While Spotify celebrated its first-ever net profit in 2024, the streaming giant simultaneously found itself embroiled in a contentious legal battle with the Mechanical Licensing Collective (MLC) over royalty payments to songwriters and publishers. The dispute, which began in May 2024, centers on Spotify’s decision to reclassify its Premium subscription plans as “Bundled Subscription Offerings” after adding audiobook content in March of that year, a move the MLC alleges was designed to substantially reduce mechanical royalty payments.
The conflict escalated in January 2025 when U.S. District Judge Analisa Torres initially dismissed the MLC’s lawsuit, ruling that the legal definition of a “Bundled Subscription Offering” unambiguously supported Spotify’s classification strategy. Spotify executives immediately hailed the decision as validation of their business model and regulatory compliance, securing what appeared to be both a financial and legal victory for the streaming platform.
However, the reprieve proved short-lived. In February 2025, Judge Torres granted the MLC permission to amend its complaint, effectively reopening the case and allowing further scrutiny of Spotify’s bundling practices. The court recognized the MLC’s statutory authority to pursue recovery of allegedly underpaid royalties, estimated by industry analysts to approach $150 million annually if the current model persists. MLC CEO Kris Ahrend emphasized the collective’s legal responsibility to protect songwriters’ interests through this enforcement action.
Spotify’s victory crumbled as Judge Torres reopened the case, potentially jeopardizing the platform’s $150 million annual royalty savings.
The stakes remain particularly high for songwriters and publishers, who according to the MLC could see their royalty payments reduced by as much as 50% under Spotify’s bundling framework. The dispute stems from the 2022 Copyright Royalty Board “Phonorecords IV” ruling, which established lower mechanical royalty rates for bundled services compared to standalone music subscriptions. This case underscores the critical role of collecting societies in ensuring fair compensation for music creators in the digital streaming landscape.
Musicians affected by this dispute are increasingly exploring sync deals as an alternative revenue source that offers higher compensation than streaming royalties.
As of October 2025, the outcome remains pending, with the MLC preparing to submit its amended complaint. The Southern District of New York court will review evidence from both parties to determine if Spotify’s categorization violated licensing agreements. The case highlights the persistent tension between streaming platform profitability and fair creator compensation in the digital music economy.
Industry observers note that the final ruling could establish a significant precedent for other platforms considering similar bundling strategies to optimize their royalty obligations.
