Forget the Beatles: Spotify’s 2015 ended with a troubling bum note for the streaming service – musician David Lowery’s $150m class-action lawsuit against the company over its approach to publishing royalties, with the prospect of more legal action to come in the opening weeks of 2016.
The lawsuit, which was foreshadowed by Spotify’s dispute with independent music firm Victory Records over missing songwriter royalties last year, poses serious questions for Spotify and music rightsholders alike.
Lowery’s lawsuit focuses on Spotify making songs available to stream for which it has not identified the songwriting rightsholders, or filed a ‘notice of intent’ to make the works available via a compulsory licence. Spotify’s response has been to focus on the identification issue.
“Unfortunately, especially in the United States, the data necessary to confirm the appropriate rightsholders is often missing, wrong, or incomplete. When rightsholders are not immediately clear, we set aside the royalties we owe until we are able to confirm their identities,” its spokesperson Jonathan Prince told Billboard, pointing to the end-of-year announcement that Spotify is planning to build a “comprehensive publishing administration system” to tackle the problem.
The argument has already been questioned. “Every record company has a department that does nothing but license the musical compositions which appear on their recordings. They know who the songwriters are, what the percentage splits of the copyright are, and most importantly, where to send the royalty payments,” wrote entertainment lawyer Stephen Carlisle in a guest post for the Music Technology Policy blog.
“With the songs referenced in this case, a simple search of the USPTO database would have revealed who Spotify needed to notify. And there is a process in law to follow even when you don’t have the right information. Spotify has ignored this process,” Lowery’s attorney Mona Hanna told CMU.
A key question for Spotify is why it went ahead and made songs available to stream, rather than either removing them or following the ‘notice of intent’ process to get a compulsory licence? It’s not a good look for a company whose CEO Daniel Ek wrote in November 2014 that “we pay for every play”.
A key question for the music industry is why this situation is only coming to light now, and whether last year’s collapse of the Global Repertoire Database project was symptomatic of a lack of will to solve the thornier problems around songwriter royalties.
More questions? There are plenty. What will these class-action lawsuits mean for Spotify’s rivals? It is unlikely to be alone in its approach. What role might companies including (but not limited to) Kobalt, Audiam and Google/YouTube play in helping to solve this problem on an industry-wide scale?
And what will all this mean for Spotify’s anticipated path towards an IPO in 2016, given investors’ likely skittishness around unresolved copyright issues? It’s not that they were unimportant in the past, but songwriter royalties have become the pressing issue for the music industry and its digital partners in 2016.