How Spotify Crushed a $200 Million Songwriter Lawsuit…

$5 million later, Spotify seems to be walking away clean.

It now looks like Spotify is soundly defeating a $200 million class action lawsuit initiated by angry songwriters and publishers.  Initially, Spotify faced a scary, $150 million class action lawsuit driven by longtime artist advocate David Lowery, an estimate that ultimately trickled upward towards $200 million.  But quick-n-crafty dealmaking with larger publishers, the National Music Publishers Association (NMPA) and the Harry Fox Agency (HFA) appear to be attracting a critical mass of participating publishers, and deflating a mob of angry litigants.

Already, competing class actions involving two separate lawsuits have been combined, an initial sign of weakness amidst questions of broader participation.  Now, one class action could be quickly moving to zero class action lawsuits.

The class action itself surrounded non-payments of mechanical licenses by Spotify, a specific license that seemed to be overwhelmingly ignored by the streaming giant.  That was a huge whoops, intentionally or otherwise, though not a life-ending blow.  Just this morning, NMPA president David Israelite confirmed that an overwhelming number of publishers were opting into a voluntary agreement on the matter, one first reported by Digital Music News in early March.

Importantly, that voluntary agreement includes a promise not to participate in any legal action, which includes the ongoing class action.  See how this works?

Emails from 2014 Show Spotify Was Aware of Royalty Payout Problems

The participation numbers, if correct, put the class action in severe jeopardy.  In an email to Digital Music News, Israelite indicated that 96% of NMPA members had already opted into the agreement.  “Over 96% of the music publishing community, as measured by NMPA Market Share, have opted-in to the Spotify settlement,” Israelite confirmed.

Which brings us to a basic math calculation.  Since 96% basically means ‘everyone,’ and the NMPA represents a massive chunk of the overall publishing community, that leaves a dramatically reduced group of eligible participants in the Lowery-led suit.  “I cannot answer definitively what percent of publishers belong to NMPA, but I can state that the vast majority of music publishers are members and every commercially relevant publisher is a member to the best of our knowledge,” Israelite continued.  “I am not aware of any music publisher that would represent at least 1% of the commercial market who is not a member.”

The settlement itself involved a one-time, $5 million penalty for Spotify, as well as a $25 million fund to handle previously unpaid mechanicals.  And here’s where this gets even more tricky for publishers straddling the line: if any amount of that $25 million isn’t claimed, the remainder gets parceled out to the publishers and songwriters participating in the NMPA-structured deal.  That makes joining the class action a far dicier bet, especially since the payout could reasonably be $0.

In terms of what publishers are opting into, here’s a quick summary of the terms:

(a) The settlement calls Spotify to create a dedicated matching interface for publishers and songwriters to properly pair their recordings with their publishing rights.  This has been a major complaint by Spotify, which has argued that songs are not being supplied with accurate data on who owns what, and who should be paid.

(b) After those matches are made and verified (via Spotify and/or the NMPA), unreleased and unpaid mechanical licensing money will be remitted.  These unpaid royalties will be cumulative to the first unpaid stream (potentially dating back to 2007-8).

(c) Updated rights information will then be shared with the Harry Fox Agency, or HFA, which administers mechanical licensing for Spotify.  That updated information will in turn be shared with other HFA partners, specifically other on-demand streaming services, to facilitate the proper payout of previous mechanical royalties.

(d) After a certain period, unclaimed mechanical publishing royalties will be paid to the NMPA, and divided among NMPA members based on total market share.  According to that plan, smaller songwriters and publishers would miss payments entirely if not apprised of the plan.

(e) At this stage, we’re still unclear if this updated rights data will be shared with other agencies that handle mechanical rights licensing, including Music Reports, Inc., or YouTube-owned Rightsflow.  Separately, Apple has started contracting with MRI to help administer its royalties for Apple Music, a partnership that appeared to be layered on top of an existing agreement with HFA.

(f) As part of the settlement, Spotify will be assessed a one-time penalty of $5 million.  That, coupled with participation in the settlement, will absolve Spotify of any future liability litigation, at least among participating publishers and songwriters (and possibly, all NMPA members).

(g) Any publisher or songwriter that opts into the NMPA-structured agreement waives any rights to sue Spotify for mechanicals.  Participation in any class action, specifically the class action started by David Lowery, is barred.

More as this develops.  

7 Responses

  1. Troglite

    At first blush, this seems pretty straight forward.

    Major publishers received preferential treatment within the NMPA settlement. Those publishers represent 95%+ of the commercially relevant compositions in the marketplace. When those major publishers choose to accept the NMPA settlement, it effectively harms or limits the choices that are realistically available to the thousands of small independent songwriters representing the remaining 5%- of all relevant compositions. Independents are getting screwed.. and from where I sit, it doesn’t look accidental.

    • Simon Fowl

      exactly – not from where I am sitting either!

  2. Anonymous

    Of course the NMPA is happy. Their members are getting a bunch of money that isn’t really theirs.

