Spotify Unwrapped: The Pitfalls of the Music Modernization Act
Maia Gordon
The Music Modernization Act (“MMA”), which revolutionized music licensing, is a landmark piece of legislation[1]. According to Donald Trump:
I signed and was responsible for the Music Modernization Act for Taylor Swift and all other Musical Artists. Joe Biden didn’t do anything for Taylor, and never will. There’s no way she could endorse Crooked Joe Biden, the worst and most corrupt President in the History of our Country, and be disloyal to the man who made her so much money.[2]
Not only did Donald Trump have very little to do with the passage of the Act, but he is also sorely mistaken about whether the MMA made Taylor Swift “so much money.” According to Billboard, the MMA’s mechanisms as employed by Spotify will result in an anticipated loss of $150 million a year for copyright holders in music.[3]
Prior to the MMA, compulsory mechanical licensing was the framework for compensating copyright owners of musical compositions for the reproduction and distribution of sound recordings (e.g. records and CDs) of their music. Compulsory mechanical licensing also previously applied to the public performance rights of sound recordings (not musical works) in digital phonorecord deliveries (permanent downloads, limited downloads, and interactive streams).[4] Compulsory mechanical licenses come into effect once a musician or publisher “agrees to the duplication of their composition by a mechanical process (such as recording).”[5] After duplication, the rightsholder in the composition is compelled to license their works to anyone else who wants to “mechanically reproduce” the composition.[6]
All recorded popular songs embody both sound recordings themselves and musical works.[7] This distinction creates completely distinct copyrights that can be and are usually owned by separate rightsholders.[8] A musical work includes the underlying lyrics and musical notation of a song, regardless of who or how many people record that same song.[9] Rights in musical compositions are typically held by the songwriter or composer and are generally assigned to publishers.[10] Licenses for public performances of musical works are typically negotiated by performance rights organizations.[11]
On the other hand, “[a] sound recording is a series of musical, spoken, or other sounds fixed in a recording medium, such as a CD or digital file, called a ‘phonorecord.’”[12] Sound recording copyrights are usually owned by the artist or record label and protect the recording itself as distinct from the composition. [13] “As a practical matter, sound recordings almost invariably piggy-back on another category of protectable works: musical compositions . . . [m]uch recorded music, particularly current hits, embodies dual protection: a sound recording copyright, plus a distinct musical copyright.”[14]
While mechanical licenses have been around since 1909,[15] in response to digital streaming, the MMA creates “blanket licenses” for the reproduction, distribution, and public performance of musical works, and royalty negotiating procedures under the Copyright Royalty Board.[16] Congress decided to “virtually rewrite Section 115’s compulsory license provision”[17] and ultimately established the Mechanical Licensing Collective (“MLC”), “through which digital music services would obtain blanket licenses to transmit interactive streams and permanent downloads of musical works.”[18] A blanket license covers “all musical works available for compulsory licensing.”[19]
The major issue with the current structure of copyright law in music is that it does not distinguish between the exclusive rights of musical works rightsholders in the public performance of their works and the exclusive rights of reproduction and distribution in licensing.[20] This issue is especially significant when it comes to digital streaming platforms. Since performance rights—for musical works—are now grouped in with reproduction and distribution rights, and are subject to blanket licenses, the royalty rates for streams on platforms such as Spotify and Apple Music are not freely negotiated.[21] Although the MMA created a mechanism for negotiating statutory royalties from musical works under the Copyright Royalty Board,[22] streaming powerhouses have been able to game the system and consequently pay songwriters and publishers significantly less than what they would make under a freely negotiated system.[23]
A complaint filed by the MLC underscores the negotiation provision of the MMA.[24] The MLC alleges that Spotify shortchanged its blanket license royalty payments by unilaterally recategorizing its subscription service under 37 C.F.R. 385.[25] Under that regulation, the calculation for blanket license royalties decreases when a subscription service “bundles” different types of products/services.[26]
Bundle means a combination of a Subscription Offering providing Eligible Interactive Streams and/or Eligible Limited Downloads and one or more other products or services having more than token value, purchased by End Users in a single transaction (e.g., where End Users make a single payment without separate pricing for the Subscription Offering component).[27]
