Today, the National Music Publishers’ Association (NMPA) and Spotify have announced a landmark agreement, one that could deflate a $200 million class action lawsuit.
The agreement, first reported by Digital Music News on March 7th, will allow independent and major publishers to claim and receive royalties for mechanical licenses on Spotify in the United States. In many cases, information related to who owns those rights were previously unknown, leading to a confusing mess of non-payments.
The agreement, announced Thursday afternoon (March 17th), aims to create a better way of finding publishers who are rightfully owed streaming royalties, as well as establishing a large bonus compensation fund. That’s in addition to a tranche of money apparently being held by Spotify for unmatched royalties.
That escrow fund was previously unknown, at least outside of a small group, and suggests that Spotify was anticipating a major royalty lawsuit (which it is now fighting). Earlier, leaked information to DMN suggested a $5 million one-time fee against Spotify for previous non-payments, a figure that ramped up to $30 million in a subsequent Billboard report. Whether that is powering this ‘bonus fund’ in unclear.
The NMPA-structured agreement also includes mechanisms to improve processes for identifying and compensating writers, as well as distributing royalties. According to earlier sources to DMN, that entails the construction of a matching interface created and maintained by Spotify for identifying and tying rights owners to their mechanical rights. Exactly who will deliver the matching platform was not specified on Thursday.
Perhaps most controversially, the NMPA also clarified that only publishers and songwriters participating in the settlement will receive matched funds, even amounts unclaimed by non-participating rights owners. That means anyone not maintaining a membership with the NMPA will forfeit their royalties. “Where ownership has not been identified or claimed by publishers, there will be a distribution to publishers and songwriters of royalties held by Spotify based on known usage on Spotify’s service,” an NMPA release stated.
NMPA chief executive David Israelite, who confirmed the upcoming agreement to DMN last week, pointed to a conflict-resolving pact. ”NMPA’s goal has always been to ensure publishers and songwriters receive the money they deserve. I am thrilled that through this agreement both independent and major publishers and songwriters will be able to get what is owed to them,” said David Israelite, CEO of the NMPA, who first confirmed the negotiations last week. ”I look forward to all NMPA members being paid what they are owed, and I am excited about the creation of a better process moving forward.”
Beyond Spotify, publishers and copyright owners, this agreement will also help the wider industry, as it essentially fills in the gaps with missing ownership information. The bigger question, however, is why this database doesn’t already exist: just this week, mechanical rights specialist Music Reports offered to build the missing database, with Spotify mechanical rights partner Harry Fox Agency (HFA) getting outright broiled for failing to maintain the proper information.
That raises questions over what happens next at HFA, though sources at DMN noted that matching information collected by Spotify will be shared back with the agency. Whether that rewards bad behavior and incompetence is the difficult question that remains, though HFA (formerly owned by NMPA) has remained largely quiet during the imbroglio.
Another giant question is whether this agreement deflates a massive, $200 million class action lawsuit against Spotify. Just yesterday, attorneys for lead class action litigant David Lowery issued a proviso on the now-signed NMPA deal, urging writers to read the fine print before signing. Undoubtedly, many will agree to participate with the NMPA-generated resolution, which effectively eliminates their eligibility in the class action litigation.
(Image by EFF Photos, Creative Commons, Attribution 2.o Generic, cc by 2.0)
annnnnnd let’s not forget the NMPA and HFA were the same entity for many years. Though now they pretend not to know eachother.
Some good points from the lawyer for Lowery’s lawsuit. The main one being this is being negotiated in secret, and does not need to be approved by a court (unlike prior settlements the NMPA has brokered to resolve lawsuits). So there’s no guarantee of an arms-length negotiation. And of course NMPA’s 3 biggest publishers are owned by Spotify investors.
That’s great, now lets see if that money actually gets to the artists.
But, more importantly, the entire industry needs to recognize that digital streaming and to some extent downloads is a pennies game. The economics of a $15 or even a $30 subscription will never match the revenue earned during the high point of selling shiny plastic discs.
The sheer fact that Spotify and other digital services are paying mechanical royalties is ludicrous. Labels are still charging digital services for packaging costs at the same rates as if they’re printing booklets and inserting CDs. While there are immense investments in digital infrastructure (encoding, asset management, etc) that needs to be recouped, digital packaging and delivery costs are no where close to the costs of printing, manual assembly and trucking physical product to distribution centers.
The reality is hyper inflated valuations of digital services is not an indicator of real world economics of the business. If the industry is serious about a future with multiple digital services, then it needs to stop the quick profit mentality and charge these businesses reasonable rates. Otherwise the industry should stop playing PR games and admit that the future will be comprised of Amazon, iTunes and whatever shell front Vevo is.
It’s also important to note that the resistance to treating streaming services as licensed manufacturers (which they are by most legal definitions) which would make the calculation and tabulation of mechanical royalties much more straight forward, is that then, labels who inked deals with artists before streaming arrived in the consciousness, would likely be stuck paying “3rd party licensee” rates to their artists at something around 50% (usually) net receipts, as opposed to the usual artist rates of around 4%.