Spotify has reached a settlement with a group of songwriters who had sued for copyright infringement, eliminating an potential complication to the public offering that the streaming service is planning later this year.
Under the agreement which will need to be approved by the court, the streaming company will set up a fund worth $43.4 million to compensate songwriters and publishers whose compositions the service used without paying mechanical royalties.
Spotify has to pay record labels to use their recordings and publishers to use the underlying compositions; it pays mechanical royalties directly to publishers and public performance royalties to performing-rights groups like ASCAP, which distribute the money to their member publishers and songwriters. Streaming services don’t need to negotiate with publishers, since they can take advantage of a “statutory license” offered by the federal government.
But they need to find the right publishers to pay -- a challenge in cases where recordings have entered Spotify's system without proper metadata. Spotify has always made a point of holding money aside for publishers it couldn't identify, but doing so doesn't make it compliant with copyright law.
Beyond past and future compensation, the settlement agreement outlines a process by which Spotify and the class counsel “will 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," according to the plaintiffs’ motion.
In some countries, the music publishing sector has traditionally licensed the performing and mechanical rights separately through different entities, meaning streaming firms need to ensure that – not only do they have deals in place for both recordings and songs – those deals cover both the performing and mechanical rights of any works streamed.
In the US this has proven challenging, because while there are collecting societies that licence performing rights, there is no one-stop society that represents mechanical rights. In other countries where the two elements of the copyright are licensed separately, there is a mechanical rights society that can provide a licence to cover any songs that are not subject to direct deals between the streaming firms and the big music publishers.
On one level this shouldn’t matter because there is a compulsory licence covering mechanicals in the US, which includes a set statutory rate to be paid, so streaming services don’t need to negotiate terms and they know from the outset what the mechanical costs will be. However, the compulsory licence obliges the streaming service to alert each and every rights owner that it intends to exploit their work or – where they can’t identify the owner – it should file paperwork with the US Copyright Office instead.
Few services did this, mainly because of the big music rights data problem, whereby there is no one stop publicly accessible database to tell you who controls which song copyrights, nor which song is contained in which recording. However, by failing to adhere to the formalities of the compulsory licence, whenever a streaming service streams a song in the US which is not covered by one of its direct publisher licences, it is technically committing copyright infringement.
Update 2: Music•Technology•Policy:
Compare Spotify to Facebook. Facebook has no licenses. None. Zero. Zilch. They know they have no licenses and they don’t seem to be in much of a hurry to solve this problem. For all of Spotify’s problems, Facebook is not Spotify. Facebook is a royalty deadbeat.
What the Spotify cases should tell Facebook is that Facebook should not expect to get a pass for their bad behavior. Facebook should expect to write a very large check for the past and a very large check for the future.