And a “Subscription Offering” is defined as a service where users pay a fee at least every three years for access.[28]
Spotify has provided a Premium subscription offering since July 2011.[29] In November 2023, Spotify began offering Premium members fifteen hours of audiobook listening at no additional charge.[30] “Spotify made no claim that the addition of audiobooks transformed Premium into a Bundled Subscription Offering. Nor did Spotify discount the Service Provider Revenue subject to mechanical royalties.”[31] In March 2024, Spotify reported to the MLC in its revenue and royalty report that Premium comprised “a new bundled subscription offering,” without having changed anything about Premium.[32] In its complaint, MLC alleges that Spotify did not claim Premium as a bundle when it added the audiobooks feature to the subscription, and that “Premium is not a Bundled Subscription Offering under Section 115 because the audiobook content has no ‘more than token value.’”[33]
Since the complaint was filed, Spotify has filed a motion to dismiss, arguing in its pre-motion letter that the subscription at issue is in fact a bundled offering and that speculation regarding the time Spotify began reporting its revenue under the bundling provision is immaterial to the central question of whether the offering is in fact a bundle.[34] MLC responded to the pre-motion letter, arguing again that Premium is not a bundled offering and that Spotify cherry picked the facts it included in its letter by comparing itself to other streaming services and not evaluating its own practices.[35] The parties are now in the discovery phase.[36]
This case reflects the main issue for compulsory licensing in practice: under the MMA, musical works rightsholders have no bargaining power and are subject to these kinds of manipulations of the statutory structure and regulations of licensing.[37] Even though the Phonorecords IV settlement increased the royalty rate for Digital Phonorecord Deliveries,[38] the agreement contained the provision Spotify is taking advantage of and thus diminishes any value gained by the negotiations.[39] With this practice, given that over 65 million [MG1] people in the United States are Premium subscribers,[40] the distinction between the vast amount of royalties afforded in a freely negotiated system as opposed to the reduced royalties afforded by the bundling mechanism is significant.
In response to Spotify's practices, David Israelite, president and CEO of the National Music Publishers' Association[41], wrote an open letter to Congress urging an overhaul of the statutory system and advocating for free-market negotiations between publishers and streaming platforms.[42] The letter emphasizes how statutory rate-setting has been and will continue to be abused by foreign tech giants such as Spotify.[43] The CEO also argues that the current negotiation system is deeply unfair, with musicians and publishers holding far less bargaining power than the streaming giants.[44] Israelite advocates for musical works rightsholders’ voluntary withdrawal from the blanket licensing scheme with a number of conditions, including that rightsholders remain registered with the MLC and keep current contact information in that database for licensing inquiries.[45] With loud advocates on both sides of the debate[46], the future of music licensing in the digital age remains uncertain. If the current system remains unchanged, the financial viability of songwriters and music publishers—especially in the face of tech giants' growing dominance—will continue to be threatened. The call for reform is not just about fair compensation; it's about ensuring that the value of music is properly recognized and rewarded in the digital age.
[1] Music Modernization Act, Pub. L. No. 115-264, 132 Stat. 3676 (2018).
[2] Jem Aswad, Donald Trump ‘Did Nothing’ on Music Modernization Act, Key Attorney Behind Legislation Says, Despite His Claim That He Made Taylor Swift ‘So Much Money’, Variety (Feb. 11, 2024, 2:40 PM), https://variety.com/2024/music/news/trump-did-nothing-on-music-modernization-taylor-swift-1235907368.
[3] Kristin Robinson, Spotify to Pay Songwriters About $150 Million Less Next Year with Premium, Duo, Family Plan Changes, Billboard (May 9, 2024), https://www.billboard.com/business/streaming/spotify-songwriters-less-mechanical-royalties-audiobooks-bundle-1235673829.
[4] Joy Butler, Music Licensing: The Difference Between Public Performance and Synchronization Licenses, Copyright Clearance Ctr. (May 16, 2017), https://www.copyright.com/blog/music-licensing-public-performance-license-synchronization.
[5] Larry Wayte, Pay for Play 215 (Creative Commons 2023).
[6] Id.
[7] Brian Day, The Super Brawl: The History and Future of the Sound Recording Performance Right, 16 Mich. Telecomm. & Tech. L. Rev. 179, 182 (2009).
[8] Id.
[9] U.S. Copyright Off., Musical Works, Sound Recordings & Copyright (2020).
