Spotify’s licensing problems went from bad to worse. And these damages could be seriously catastrophic.
As Spotify’s valuation soars towards $20 billion, there’s a looming iceberg ahead.
On Friday, Spotify’s lawyers battled to certify a $43.4 million settlement with independent songwriter and publishers. The fragile agreement now looks likely to fall apart.
The settlement revolved around unpaid mechanical licenses, ignored by Spotify for years. By late 2015, Spotify found itself battling a pair of class action lawsuits, while ultimately forging a settlement agreements valued at roughly $75 million. The $43.4 million settlement looked like a victory for the streaming platform, and an easy way to right past wrongs.
Now, that agreement is the subject of a court hearing in New York. And the approval process could be difficult. At the US District Court for the Southern District of New York on Friday, Spotify’s lawyers argued in favor of the approval, while a number of unhappy rights owners declared it unworkable.
Earlier, more than 100 artists criticized the agreement in court filings. The group, which included Tom Petty, Kenny Rogers, the Black Keys, and Zach De La Rocha, vowed to wrest more money from the infringing platform. In their opposition paperwork, the group noted that the award is paltry.
How paltry? After legal fees, the entire class of writers and publishers would have $28.7 million to pick from. After dividing that by over 7.5 million potential claimants, and the per-award fee works out to be $3.84.
But when a federal judge asked Spotify for an estimate of total infringed songs on Friday, the answer was completely different.
Enter Spotify attorney Andrew Pincus of Mayer Brown, faced with a point-blank question by District Court judge Alison J. Nathan. “How about an imprecise range?” Nathan demanded after getting vague non-answers.
Pincus responded with 300,000, “ballpark,” according to court notes relayed by Billboard’s Robert Levine.
That would bring the per-song damages to around $95, though its unclear how many rights owners would be involved. Either way, it’s an extremely far cry from $3.84. And almost certain to draw criticism from angry rights owners.
Separately, the streaming giant is getting besieged by rogue litigants. That includes actions from Frankie Valli and Bluewater Music Services, with a $365 million price tag attached.
“Spotify raised over $2.5 billion in private equity and venture capital,” Jeff Price of rights conglomerate SOCAN told DMN. “I don’t understand why they didn’t invest some of that into building the required systems to resolve the issues or do it correctly to begin with.”
But Spotify has forcefully battled back, claiming they actually don’t owe anything for mechanical licenses.
“If a service enables users to download a song, then that service engages in the ‘reproduction and distribution of a sound recording’ and of the musical composition that sound recording embodies,” Spotify’s lawyers recently argued.
“But if the service streams a song, then the stream is an ‘isolated public performance of a sound recording,’ and of the musical composition that sound recording embodies.”