8Sided Blog

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Spotify Hit With $150 Million Class Action Over Unpaid Royalties

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Camper Van Beethoven and Cracker frontman David Lowery, retaining the law firm of Michelman & Robinson, LLP, has filed a class action lawsuit seeking at least $150 million in damages against Spotify, alleging it knowingly, willingly, and unlawfully reproduces and distributes copyrighted compositions without obtaining mechanical licenses.

The lawsuit comes amidst ongoing settlement negotiations between Spotify and the National Music Publishers Assn. over the alleged use of allowing users to play music that hasn’t been properly licensed, and also without making mechanical royalty payments to music publishers and songwriters. According to sources, Spotify has created a $17 million to $25 million reserve fund to pay royalties for pending and unmatched song use.

The complaint states that Spotify has “publicly” admitted its failure to obtain licenses and created a reserve fund of millions of dollars for royalty payments which have been “wrongfully withheld from artists.” The complaint further notes that statutory penalties allow for judgments between $750-30,000 for each infringed work, and up to $150,000 per song for willful infringement.


I admit I’m not the biggest David Lowrey fan in this sphere, but any eyeglass pointed at artist royalty in these early days of streaming is important as it may help interpret and set future policy. If Spotify is knowingly withholding royalty that can be remitted then most certainly they should pay up. However, I’ve heard of reserve funds being held by other services until rightsholders can be identified, most notably by SoundExchange (though they aren’t actually transmiting the compositions themselves), so the practice may not be as outlandish as the suit implies. One can also assume that if Spotify is doing this with regards to mechanical licensing then Apple Music, Tidal, etc. are probably doing the same … ?

Update:

Spotify is currently in the middle of a settlement with the National Music Publishers Association, after being sued for failing to accurately keep track of royalty payments. In a blog post last week Spotify admitted that it had a problem managing royalties, and that it would work with the NMPA to build a “comprehensive publishing administration system” to ensure artists and publishers are properly compensated.

If the NMPA opts into the settlement, which allows publishers to request royalty payments in exchange for dropping legal claims over licensing fees, it will likely weaken Lowery’s case.

SoundCloud Strikes Deal with PRS

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Variety:

Music streaming service SoundCloud has struck a licensing deal with UK-based music rights group PRS for Music, settling a lawsuit and in turn clearing an important hurdle on its way to launch a full-fledged music subscription service. Now, the company just has to get other rights holders back to the table.



SoundCloud has been working for some time on launching a paid subscription service similar to Spotify or Apple Music. However, the company also wants to keep user-generated uploads, remixes and DJ sets on its platform. To this end, it has been looking to offer rights holders the ability to monetize user-generated uploads, similar to the way YouTube has been doing it in the video space.



Music Business Worldwide:

MBW: Do you get a genuine sense from SoundCloud’s side that they have a business ambition to succeed with a subscription platform – and that they’ll remain solvent long enough to do so?



Robert Ashcroft (PRS CEO): It’s clear from our discussions with them that is their intent. I know they have good financial backing. We’re very hopeful that this will be a major service. It has its own particular personality and there’s room in the market for lots of different takes on music services. We do believe that they’re sincere in the evolution of their business.



MBW: Vevo’s looking at a subscription service, Apple Music is already one; Spotify’s conceding ground on the ‘everything free’ rule; YouTube’s even launched Red – a paid-for tier. Now SoundCloud is starting to behave itself. Is there something in the air?



Robert Ashcroft: We very much hope so. We’ve been very public about our feeling that the playing field has not been level between the different kinds of services. We’ve called on the European Commission to examine the boundaries of who can benefit from the hosting defence under safe harbour legislation and who cannot. We’ve called for a clear distinction between those services that are purely passive, like DropBox, and those that are active in that they provide search, curation and various other means of accessing music. We’re in similar discussions with YouTube. My aim is to create a climate were copyright is valued on the internet, and where all of these services can compete with each other on a level playing field.

Pandora To Owe More

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Quartz:

For months now, the US Copyright Royalty Board—a three-person government panel that decides how much online radio services have to pay to play artists’ music—has been mulling a tough decision: Increase music licensing rates for the next five years, or lower them? While artists and record labels pushed for higher fees, webcaster services like market leader Pandora insisted on the opposite.



