Spotify Opposes MLC Appeal in Battle Over $150M Royalties

The Mechanical Licensing Collective (MLC) and Spotify are locked in a high-stakes procedural staring contest, and the pot is approximately $150 million annually.

As of January 15, 2026, the streaming giant has formally opposed the MLC’s request for an "interlocutory appeal"—a legal maneuver attempting to fast-track a review of the controversial "bundling" ruling handed down earlier this month.

While the legal filings are dense with civil procedure statutes, the reality for the industry is simple: Spotify wants the current lower royalty rates to stand while the case drags on; the MLC argues the industry cannot afford to wait.

The procedural blockage

Spotify’s latest filing is aggressive. The company argues that the MLC’s request to pause the main case for an immediate appellate review is legally baseless. Their primary weapon is the calendar: Spotify points out that the MLC waited nearly 10 months to request this expedited review.

In Spotify’s view, this delay proves there is no true urgency. They characterize the MLC’s strategy as "cycling through amended claims," arguing that allowing an appeal now would be "prejudicial" to the judicial process.

Key insight: An interlocutory appeal is a "Hail Mary" in civil litigation. It requires the court to agree that a specific legal question is so critical that the rest of the case cannot proceed without answering it first.

The $150M loophole

At the heart of this friction is the Phonorecords IV agreement. The regulations allow Digital Service Providers (DSPs) to pay lower mechanical royalty rates if a subscription is a "bundle" containing non-music services of more than "token value."

In March 2024, Spotify reclassified its Premium tier as a bundle by adding 15 hours of audiobook access.

• The outcome: Spotify effectively reduced its royalty payout obligations to songwriters and publishers.
• The scale: Estimates place the impact at $150 million per year in lost mechanical royalties.
• The defense: Judge Analisa Torres ruled in January 2025 that the audiobooks offered "more than token value," validating Spotify’s move under the current contract language.

Defining "token value"

The MLC’s counter-argument—and the reason they want an immediate appeal—is that this interpretation creates a massive loophole. If a DSP can simply tack on a service (even one with market value like audiobooks) to slash music royalties, the protective floor of Phonorecords IV collapses.

Spotify maintains that audiobooks are a premium product—standalone services like Audible cost significantly more than the allocated value in the bundle—making the discount legitimate. The MLC argues this feature is incidental for most music subscribers, functioning merely as a mechanism to reduce overhead.

The contagion risk

For strategists at labels and agencies, the immediate fear is not just Spotify’s lower payments, but the precedent this sets for the wider market. If the "bundling" defense survives the appellate process, the "music-only" subscription may become an endangered species.

Competitors like Amazon Music, Apple Music, and YouTube Music possess vast ecosystems of non-music products (shipping, video, storage, gaming). If Spotify cements this legal victory, those competitors will face shareholder pressure to bundle their own services aggressively to achieve similar royalty reductions.

What rights holders should do

While the lawyers argue over Section 1292(b) certifications, music businesses need to adjust to the reality of volatility.

• Audit aggressively: Managers must review royalty statements from Q2 2024 onward to quantify the "bundling" gap.
• Budget conservatively: Do not expect a retroactive payout or a rate reversal in 2026. The appellate process, even if granted, is slow.
• Watch the NMPA: The National Music Publishers’ Association will likely escalate political pressure, potentially influencing the upcoming Phonorecords V negotiations.

This battle proves that in the streaming economy, the definition of a "subscription" is as fluid—and valuable—as the content itself.