Tag: songwriters

Spotify Still Wrangling with Songwriter Royalties

On January 8 of this year, The Trichordist ran a story that the Huffington Post apparently rejected in which indie musician Blake Morgan describes a closed-door meeting between Spotify executives and a group of musicians.  According to Morgan, he actually had to explain that Spotify’s “product” is not Spotify itself but music—music that Morgan and his friends make, and which Spotify monetizes.  And that’s fine, even welcome, if the company pays for licenses.

But Spotify has a big—potentially very big—problem when it comes to paying for mechanical licenses, which compensate songwriters and composers for their compositions, regardless of which artist(s) perform the work.  These licenses are required for reproduction under §106(1) or distribution under §106(3) of the Copyright Act; and based on precedent, a streaming service like Spotify is held to both reproduce and distribute musical compositions.

Unfortunately, the company has allegedly failed to pay for mechanicals for thousands of compositions, which is why it currently faces litigation from several complainants with potential damages running into billions of dollars.  Biggest among these is the Wixen Publishing suit, filed on the eve of the Music Modernization Act (now law) first being introduced in committee.  The suit implicates around $1.6 billion in damages for failure to license works by songwriters including Tom Petty, Stevie Nicks, Neil Young, et al.

With such prominent names in the mix, one might think that Spotify’s original defense (i.e. that rights holders are hard to find) would not have held up very well.  And it did not hold up very well, as exemplified by the comparatively modest Lowery/Ferrick class-action suit, which settled in May 2017 for a $43 million fund to various songwriters.   

Then, with the pending Music Modernization Act, which would bring an end to new litigation over failure to obtain mechanicals, late 2017 saw a spate of new complaints against Spotify for its apparently sweeping failure to secure these licenses.  And perhaps it was the extinction-scale degree of the potential damages that then inspired fresh creativity in Spotify’s defenses.

In a September 2017 post, I described the suits filed by Bluewater Music Services and songwriter/musician/producer Robert Gaudio.  In its initial response to this complaint, Spotify implied that, as a streaming platform, it was never obligated to pay for mechanical licenses.  This drew immediate reaction from the National Music Publishers Association and CEO David Israelite’s declaration that the platform was then “in a fight with all songwriters.”

Spotify’s rationale in that brief was that streaming only implicates the right of public performance and not distribution; but as I noted in that post last September, even if a court agreed with this interpretation (and that is a big IF), this would still leave the reproduction right, for which a mechanical license is still required.  This no-license-needed defense remains among Spotify’s arguments in its current filings, but according to a recent article by Eriq Gardner in The Hollywood Reporter, the streaming company has introduced a new theory to the Bluewater case.

Because Bluewater administers copyrights for publisher clients, but is not the owner of those copyrights, Spotify questions whether the company has standing to sue for infringement of the mechanical right for all the titles named in its complaint.  Spotify’s theory turns on the premise that because a) Bluewater is not empowered to license for less than statutory rates without written consent of its publisher clients; and b) because any party can obtain a mechanical license at the statutory rate by filing a Notice of Intention (NOI) with the Copyright Office, then Bluewater’s authority to grant the license is non-exclusive. If that’s the case, Spotify contends, then Bluewater does not have standing to sue for these alleged infringements.

Spotify’s argument hinges substantially on the fact that mechanical licenses are compulsory.  No songwriter/composer can deny any party a mechanical license to use a musical work as written.  On the other hand, these owners can authorize parties like Bluewater to administer those rights on their behalf, so if this reads like a very fine parsing on Spotify’s part, it will be interesting to see whether the court thinks so, too.  In either case, a mechanical licensing after January 2018 is subject to the terms of the MMA, so it seems doubtful that the Sixth Circuit opinion will have substantial effect going forward regardless of how it rules.

It was Devlin Hartline at the Center for the Protection of Intellectual Property (CPIP) who shared this story on Twitter, so I asked his view, and he replied …

“It’s quite noteworthy that Spotify summons no support in the case law for its newfound position that there can be no exclusive licensee of the mechanical rights in a musical work at the statutory rate since there’s no exclusivity given the compulsory license. The compulsory mechanical license has existed since the Copyright Act of 1909. If the argument had any merit, you’d think Spotify would be able to find at least some precedent in support. Instead, this move comes across as another desperate attempt by Spotify to avoid paying for the works that it failed to license properly in the first place.”

