Spotify Faces $30 Million, ‘Quick-n-Dirty’ Settlement Over Unpaid Royalties

Spotify: Please Pay $30 Million
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Spotify is negotiating a fast-track settlement over unpaid publishing royalties that could reach $30 million.  But that may only cover part of the liability.

Please note: The following is a breaking story with quickly shifting details.  Please check back for ongoing updates and developments.

Spotify may wriggle its way out of a perilous publishing royalty lawsuit after all, but it could be costly.  Yesterday, sources to Digital Music News pointed to a $5 million one-time penalty, payable to the National Music Publishers’ Association (NMPA), part of a structured agreement that would also involve the construction of a working copyright matching interface and claims system for songwriters and publishers.

That ‘quick-n-dirty’ agreement remains unsigned, but is being given urgent consideration according to DMN sources.  Indeed, the negotiations were quickly confirmed to DMN by NMPA chief executive David Israelite on Monday via email, though specifics over penalty amounts weren’t discussed.

Israelite subsequently pointed to longer-term discussions between the NMPA, Spotify, and other streaming services, with mechanical licenses the focal point of the talks.

The $5 million figure was soon parroted by Billboard in a copycat piece, with one humongous zinger.  It turns out that $5 million penalty may be on top of earlier negotiated penalties of between $16 million and $25 million, according to Billboard’s unnamed sources, bringing the grand total to nearly $30 million.  “The National Music Publishers’ Association’s (NMPA’s) settlement with Spotify … will include the streaming service paying $5 million in damages on top of the $16-25 million that the service owes music publishers and songwriters,” Billboard’s Ed Christman wrote.

The details of the penalty figures are vague, and the NMPA hasn’t responded to our latest inquiry.  Separate sources have noted that the $16-25 million figure would be an estimate of damages, while the $5 million a non-compliance penalty.  But regardless of the specific amount ironed out, Spotify would receive a massive discount off the estimated $150-200 million in potential damages from an ongoing, class action lawsuit.  Spotify is aggressively fighting those claims, though a recent settlement with Microsoft over the exact same licensing problem suggests a long, arduous fight — and potentially disastrous penalties — ahead.

And there’s another bitter pill for Spotify: even if an NMPA-structured settlement goes through, that wouldn’t eliminate a large number of unpaid, non-NMPA members.   In fact, that group would not only be excluded from the agreement, but potentially edged out of all back payments entirely if unsuccessful in court.  As part of the NMPA arrangement described by sources, all unclaimed mechanicals would be redistributed among NMPA members based on marketshare, even if the royalties actually belong to someone else.

Stay tuned for more information!

Image by Thomas Galvez, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).


10 Responses

  1. Hamish McD

    This is all about the publishers payout that will never reach actual songwriters and perpetuating HFA’s lock on Spotify. Spotify can’t pay out royalties they owe to songwriters who aren’t part of the NMPA they should be required to pay those royalties to the state of New York. This is all about the major publishers making a land grab for other peoples money to bail out Spotify because its too big to fail.

    • Remi Swierczek

      It is nice “Quick-n-dirty” grab from one of the music industry participants in SUICIDE MISSION. No long term solutions on the table.
      Lucian Grainge and Doug Morris must wake up or quit!

  2. Anonymous

    paul, this is not a quick and dirty settlement. your source is being sensationalist. it’s been negotiated for months. there are acknowledged problems with spotify royalties that the nmpa is trying to make spotify address. David Lowery and the like are not the first to bring this to light and the industry has been working to fix for months and months. this is hardly an explosive story and is not related in any way to the class action lawsuits that have been filed, though you continue to hint that they are.

    • Eliot Spritzer

      For Spotify’s/NMPAs sake they better hope there are not any incriminating emails that suggest this is an attempt to derail the class action. The worst thing that could happen to Spotify, HFA, and NMPA right now is to invite a federal Judge to scrutinize the HFA/Spotify/NMPA relationship. Also read Lowery’s last couple of blog posts. He’s clearly building a public relations case that the music licensing services (like HFA) are committing mail fraud. Spotify may have walked into a trap.

      • Paul Resnikoff

        Incriminating emails are always fun, from any side. Forward anything to paul@digitalmusicnews.

  3. Ian

    The way this major publisher land grab impacts the class actions is that it explains why Spotify is using delaying tactics in the lawsuit. They are trying to buy more time in order to polish up their too big to fail publisher bail out turd to songwriters as though it was for our benefit that hush money is being siphoned out under the table. That $5 million “penalty” is not going to be shared with songwriters any more than the RIAA shares with artists. It’s all just insiders protecting each other and scratching their backs so that HFA is protected and nobody ever audits. What else is new? The rich get richer and we let them. I’d pay good money to watch HFA crying in a ball pit at a Chuck E. Cheese.

    • Anonymous

      every defendant uses delay tactics in a lawsuit. :)

      This settlement was going to happen with or without the lawsuits and has nothing to do with them whatsoever. Also important to clarify that the NMPA is not suing Spotify, they are just pressuring them to fix the acknowledged fact that streams have gone unpaid. The lawsuits did not bring this fact to the world’s attention, it is something the industry has been pressuring all of the digital services to deal with for a long, long time. Litigation would be a last resort if there was no cooperation, which there clearly has been. Where I think this settlement will make it hard for anyone looking to litigate to get a class certified:

      1) it proves that the courts are not needed to settle a royalty disputes
      2) the settlement amount of around 25-30M will prove sufficient to settle a dispute with the largest portions of the the songwriter and publishing community by market share, representing billions of streams. Why would a class of independent songwriters be entitled to $200mm?
      3) The settlement will likely provide a pathway for anyone to claim a share of it via an opt-in (this happened with YouTube years ago, there is nothing new here)

      Imperfect though it is, this is how things get done. I know there will be the activist types that will still hold out for a spectacular outcome via the courts,but it is highly doubtful (and always was).

      • Eliot Spritzer

        $200 million? Because of willful copyright infringement. When 25% of your catalogue is unlicensed it’s not about the royalties. Just in case… if I worked for Spotify I wouldn’t post comments on DMN. See comments above.