The CRB {has now} announced those new rates, and they are not exactly in Pandora’s favor. While the royalties cost for streaming songs on a subscription platform has dipped a bit, the cost for streaming songs on the more popular ad-supported free-user platform is now higher.



These fraction-of-a-cent changes may seem negligible, but they amount to millions of dollars a year. Last year, Pandora paid $446 million in music licensing costs alone—roughly half of its $921 million revenue. The increased cost for streaming songs on an ad-supported platform means Pandora will have to dip even further into its revenue stream to pay record labels and artists, in the next few years.



All in all, the rate increase is not as dramatic as it could have been: SoundExchange, the royalty distribution platform that represents artists and record labels, had asked the CRB for a rate of $0.0025. Pandora had asked for $0.0011. The new rate is almost exactly in the middle.



Negotiation 101. Aim high, meet in the middle.

Royalty, Royalty Everywhere

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Ari’s Take:

Before the digital age, royalties were difficult to track, but there were fewer platforms to consume music, so there were far fewer royalty streams to worry about.



With physical sales plummeting, and people shifting from downloading to streaming (like Spotify and Apple Music) and the rise of digital radio (like Pandora and Sirius/XM), there are many more royalties out there, but they can be tracked much easier through sonic recognition and content ID software.



We’re not quite there yet, but we’re getting closer every day.



For indie artists without a label or a publisher, you have to know what these royalties are and know where and how to get them.



Ari Herstand has done a noble service with this informative list of revenue streams for the new-to-it-all artist and songwriter (and it’s a good refresher to those who have been around the block, too). I love pieces like this as they are useful to bookmark and pass on when I encounter an friend or client who wants to learn more about how the sausage is made.

If you’d like to continue your studies, here’s an article titled Now You Know Everything About Music Publishing, as well as a second, completely different article also titled Now You Know Everything About Music Publishing, both hosted by Digital Music News. Now that’s unnecessarily confusing, but appropriately a metaphor for music rights management itself.

Revenue Neutral

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Slate:

In a new working paper, University of Minnesota economist Joel Waldfogel and Luis Aguiar of the Institute for Prospective Technological Studies in Seville, Spain, estimate how Spotify has affected both music sales and piracy during its fast expansion across the globe. Their method: comparing countries where the service grew rapidly between 2013 and 2015, and those where it didn’t. The upshot? According to the authors’ calculations, Spotify does seem to have put a damper on piracy, but it’s also displaced some digital sales (neither is exactly a shocker). Add it all up, then factor in the payments Spotify itself is sending to labels, and the effect appears to be roughly “revenue neutral” for rights holders. They don’t make any more money. They don’t make any less.



If these findings hold up (again, it’s just one working paper), it should put the ongoing debate about Spotify’s treatment of artists into some new perspective. If the platform’s business model hasn’t shrunk the total pie of cash being divvied up by rights holders, but some artists really are seeing their paychecks shrink, it suggests the problem (insofar as one exists) has to do with the way record labels are distributing the cash.

How Much Is Music Really Worth?

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Pitchfork:

In 1889, when the first “phonograph parlor” opened in San Francisco, saloon patrons could listen to a song through a tube for a nickel. When Thomas Edison began manufacturing wax cylinders of recorded music for home entertainment in the late 1890s, they cost 50 cents each, played at 120 RPM, and could hold only two minutes of music. Loosely speaking, what cost a nickel in 1889 would cost $1.29 today, and what cost 50 cents in 1900 would go for $13.89 today. (Then as now, how much money ever ended up in the hands of musicians remains murky.)



We create the value of music through a sort of community consensus, whether in terms of its emotional impact or its monetary worth. As units of music have become difficult to price, they’ve also lost their economic value—so I agree with a recent Future of Music Coalition op-ed arguing that “the music business has a transparency problem.” Would more detail about dollars and cents restore the music economy’s spirit? Maybe. The industry has recovered before, and there are reasons for optimism, but ultimately music and business, though inextricable from each other, aren’t the same.


