If you'll recall back in May, Spotify settled a class-action lawsuit filed by David Lowery and Melissa Ferrick. They set aside $43.4 million dollars to compensate songwriters and publishers whose compositions the service used without paying mechanical royalties. This was a year after settling another lawsuit. In 2016, Spotify The National Music Publishers' Association suit had the Swedish company shelling out close to 25 million over unpaid royalties.
But if Spotify thought they were in the clear now and could go ahead and make their soon-to-be IPO a successful one, there is still work to to be done. An article in The Hollywood Reporter indicates two more lawsuits have been filed over what is being called "staggering copyright infringement."
The first lawsuit was filed by Bob Gaudio, a founder of Frankie Valli and the Four Seasons and songwriter over songs like "Can't Take My Eyes Off You" and "Rag Doll" that he claims haven't been fully licensed. The second comes from Bluewater Music Services Corporation, who hold and administer publishing rights of country music songs. THR indicates "Together, the suits involve a few thousand song compositions..." but of course the number isn't fully known at the moment.
Why is Spotify is still in this mess? They have licensing deals in place with music labels for tons of song recordings. They also have blanket licenses through performance-rights organizations like BMI and ASCAP who collect licensing fees and then distribute them as royalty payments. Song compositions which are owned by songwriter and publisher are a whole other matter. As THR writes:
"More than a century ago, upon the emergence of the player piano, Congress passed a law that provided a compulsory license to allow anyone to make a mechanical reproduction of a musical composition. What that means is that whenever a phonograph — like a record or a compact disc — embodying a composition is created and distributed, the maker needn't negotiate terms with the publisher. The licensing rate is instead set by statute. Nevertheless, those who wish to take advantage of Section 115 of the U.S. Copyright Act must still follow certain protocol. Sending out a "notice of intention" is one step. Making required licensing payments is another.
Spotify works with the Harry Fox Agency, representing the big publishers to administer Section 115 compulsory licenses. However, HFA isn't totally comprehensive of all the song compositions out there."
The streaming company has said multiple times trying to find all the songwriters in the world and like, pay them and stuff, is hard. So is keeping track of millions of letters, but the post office does a pretty good job of it.
And with the new lawsuits, it seems songwriters and music companies agree. While the Ferrick/Lowery settlement had Spotify agree to pay over $43 million to songwriters (a number that was far less than the $150-200 million sought) that doesn't mean it has to be accepted. The deadline to opt out of the settlement is September. Gaudio and Bluewater Music Services have done just that with these lawsuits.
Their rationale is that Estimating that there were approximately 35 billion unpaid streams between June 2011 and the end of 2015 as well as an alleged failure to pay approximately $15 million in royalties, Bluewater asserts that past settlements, including one with the National Music Publishers Association, have done nothing "to resolve the outstanding issues with the Spotify licensing and royalty payment system."
Perhaps the most direct statement comes from Nashville Attorney Richard Busch.
"As we say in the Complaint, songwriters and publishers should not have to work this hard to get paid, or have their life work properly licensed, and companies should not be allowed to build businesses on the concept of infringe now and ask questions later. We look forward to litigating these cases."
Rumour has it Spotify was created and launched with pirated music, then licensing it later, because "disruption." Regardless, it won't be a good look for their IPO. It does make you wonder why Youtube has essentially used the "we can't handle all this legal stuff because there's too much of it" argument and still gets away with mass infringement.
These new lawsuits also come at the same time as the "controversy over its playlisting of songs by "fake" or pseudonymous artists." In other words, creates or licenses songs from bands or musicians who don't exist, entirely created by production houses. This saves on paying out larger revenue amounts to the major artists because they can promote the other "bands."
What's worse--at least one production house who participates in this scheme, Epidemic Sound, buys the music outright for a one-time compensation. Then Spotify can allegedly play the song millions of times and promote it over other songs, and save. And while Spotify denies this is happening, the controversy hasn't gone away.
Music Business Worldwide explains why this is upsetting to artists and music labels alike:
Spotify licenses music on a ‘service-centric’ basis.
In layman’s terms, that means that for each payment period, it pools every stream on its platform – and then pays out based on the total percentage of plays that each artist banks.
(This is why, even if you pay $9.99 a month and play nothing but Bill Withers, he will only ever see a sliver of your cash. Your money gets pooled with everyone else’s before being distributed – and today’s biggest hits take the lion’s share.)
So what would happen if Spotify was able to secure a significant discount on a tranche of fake artists – perhaps “hand-picked royalty free” artists – and then promote them so heavily they end up with hundreds of millions of streams?
Bingo. It would inevitably reduce the play count share of every other artist, and every other label, on its service.
It's even more sketch when you consider Spotify touts its curated playlists. This is speculation, but suppose we found a curated playlist that was filled with fake artists? Not only would it be a conflict of interest but it would call into question the curation process.
According to Music Business Worldwide: "Almost every single fake artist we’ve identified – and we’re way above 50 now – has attracted millions of streams via playlist inclusion. In fact, we can’t find any fake artists that haven’t been included on Spotify’s first-party playlists." (Emphasis theirs.) And not only that, all of this music from Epidemic Sound is exclusive to Spotify. You can't find it on Apple Music or anywhere else. Kind of weird
when you consider that Spotify has said "Exclusives are bad for the whole industry."
To be clear, both Spotify and the production company Epidemic Sound have denied this practice, even as Music Business Worldwide has discovered more fake artists and deeper links between both companies. Even if it turns out to be an unfounded accusation, it says a lot about Spotify that musicians and record labels would have an easy time believing it. Repeated copyright infringement lawsuits will do that to you.
But hey, what do I know. I'm not a disruptor. Just a music listener.