Further, Hartline opined in his tweet Spotify counsel Christopher Sprigman’s presentation of this unique defense might be another reason to be concerned about his leading the Restatement on Copyright Law initiative at the American Law Institute.  As described in a January post, some prominent copyright skeptics have pushed for this Restatement project, which is unprecedented in the annals of all statutory law—not just copyright.  As I wrote in that post …

ALI Restatements have never been written for comprehensive federal laws like copyright because these are already statutory, or black-letter, laws.  Congress writes the statutes, the judiciary interprets them, and attorneys make their arguments; but everybody’s working from the same statutes and a much more narrow body of case law than common law entails.   Hence, this request for a Restatement of copyright law represents an end-run around Congress—an effort to reshape the Copyright Act without a legislative process.

Sprigman is counsel for Spotify; he’s the lead Reporter on this ALI Restatement project; and he’s the co-author of a paper called The Second Digital Disruption (see two-part response here), which rather speciously asserts that because market data reduces risk, this obviates the author’s need for strong copyright protections.  Not that I generally like picking on any one individual, but it just so happens that Sprigman’s name seems to feature in a trifecta of the anti-copyright agenda—litigation, policy, and academia—and largely in the service of billion-dollar tech companies like Spotify that don’t even know they’re in the music business.  

Can Streaming Ever Work for Songwriters?

Yesterday, David Lowery’s The Trichordist published an article by singer/songwriter Blake Morgan—one which the Huffington Post apparently refused to run.  In the piece, Morgan describes meeting with Spotify executives to whom he tried to explain that their product isn’t Spotify itself but is in fact music.  “And by the way,” Morgan said, “stop calling your subscribers ‘users.’ They’re not ‘users,’ they’re listeners––our listeners in fact. You’re the ‘user.’ You’re using our music to monetize our listeners for your profit.”  This apparently confused and frightened the Spotify exec, who became defensive with an arrogance familiar to anyone who follows the internet industry. “You don’t get it at all!” the guy declared before leaving in a huff.

The night before reading Blake’s story, I met with a group of musicians in New York, and one songwriter showed up with a stack of papers in his hand. These were notices of intent (NOI) filed by a single entity on behalf of all the major streaming platforms for the purpose of obtaining compulsory licenses for use of dozens of the writer’s compositions. Based on reporting by Chris Castle, I wrote for the union publication Allegro back in March about major platforms doing this—using their overwhelming computing power to mass-file NOI, exploiting a loophole in Sec. 115 of the copyright law, in order to essentially blanket license all compositions for streaming platforms.  This living example of the songwriter with physical notices in hand hit home for me.  The songwriter explained that if he goes to the notice-sender’s website and fills out all the forms, there might be as much as $50 in it for him as compensation for thousands of streams of his work across multiple platforms.

American songwriters are unique among copyright holders because they are the only creative artists subject to a combination of compulsory license (i.e. anyone can use their work if they pay the license fee) and a consent decree, with roots in the early 20th century, whereby a federal rate court determines what the license fees will be for various uses, including public performances.  And because the average rate for a digital public performance is $0.005, this is why millions of streams are worthless to songwriters, despite the fact that streaming has largely displaced their other sources of revenue.

With Spotify poised to announce an IPO this year and make Daniel Ek and his colleagues even wealthier than they already are, a New Year’s Eve lawsuit with a price tag of $1.6 billion was filed by Wixen Publishing against Spotify for its unlicensed use of  hundreds of songs, including famous writers like Neil Young, Tom Petty, Stevie Nicks, and Donald Fagen.  The complaint alleges that 21% of the 30 million tracks on the platform are being used without mechanical licenses, and this number seems reasonable given the available anecdotal evidence and the grounds for previous litigation.

In the Lowery/Ferrick class-action suit for this same failure to license, Spotify’s defense amounted to claiming an intent to pay the license fees but for the lack of an efficient means to locate the songwriters due the royalties.  That suit settled for a modest $43 million fund, amounting to just a few dollars per infringement. Then, in response to a pair of lawsuits filed in September last year, Spotify came very close in its initial motion to asserting that streaming services were not even subject to mechanical licenses.  This drew immediate fire from the music world, notably National Music Publishers Association CEO David Israelite who said that Spotify was asking for a fight with “all songwriters.”

Fast-forward to the end of 2017, and the event that triggered Wixen’s 11th-hour litigation was the release just before Christmas of a draft bill titled the Music Modernization Act.  Sponsored by Representatives Doug Collins (R-GA) and Hakeem Jeffries (D-NY), the bill reflects about 4-5 years of legislative work trying to secure the interests of music-makers in the streaming market—even if, as Blake Morgan describes, the bros at the streaming companies don’t understand that they’re in the music business.