    This settlement includes a market-share based solution. Each member’s portion of the settlement is based on their market-share (that is, the number of plays of their music divided by the number of plays of all music). The problem is that most of the songs controlled by the NMPA members have easily identifiable publishing information, and this issue is about songs where the publishing info is not easily identifiable. Money that should be going to independent publishers ends up going to the big publishers. The rich get richer and the poor get poorer.

    The NMPA is probably also happy because they owned HFA during at least a portion of the time all this was going on. Deflating the lawsuit makes HFA and themselves look less bad.

    They’re probably really happy because they believe (rightly so) that if this lawsuit is successful, streaming services won’t be able to make music available for streaming the same day and date as the album releases. When a new album is released, more often than not, the publishing information for the songs on that album hasn’t been figured out yet. Sometimes that information isn’t known for months. If the publishing information isn’t known, Spotify and HFA can’t license the mechanical publishing rights. Many in the industry believe that the only way to maximize revenue is to strike when the iron is hot, and make music available for streaming on day one. This lawsuit would effectively prevent that. The irony is that this would essentially force labels to window new releases, which has the potential to make them, the publishers, the artists and songwriters a hell of a lot more money than they would make by streaming on day one. They just don’t believe windowing will ever work due to Youtube and piracy. I believe it will work, in spite of Youtube and piracy. Or, you know, they can simply wait until the publishing info is figured out and communicated to Spotify and HFA before releasing the album.

    And at the end of the day, it doesn’t really matter if the NMPA members are involved with this suit anyway. They have what, 800 members or so? There are tens of thousands of independent publishers in the marketplace. When David Isrealite says, “I am not aware of any music publisher that would represent at least 1% of the commercial market who is not a member.”, that may be true, but when you add up tens of thousands of them, you end up with a pretty big chunk of the marketplace. This suit will do just fine without the NMPA. And I believe it will go a long way to make things better in this industry.

    • Simon Fowl

      what he said!! this deal only favours the major publishers – someone somewhere said ‘we are committed to paying songwriters every penny, but only if we can find you” then when sugar hits the fan, ‘oh we have system to find you and pay you, but only if you sign up to waive your rights, and if you don’t we will give your money to our rich publisher mates” and David Isralite thought this was a good deal for publishers? – maybe the ones who have him in his pocket, what a sick industry!

  3. Anonymous

    the lawsuit is doomed because they are seeking class status which will be extremely difficult to prove and get certified. They will have to prove that every songwriter was infringed upon in the same way and this will be impossible. There are too many differences in the way songwriters get into publishing, record and distribution deals to ever prove that a class exists.

    The lawsuits is a statement by activist songwriters but not grounded in the reality of music licensing. I hope it forces some change (as the NMPA settlement will do) but it will not be a financial windfall for anyone and is probably DOA.

  4. david lowery

    Beg to differ This doesn’t do anything to the class action. The class action is about UNLICENSED SONGS not UNMATCHED ROYALTIES. Songs represented by NMPA publishers were never really the issue here. Why? In most cases the licensing was done via modified compulsory by NMPA owned Harry Fox Agency. The unlicensed songs are most likely to belong to non-NMPA publishers and songwriters.

    However if you are Spotify or Goldman Sachs and you need to convince investors that the problem is cleared up this headline works! Let the securities fraud begin!

    • Simon Fowl

      Thanks David, you are right as always to see through this bias or ignorance

      this article seems to have missed some vital points and has all the rhetoric of spotify propaganda

      1.Not only does the article fail to note that 96% of NMPA publishers is not every publisher, but those only in the US – I know the US is the centre off the universe in your heads, but it is a big world out there!

      2. 96% of the NMPA ‘market share’ – are the major publishers who will constitute an large proportion of this number. So the ‘market share’ of publishers – (the majors) who have shares in spotify have agreed to accept a ‘market share’ of $5 million quid soz fund. Nice little kisser for the majors ‘market share’ club!

      3. Spotify are committed to paying songwriters every penny – we just can’t find you to pay you!! Ha! unless of course, you sign in to our little waive you rights club, then we all of a sudden have the ability to pay you. However, if you do not sign up to our ‘screw the independents’ club then we will distribute YOUR money to the ‘market share’ – ie. their big publisher pals. cheers guys – but thats my money – you don’t get to give it to your mates because I don’t sign up – I still retain my rights and you still have to pay what you owe me – ( it was that underhand move that firmly convinced me not to sign their ‘deal’)

      I am an independent, who registered all of my 500 tracks with both the HFA & the US Copyright office and never received a single NOI or mechanical royalty – the info was a matter of public record – Spotify are wilfully infringing songwriters works and they absolutely know it!

      If we dared to infringe upon Spotify’s rights I imagine we would be straight in court so I have absolutely zero sympathy with their supposed ‘rush’ to get it all sorted and their BS commitment to pay songwriters every penny. they are thieves who have made a billion dollar share price off the back of the songwriters who they continually screw over in favour of their shareholding mates in the majors. vile! – I hope the judge is able to see through this transparent attempt to backtrack