20] Complaint at 3, Mechanical Licensing Collective v. Spotify USA Inc., No. 24-03809 (S.D.N.Y. May 16, 2024).
[21] See id. (noting that Spotify breached 17 U.S.C. § 15 by its attempt to decrease the amount of royalties it was obligated to pay).
[22] Id. at 15.
[23] Id. at 22.
[24] See id. at 2 (noting that the effect on “Songwriters and Music Publishers of Spotify’s unlawful underreporting could run into the hundreds of millions of dollars…upending a central premise of Section 115 that Songwriters and Music Publishers should be paid in strict accordance with Section 115…”).
[25] See The Impact of Streaming, supra note 3 (noting that in the streaming era, “artists now earn a fraction of a cent each time someone streams their song” and that this structure has prompted the industry to reconsider how creators are paid).
[26] See Jason Koransky, Digital Dilemmas: The Music Industry Confronts Licensing for On-Demand Streaming Services, ABA: Section of Intell. Prop. L. (Jan. 1, 2016), https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2015-16/january-february/digital-dilemmas-music-industry-confronts-licensing-on-demand-streaming-services/ (noting that cowriter Kevin Kadish’s “paltry” royalty payout for one of the most popular songs of 2014 emphasized the industrywide question of how to properly compensate composers when modern music platforms make their works stream-able).
[27] Id.
[28] Id.
[29] Id.
[30] See,e.g.,H.R. Con. Res. 102, 117th Cong. (2021-2022) (concurrent resolution, “Expressing the sense of Congress that it is the duty of the Federal Government to establish a new royalty program to provide income to featured and non-featured performing artists whose music or audio content is listened to on streaming music services, like Spotify”, has seen no movement after being introduced to the House in 2022).
[31] See Kathleen Benson, The Benefits of a Proactive Compliance Program, Consumer Compliance Outlook (2020) (noting the importance of institutional proactive compliance), https://www.consumercomplianceoutlook.org/2020/third-issue/the-benefits-of-a-proactive-compliance-program/#:~:text=In%20a%20proactive%20compliance%20function,identify%20and%20address%20potential%20issues.
[32] Complaint at 13, Mechanical Licensing Collective v. Spotify USA Inc., No. 24-03809 (S.D.N.Y. May 16, 2024).
[33] See Complaint at 13, Mechanical Licensing Collective v. Pandora Media LLC, No. 24-00168 (M.D. Tenn. Feb. 12, 2024). (Noting that the MLC discovered that “Pandora was not reporting Service Provider Revenue or TCC in connection with many of the streams through Pandora Free” after flagging “unusually low royalties per stream.”)
[34] See Kristin Robinson, The MLC Is Auditing Streaming Services for the First Time, Billboard (Jan. 18, 2024), https://www.billboard.com/business/publishing/spotify-music-streaming-services-audited-mlc-1235583040/ (noting that the MLC “will update its members on the results of any DSP audits that it conducts and will ‘clearly identify any monies recovered in audits on the royalty statements it provides to members’”).
[35] See Zoe Stern, The Inequalities of Digital Music Streaming, The Regulatory Review (May 30, 2024), https://www.theregreview.org/2024/05/30/stern-the-inequalities-of-digital-music-streaming/ (noting scholars’ advocacy for better regulation to guarantee creators’ fair compensation).