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Spotify agrees settlement over mechanicals with NMPA

By | Published on Friday 18 March 2016


As expected, Spotify has announced an agreement with the US National Music Publishers Association over all those unpaid mechanical royalties, and the NMPA is “THRILLED” about the deal. So, that’s all good then.

As much previously reported, the payment of mechanical royalties by on-demand streaming services in the US, to the owners of the songs that have been streamed, has been something of a mess to date.

Services can license the mechanical rights in songs under a compulsory licence in America, which sets a standard rate. But under that licence the digital service must alert the rights owner that their songs are being used and arrange to pay the statutory royalties. In many cases this hasn’t happened, with the streaming firms arguing that they don’t know what songs are embodied in what recordings, because the labels don’t tell them.

In most other countries the publishers have a single collecting society that takes all the monies due from the streaming service and works out who to pay them too. But in the US, that system has never existed. There are middle-men agencies to help with the royalty distribution process, and Spotify hired the biggest, the until recently NMPA-owned Harry Fox Agency. But it proved itself to be somewhat incompetent in distributing the money, meaning a significant amount of royalties were never paid.

Wherever the blame for all that may or may not lie, under the compulsory licence the digital service is liable and – as also previously reported – numerous streaming services have now been sued by songwriters who publish their own works on this very issue. Those lawsuits rightly say that if a digital service does not comply with the terms of the compulsory licence, then the licence doesn’t apply, and therefore any use of those songwriters’ works technically constitutes copyright infringement.

Those lawsuits are seeking class action status, meaning any publisher or self-published songwriter could pursue damages if those actions are successful in court. Spotify’s deal with the NMPA is an attempt to contain the litigation, by offering publishers a speedy solution to getting both unpaid royalties and a bit of compensation, while ensuring for the streaming service that the mechanical royalty lawsuits don’t keep on piling up for the foreseeable future.

Some publishers, while wanting their unpaid royalties, recognise that America’s long inefficient mechanical licensing framework is really behind the unpaid monies, and would therefore rather not punish Spotify et al for failing to comply with the terms of the compulsory licence. Meanwhile the NMPA itself may possibly accept the role its inept music rights agency played in creating this big mess.

Though with this deal and the outstanding class actions now both on the table, we’ll get to see how many publishers – and self-publishing songwriters – are willing to just forgive and forget, and how many want to see the digital firms held accountable in court.

Although we don’t yet know some of the specific figures in the NMPA/Spotify deal, we do know that, as expected, there are three key elements to the arrangement.

First, the streaming service will work with the trade group to distribute the big pile of unpaid mechanical royalties it’s sitting on. Secondly, there will be a separate fund distributed to publishers and songwriters who opt in, a sort of “sorry we screwed up fund”. And thirdly, a system will be put in place to ensure that Spotify gets the data it needs to make more efficient mechanical royalty payments in future.

It’s widely rumoured that the “soz fund” will be $5 million, while the stack of unpaid royalties is anywhere between $15 million and $25 million, depending on who you talk to.

It is thought that publishers will have three months to sign up to the deal, after which a big data collation and money distribution period will begin. Those opting in won’t be able to take any subsequent action against Spotify on the mechanical rights issue, which is the key gain for the streaming service, the aim being to end most of the disputes around these royalties sooner rather than later. Certainly ahead of any IPO for the Spotify company.

Which brings us back to the choice US publishers and songwriters must now make, join the settlement or join one of the class actions, where the prize could be infringement damages of up to $150,000 per song. Spotify will be hoping that, beyond any of the aforementioned goodwill in the publishing community, it can convince even its critics into the deal with the promise of a relatively quick pay day, compared to a long drawn out legal battle.

The streaming service’s lawyers are also concurrently trying to have class action status denied to the highest profile of the lawsuits it is fighting, that launched by David Lowery late last year. By setting a deadline for the settlement, and with the class action status of the Lowery litigation still to be determined by the judge, that could provide another incentive for publishers and songwriters to join the settlement party. Even if some feel that the deal as it is currently set up favours the bigger publishers.

Lowery’s lawyers Michelman & Robinson pre-empted the NMPA deal by issuing its own statement to the songwriting community earlier this week. The law firm said: “It is impossible to determine the true benefit to songwriters [of the settlement] because the settlement negotiations between NMPA and Spotify have been conducted without court oversight”.

“In stark contrast, a class action settlement requires the class counsel – the attorneys representing the songwriters – to submit the settlement terms to a court and provide the court with evidence that the settlement was reached in an arms-length transaction”, they went on. “In other words, courts ensure that there was no collusion in the negotiation and that the settlement is fair and reasonable to all class members. Unfortunately those safeguards are absent from the NMPA/Spotify settlement negotiations”.

They were also keen to distinguish this NMPA settlement from one the trade group reached with YouTube back in 2011. “That settlement was reached as part of a class action”, the lawyers said. “As such, that settlement was submitted to and approved by an independent court. In addition to providing an independent third party arbiter, a class action has the further advantage of narrowing the scope of the claims to the case. The NMPA/Spotify settlement will likely require songwriters to waive all rights to future action and compensation beyond the deal”.

Their advice for any self-publishing songwriters now not certain what to do? Get yourself some legal advice, mate. “Before agreeing to be a part of the NMPA/Spotify settlement, you are strongly encouraged to consult with your own counsel, or contact plaintiffs’ counsel on the Spotify class action lawsuit. In order to protect your songs, and your livelihood, it is critical that you carefully consider the long-term benefits of the NMPA/Spotify settlement before attaching yourself to it”.

But did I mention how THRILLED the NMPA is that it reached a settlement. “I am THRILLED that through this agreement both independent and major songwriters will be able to get what is owed to them”, said the organisation’s top man David Israelite. “We must continue to push digital services to properly pay for the musical works that fuel their businesses and after much work together, we have found a way for Spotify to quickly get royalties to the right people. 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”.

Spotify’s chief speaking dude Jonathan Prince, meanwhile, said in a statement: “As we have said many times, we have always been committed to paying songwriters and publishers every penny. We appreciate the hard work of everyone at the NMPA to secure this agreement and we look forward to further collaboration with them as we build a comprehensive publishing administration system”.