Spotify, the world’s largest music streaming service, was sued last week for over $366 million by two music publishers, Bluewater Music Services in Nashville and a group of companies affiliated with Bob Gaudio, the award-winning songwriter and member of Franki Valli and the Four Seasons.
Each plaintiff claims in their lawsuit that Spotify failed to comply with the requirements of Section 115 of the U.S. Copyright Act for obtaining mechanical licenses to use the plaintiff’s songs on Spotify’s streaming service, thereby infringing the plaintiff’s copyrights. Under U.S. law, streaming companies like Spotify are not required to negotiate mechanical licenses with publishers, but they must send publishers written notices of their intention to obtain compulsory licenses. The plaintiffs claim that Spotify did not provide proper notices to them and continued to stream their songs without mechanical licenses.
When a stream occurs, it utilizes two of the exclusive rights granted to a copyright owner of a song, the reproduction right and the communication right. In the music publishing business, those are known as “mechanical rights” and “performing rights.” Performance rights are licensed in the U.S. by performing rights organizations, like ASCAP, BMI and SESAC, which each represent different catalogs of songs. Mechanical rights in the U.S. are licensed primarily through The Harry Fox Agency, which acts as a licensing agent for music publishers, but mechanical rights in many songs must be obtained from individual publishers or songwriters, who can be challenging to locate and communicate with.
This is not the first time Spotify has been admonished for failing to implement adequate procedures to notify song proprietors of Spotify’s intention to add their songs to its playlist. In 2016, Spotify reached a $30 million settlement with the National Music Publishers’ Association (NMPA) for unpaid mechanical royalties and Spotify recently settled a class action suit by a group of songwriters led by David Lowery for $43.3 million. The largest members of the NMPA are the major music publishing companies, whose parent companies own a combined 18% of Spotify, according to the recent lawsuits. The lawsuits claim the three major U.S. record companies stand to make $700 million each if Spotify pursues a public offering (which is anticipated this year), thus fostering speculation those companies settled the lawsuits to protect that windfall.
In those prior lawsuits, Spotify emphasized the difficulty of identifying and contacting each song publisher and the company agreed in the settlements to “work collaboratively to improve the gathering and collecting of information about composition owners to help ensure those owners are paid their royalties in the future.” The complaints in the recent lawsuits claim that Spotify has “built no infrastructure capable of collecting compositional information and failed to ask for such information.”
In most countries outside the U.S., mechanical rights are licensed via a centralized collective licensing organization, which represents all the song owners in the particular country. Even if music publishers license their songs directly to a streaming service, the mechanical rights “society” in their country usually handles the administration associated with collecting and paying out the royalties due. In the U.S., there is no industry-wide or national organization to assist with processing mechanical licensing and collecting mechanical royalties
Although the U.S. music industry has acknowledged that a global music rights database is necessary, no one has yet made it a reality. Everyone seems to agree that songwriters and music publishers should be paid properly when their songs are streamed, and some argue it is the responsibility of the well-financed streaming firms to design a system to identify songs and make appropriate payments. Others argue the music publishing establishment should create a industry-wide system for identification and payment.
If the U.S. were to adopt the nationwide collective licensing model utilized in almost all other countries and create a centralized mechanical licensing entity, the recent lawsuits against Spotify would never have been necessary. Unfortunately, that is not likely to occur due to the entrenched and vested business interests involved, and the reluctance to collaborate and share databases of song information, which many consider to be proprietary.