A useful article here from last April, just discovered thanks to contributing article-finder Jon Curtis, that doesn’t quite answer the headline’s question but does lay down some interesting facts and figures. And the historical information on formats and pricing that comprises the middle section of the article is fascinating as well as providing some context.

The vague conclusion from the writer seems to be not to think in terms of a recording’s worth, but in the overall income an artist can wrangle through his / her creative endeavors. One can also reach the assumption that artists controlling their revenue inputs – that is, not sharing huge portions of everything with a label – come out on top. But one might want to have a trusted manager to handle the numbers, to keep artist types from getting creatively derailed, as one interviewed musician put it. As I like to say, managers are the new record labels.

The Argument For Streaming Services To Adopt ‘Subscriber Share’

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Cuepoint:

If you subscribe to a subscription music service such as Spotify or Apple Music you probably pay $10 a month. And if you are like most people, you probably do so believing your money goes to the artists you listen to. Unfortunately, you are wrong.

The reality is only some of your money is paid to the artists you listen to. The rest of your money (and it’s probably most of your money) goes somewhere else. That “somewhere else” is decided by a small group of subscribers who have gained control over your money thanks to a mathematical flaw in how artist royalties are calculated.

There is a better way to approach streaming royalties, one which addresses all of these problems, and it’s called Subscriber Share.

The premise behind Subscriber Share is simple: the only artists that should receive your money are the artists you listen to. Subscriber Share simply divides up your (subscription fee) based on how much time you spend listening to each artist. So if you listen to an artist exclusively, then that artist will get the entire (share of the fee), but if you listen less they get proportionately less.


I bet a lot of music fans – and artists – will be surprised that this is not how streaming royalties are presently calculated. Indeed, the ‘money pool’ method that’s currently in place divides the money that’s available among total plays for all artists. Thus, a hair salon running Spotify on ‘random’ 24/7 decreases the amount paid out to the independent artist who gets repeated plays from dozens of diehard fans.

Sharky Laguana makes some great points in his article – as well as in this earlier article he wrote for The Kernel which I think explains Subscriber Share even better – but I’m wondering how the ad-supported ‘free tier’ that Spotify relies on to attract new adopters complicates things. Would Spotify be able to maintain two tiers of royalty calculation: the pool for ad-supported plays and Subscriber Share for subscribers? Is that necessary?

Of course, the question is whether the services would even consider this change. Sharky is correct in that once music industry folks have something set in stone it’s going to take some really big chisels to get it changed. His idea for ‘Silent September’ proposed in the article is interesting and worthy of conversation, but unfortunately seems a bit quixotic. The idea’s purpose of poking at the major labels carries one big truth: the majors will have to be on board for Subscriber Share to become a possibility. Regardless, I’ll probably still participate to some degree … I’m mainly listening to independent artists anyway.

I feel the best way a change like this could come about would be if a new service adopted this royalty method and made their policy overtly public, attracting artist support and in turn shaming the other services. I assume Tidal uses the ‘pool’ method of calculation … for all their talk of supporting the artist, this would seem like pushing on an open door for them. What about the newly launched Baboom? This service names their payout method Fair Trade Streaming … “we want your fan’s subscription to go directly to you” is a sentence found in Baboom’s press material to potential artists. I assume this means they are adopting some form of Sharky’s Subscriber Share method. I’ll look for confirmation, and this story will certainly continue to develop.

Personalized Spaces, DJ Curators, And The Speedy Evolution Of General Licensing

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This article on SoulCycle’s DJ-fueled fitness phenomenon explains how the growth in performance royalty may not just be attributed to ‘new media’, but also to general licensing in physical spaces (clubs, restaurants, fitness clubs, etc) thanks to increased personalization and the mainstream integration of DJs as curators. Thus the Performing Rights Organizations (PROs) need to update how they calculate distribution of these royalties as it’s based on an outdated system of presumption.

With respect to distribution, the procedures used by the PROs today are perhaps as inadequate as the licensing fees themselves. While technology makes it possible to track every song actually performed in any given (fitness club) spin class, general licensing revenues are not distributed with this data. Rather, the money received is put into a larger pool, and mostly distributed using a number of inaccurate proxies such as a sample of television and radio performances that overwhelmingly favors “Top 40” hits.