[10] Day, supra note 7.
[11] Id.
[12] U.S. Copyright Off., supra note 9.
[13] Day, supra note 7, at 183.
[14] 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 8.22 (rev. ed. 2024).
[15] Wayte, supra note 5, at 214.
[16] Id. at 220.
[17] Bob Kohn, Kohn on Music Licensing 748 (Wolters Kluwer, 5th ed. 2019).
[18] Id.
[19] U.S. Copyright Off., FAQ. https://www.copyright.gov/help/faq/ (last visited Feb. 13, 2025).
[20] 17 U.S.C. § 115.
[21] Kohn, supra note 17, at 746.
[22] Id. at 749.
[23] Complaint, MLC v. Spotify, (S.D.N.Y. May 16, 2024), Case 1:24-cv-03809.
[24] Id.
[25]Id. at 1-2.
[26] Rates and Terms for use of Nondramatic Musical Works in the Making and Distributing of Physical and Digital Phonorecords, 37 CFR § 385.2 (2022).
[27] Id.
[28] Id.
[29] Complaint at 13, MLC v. Spotify, (S.D.N.Y. May 16, 2024), Case 1:24-cv-03809.
[30] Id. at 13-14.
[31] Id. at 14.
[32] Id.
[33] Id. at 20.
[34] Letter to the Court, “Mechanical Licensing Collective v. Spotify USA Inc.,” (S.D.N.Y. Jul. 19, 2024), No. 1:24-cv-03809-AT.
[35] Letter to the Court, “Mechanical Licensing Collective v. Spotify USA Inc.,” (S.D.N.Y. Jul. 26, 2024), No. 1:24-cv-03809.
[36] Dylan Smith, The MLC v. Spotify Legal Battle Keeps Getting Uglier – Bitter Dispute Unfolds Over ‘Extremely Broad’ and ‘Invasive’ Discovery Demands, Dig. Music News (Oct. 16, 2024), https://www.digitalmusicnews.com/2024/10/16/mlc-spotify-lawsuit-discovery-dispute/.
[37] Kristin Robinson, NMPA Calls on Congress for Copyright Act Overhaul Amid Spotify Battle Over Bundling, Billboard (May 21, 2024), https://www.billboard.com/business/publishing/nmpa-copyright-act-overhaul-spotify-bundling-full-letter-congress/.
[38] Murray Stassen, Phonorecords IV: Music Publishers React to US Streaming Royalty Rate Rise, Music Bus. Worldwide (Sept. 1, 2022), https://www.musicbusinessworldwide.com/phonorecords-iv-music-publishers-react-to-us-streaming-royalty-rate-rise.
[39] Kristin Robinson, The MLC Sues Spotify for Bundling, Cutting Royalties for Publishers and Songwriters, Billboard (May 16, 2024), https://www.billboard.com/business/publishing/spotify-sued-mlc-bundling-cutting-songwriter-royalties-1235684122.
[40] Backlinko Team, Spotify User Stats, Backlinko (Feb. 12, 2025), https://backlinko.com/spotify-users.
[41] See Our Mission, National Music Publishers’ Association https://www.nmpa.org/mission/ (last visited Dec. 27, 2024) (“the National Music Publishers’ Association (NMPA) is the trade association representing all American music publishers and their songwriting partners. Its mission is to protect, promote, and advance the interests of music’s creators. The NMPA is the voice of both small and large music publishers and is the leading advocate for publishers and their songwriter partners in the nation’s capital and in every area where publishers do business.”).
[42] Kristin Robinson, NMPA Calls on Congress for Copyright Act Overhaul Amid Spotify Battle Over Bundling, Billboard (May 21, 2024), https://www.billboard.com/business/publishing/nmpa-copyright-act-overhaul-spotify-bundling-full-letter-congress/.
[43] Id.
[44] Id.
[45] Id.
[46] See Id. (“Graham Davies, president and CEO of the Digital Media Association (DiMA) has replied to the NMPA’s letter, saying ‘The music industry as a whole, particularly publishers, songwriters, and streaming services, depend on the Section 115 blanket license, established the Music Modernization Act (MMA), to operate. It is disappointing that the NMPA would propose dismantling the MMA in this way. The statutory blanket license is essential to the Music Modernization Act’s very structure.’”).
[MG1]Adjust before publishing.