Spotify Hit With A $150 Million Class Action Lawsuit

A lot of artists, bands, indie labels and publishers have a problem with the payout from Spotify, but most feel that at least they're being paid something. What could be worse is if your songs are being played by the service and you're receiving no royalty at all.

That's the basis for a $150 million class action lawsuit brought against Spotify by Camper Van Beethoven/Cracker leader David Lowery.

Lowery claims that Spotify has failed to get the proper licenses to distribute certain copyrighted songs, and then failed to pay the copyright holders and publishers the proper royalties.

Spotify is currently in negotiations with the National Music Publishers Association about this very issue, and has reportedly set aside of fund of $25 million to pay the royalties for any improper song use.

There's been allegations of non-payment for some time, and Spotify has even admitted there was a problem, but blamed much of it on the lack of tracking data that was supposed to be supplied when the song was uploaded.

Incorrect metadata is a problem for almost every online service that deals with copyrighted material. Each platform has its own set of required data, and much of the time supplying that data falls to an intern or untrained employee of the label or publisher, so it's upload improperly or incomplete.

To qualify as a class action lawsuit, there needs to be a number of plaintiffs besides Lowery, and while not named, the Lowery suit claims that there will be more than 100.

If nothing else, this lawsuit should give us further insight into how Spotify matches songs to metadata and determines royalty payments.

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Spotify’s Victory Records Flap Shows How Complicated Digital Music Royalties Really Are

A growing controversy regarding the transparency of digital music may have come to a head with the latest situation involving Spotify and indie label Victory Records. The network suspended streaming all of the label’s songs after the digital monitoring company Audiam claimed that Spotify hadn’t paid publishing royalties on 53 million streams from over 2,000 of the label’s songs going back as far as 2012.

Audiam reported that it contacted Spotify and requested payment several times, and that the company agreed to pay but later reneged. Earlier this week, the streaming music company unexpectedly made the label’s songs unavailable to users of the service. Victory or Audiam claimed that they didn’t request that Spotify stop playing the songs, and say they are unsure exactly why the company chose to do so.

Spotify has since offered to terminate the existing license agreement with the label in favor of a new agreement, but the company is said to have declined. Although no official reason was given, it’s reported that the terms were less favorable to Victory.

Digital Royalties Are Complicated

While Victory Records, their publishing arm Another Victory, and Audiam claim that some of the publishing royalties haven’t been paid (the remaining 819 songs in the Victory catalog were fully paid), Spotify has been steadily paying the main sound recording royalty on the many streams from the company. 

The fact that it took an outside company to track down unpaid digital royalties illustrates why this area of the business leaves many artists, managers, and even label execs confused and bewildered over the entire process.

Inherently digital music royalties are complicated, with many payment layers that change with the streaming service, tier selected, country and even market share.

It begins with the fact that there are two types of streaming services. The first is a non-interactive or webcast service like Pandora or Slacker where the user listens to a radio-like stream and can’t actively select a song. The second is an interactive service like Spotify or Apple Music where the user can select exactly what they want to play. Each type of service pays at a different rate, which varies from service to service, with non-interactive paying a much lower rate. Read more on Forbes.

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SoundExchange Becomes A Major Source Of Online Revenue

When non-profit SoundExchange first started in 2000 its royalty payouts were so small that they were only rounding errors on most copyright owner and artists income statements. Today that's all changed as the service recently announced that it sent out $1 billion in royalty payments last year alone.

This is quite an achievement since it took SoundExchange 10 years to reach the first billion in payouts but two years for the second. In fact, last year the royalties paid by the organization accounted for about 16% of the American music industry's total income.

So where does the money come from? SoundExchange collects money only from digital radio, with the bulk of it coming from SiriusXM and Pandora. As a result, the organization has now become one of the major PROs along with ASCAP, BMI, and SESAC.

After deducting about 4.6% to cover its operating expenses, the organization sends 50% to the copyright holder (usually the record label), 45% to the featured artist and performers, and 5% to a special fund for session musicians and backup singers.

What's significant here is that artists actually get paid for radio airplay, unlike terrestrial radio where only the publisher and songwriter get paid.

If you're an indie musician and you're getting airplay on digital radio, there may be some money waiting for you in escrow. Sign up at SoundExchange today.

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Producers, Mixers and Engineers Might Get Royalties

A new bill in the U.S. House of Representatives has been introduced to give producers, engineers and mixers a mandatory piece of the royalty pie. The Allocation For Music Producer Act, or AMP Act (H.R. 1457) is designed to correct an injustice that continues to carry on for all producers and engineers except the elite.

It's been standard since the late 60s for producers to get a royalty on the records they produce, but they had to negotiate their own deal with either the record label or the act they were working for. Engineers rarely had a deal for royalty points, and when they did it was for a substantially smaller amount than the producer.

The AMP act would create a statutory right for producers and engineers to receive royalties from digital sales and streaming. This would be handled through Sound Exchange.

Producers have increasingly found it difficult to get paid in recent years, since their royalty stream was based on physical sales and usually not on digital. As a result, they've had to exist on the advances they received, which have shrunk since budgets are generally much smaller than in the past, except in the case of superstar acts.

Sound Exchange collects from radio-like streaming services like Pandora, SiriusXM and cable TV and splits the revenue 3 ways; 50% to the copyright holder, 45% for the artist, and 5% for non-featured musicians like studio musicians.

The AMP Act proposes that 2% be set aside for the producer and engineer, and that will come out of the artist's 45%.

So many producers and engineers have been responsible for making some major hits what they are, yet there are many cases of them not even being credited, let alone paid for the success of their work. The AMP Act hopefully will finally make it happen.

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The New Digital Music Mechanical Royalties

Don't look now but the a new mechanical royalty rate for digital media is coming. The Recording Industry Association of America (RIAA), National Music Publishers Association (NMPA), and the Digital Media Association (DiMA) have all settled on an agreement that will cover how digital media creators and their representatives will be compensated from 2013 through 2017. The agreement still has to be approved by the US Copyright Royalty Board, but at this point that seems to be just a formality.

The agreement generally keeps the music publishing royalty status quo of 9.1 cents per song download, per song on a CD or other physical formats, 24 cents per ringtone, and the complex formula for subscription and streaming formats, but also adds 5 new categories:

• Paid Digital Music Locker Services providing on-demand streaming and downloads like those supplied by iTunes and Amazon, where music publishers will now get a mechanical royalty rate of 12% of revenue or 20.65% of total content cost, or 17 cents per subscriber, whichever is greater.

• Free Digital Music Locker Services that include a download purchase, music publishers will receive a mechanical royalty rate of 12% of revenue or 22% of total content cost, whichever is greater.

• A new term for a category called "Mixed Bundle" which could include a locker service, limited interactive service, download or ringtones combined with non-music product like a cell phone, consumer electronics device or Internet service would provide music publishers a royalty of 11.35% of revenue or 21% of total content cost, whichever is greater.

• Another new category called "Limited Interactive Service," which is when a subscription service offers a limited amount of music to a single genre or playlists that the user can access at a lower price, will pay publishers 10.5% of revenue, 21% of total cost, or 18 cents per subscriber, whichever is greater. 

• And yet another new termed category called "Mixed Bundles," which is when a CD comes with a download, publishers see 11.35% of revenue or 21% of total content cost.

How publishers get paid for these scenarios has been a very contentious issue over the last few years, but the new categories seem to insure that the writer and publisher will get paid in those circumstances where they didn't before. That said, the above figures come mainly from the industry association's own press release, so there are a lot of details that are yet unknown. I'm sure we'll revisit the topic many times as more info becomes available.

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