The genesis of this allocation makes sense if you consider that, at the time this licensing category was originally created, there was no cheap, reliable method to track general licensing. Today, several companies, such as the tech start-up Music Play Analytics, are producing inexpensive, unobtrusive and simple song identification technology on a B2B basis. Requiring chain-wide music usage reports, in an easily digestible format, is hardly a burden to either party.



Apart from fitness clubs, many retailers, restaurants, hotels and other general licensees are increasingly personalizing their music offerings. This results in more songs from niche genres getting more exposure than ever before. And nowhere is this truer than at SoulCycle where they have whole classes devoted to a specific artist, DJ or theme (like 90s hip-hop or 70’s funk). Continuing to distribute these license fees by following a homogenized pop radio chart defies logic and underserves the vast majority of PRO affiliate songwriters and publishers.


This has been a problem since the rise of non-top 40 DJ music over four decades ago. That underground nightclub that only books the most cutting edge DJs, and dutifully pays their required ASCAP and BMI fees? Chances are those fees have been going to mainstream songwriters, not the ones actually being played in the club. The time for incorporating song identification technology is now … device installation should come with a venue’s PRO membership.

As an aside, some other countries with stricter performance royalty laws have attempted to solve the problem in unwieldy ways that make one understand why our current system was adopted. I know many clubs in Italy and Mexico will make a DJ write down information for every song played in a set – or, alternately, any song that could potentially be played, if the DJ doesn’t plan sets – so these details can be reported to that country’s PRO. Not only is this a big headache for the DJ, but there’s no guarantee for accuracy; one DJ friend told me that he once listed a large number of my songs (even though he didn’t actually play them) to give me a ‘boost.’ I didn’t end up seeing an influx of royalty from Mexico because of that, but it’s the thought that counts.

Musicians Sue Universal, Sony And Warner Over Streaming Payments

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Music Business Worldwide:

The American Federation of Musicians (AFM) claims that the majors signed a collective bargaining agreement in 1994, and further amendments over the next decade, in which it committed to paying AFM members 0.5% of all receipts from digital statutory and non-statutory music licenses – including audio streams, ‘non-permanent downloads’ and ringback tones – both in North America and abroad.



The AFM’s Pension Fund has now filed a lawsuit in New York claiming its independent auditors recently discovered that the majors have failed to make promised contributions in three areas: (i) from streaming receipts outside the US; (ii) from non-permanent downloads outside the US; and (iii) from sales of ringback tones in the US and abroad.



“The record companies should stop playing games about their streaming revenue and pay musicians and their pension fund every dime that is owed,” said Ray Hair, AFM International President. “Fairness and transparency are severely lacking in this business. We are changing that.”


We’ll probably see a lot more of this over the next several years as we continue to navigate our covered wagons through the wild west of the streaming economy. It’s common knowledge — almost to the point of being grudgingly accepted — that the majors (and many independents) practice fuzzy mathematics when it comes to bookkeeping. But this will get tougher to obscure as the exact science of calculating ones and zeroes connecting to a user’s device replaces hand-counting the number of CD units leaving on a truck from the distributor’s warehouse. Keeping the gatekeepers honest (Spotify, Pandora, etc) will be the key. They aren’t angels, but they don’t have as much of an incentive for smoke-and-mirrors as a record label does.

Everyone’s Getting The Music Streaming Business Wrong

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Marketplace:

(A) new report from the Berklee Institute for Creative Entrepreneurship says these (streaming royalty) squabbles miss the point. In fact, there are a bunch of other players, complex accounting and backroom deals that stand between the royalties services pay out and the artists’ paychecks.



Here’s the rub: those royalties are passed down a line of rights groups, publishers or third-party distributors before they make it to the label and then the artist. These players are supposed to divvy up the royalties companies like Spotify are paying out, which is complicated; the composition and recording are usually two separate copyrights, or there might be several co-writers or publishers. All the agreements dictating those payments are secret, and researchers found that royalty statements were difficult to parse.


As the music landscape converts to streaming, the advantages of the self-released artist become even more apparent. May you live in interesting times, indeed.