Spotify has revealed it saved $49.89 million (€46 million) in mechanical royalties between March and June 2023 through its controversial bundling reclassification strategy in the U.S. This disclosure comes amid an intensifying legal battle with the Mechanical Licensing Collective (MLC).

The streaming giant reclassified nearly all its U.S. accounts as bundles in March, citing the inclusion of both music and audiobooks in its offerings. This reclassification significantly reduces mechanical royalty payments due to how revenue is treated under the Phonorecords IV determination.

The MLC has responded by filing a lawsuit against Spotify for unpaid royalties related to this bundling strategy. The disclosed savings figure excludes potential interest or penalties that Spotify might face if the MLC wins its case.

Key implications of this development:

• The savings align with initial industry estimates of reduced U.S. mechanical royalties
• Major labels are unlikely to pull their catalogs from Spotify, unlike Universal Music's temporary withdrawal from TikTok
• Spotify's strong financial position allows it to maintain this strategy despite publisher opposition
• The company reported approximately $290 million in Q2 operating income

While Spotify strongly defends its position, industry experts note that a settlement remains possible, given the history of resolved music industry legal disputes. The situation highlights Spotify's significant leverage in the music industry, allowing it to implement controversial strategies without facing severe commercial consequences.

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