The MMA is endorsed by multiple music rights organizations, including NMPA, ASCAP, BMI, SONA, RIAA, A2IM, and several others.  The proposed legislation addresses a number of issues have long divided musicians and streaming platforms by creating a new digital licensing collective that has been compared to SoundExchange by some observers.  But the reason the bill triggered the Wixen lawsuit is that, if passed this year—and this seems feasible—the law would foreclose any new lawsuits over mechanical licensing infringements (including past infringements) because its core agreement is predicated on a blanket, compulsory license in exchange for an improved system of royalty distribution.

Key improvements include a new database funded by the digital platforms that would, in principle, more accurately identify and locate songwriters and composers to receive; and a new rate-setting process that is expected to raise the overall rates paid to songwriters.  Nevertheless, as written to date, the bill contains three areas of concern for songwriters. These have been publicly noted by Rick Carnes, CEO of the Songwriters Guild of America, though my understanding is that other parties share some of these concerns, and they will be raised as amendments to the bill are proposed in coming weeks and months. The issues Carnes raises are the following:

First, the immediate end of all litigation for past infringements seems to unfairly limit the remedy options for independent and small-publisher rights holders.  Carnes says he fully understands the need for a safe harbor in exchange for collective licensing going forward, but “why are songwriters who have seen their works infringed hundreds of thousands of times in the past having their right to sue for damages cut off arbitrarily on January 1, 2018?”

Second, the board overseeing this new digital licensing collective would currently comprise eight publisher representatives to two independent songwriter representatives.  Carnes argues that representation should be 50/50 just like the board overseeing SoundExchange.

Third, as written, the bill calls for royalties collected and held for songwriters who cannot be located to be distributed on a market-share basis, mainly to the major publishers. Carnes says that it is naturally the independent and small publishers who are most likely to fall through the cracks in the new system, which he describes as “enshrining” a longstanding problem even in old systems whereby music creators are often not properly compensated through royalty-collection practices.

Meanwhile, despite Spotify’s prominent role in this narrative, the reality is that YouTube is the most-visited platform for music streaming, and that platform pays a songwriter about ten percent of what Spotify pays (think $24 for a million plays), when it pays at all.  Presumably, any number of tracks a listener will “discover” on YouTube will be unauthorized uploads by users and are, therefore, outside the system that compensates artists even the paltry tip-jar money they’re due.  I mention this by way of saying the market itself remains volatile and dynamic, and we should be no more surprised to see Spotify suffer a Pandora-like fall from grace than to see it retain its dominant position.

I am hopeful that issues raised by Rick Carnes can be addressed as the Music Modernization Act moves through the process so that thousands of songwriters, whose names you’ll never know, can begin to benefit from the future of the digital music marketplace—whatever that future may look like. The bill certainly represents the first significant legislative attempt to make streaming work for musicians, but it would be an unfortunate irony if the independent voices—the ones who first advocated the democratization of the internet—were the ultimate losers going forward.  And we, as listeners, would lose as well.  Meanwhile, kudos to independent voices like Blake Morgan just for reminding the tech geeks with so many dollar-signs in their heads that without the music, movies, TV shows, etc. nobody would give a damn about their bloody apps.

Image by TurboMotion

Music Creators Seek Reform of Consent Decree

In his recent testimony before congress, songwriter and president of ASCAP Paul Williams remarked that it was astonishing to realize that he and fellow witness, songwriter Rosanne Cash, were subject to more government regulation than the multi-billion-dollar corporations whose interests were represented in the same hearing.  What Williams was referring to with that remark is the fact that licensing fees for certain public performances of works by composers and songwriters are still predicated on a WWII-era consent decree between ASCAP and the DOJ.  This decree granted a federal judge (aka the “rate court”) the sole right to set rates for these public performances, but for a market that looks nothing like the one we have today.

It is thanks to these outdated licensing terms that we continue to hear from various music composers and writers that, for instance, millions of plays of their songs on a streaming service like Spotify is worth less than a couple-hundred bucks.   And as the songwriters and composers presently lobby for change, we’ll surely be hearing plenty of hew and cry from Pandora, Spotify, and Google.  After all, when these tech companies evangelize new models, innovation, and disruption, they only really mean it if it’s good for their bottom line; so if a half-century-old law or system allows them to exploit someone else’s work in order to add a few million to their own coffers, then “old models” sound just fine. They won’t come out and say “leave the old system in place;” that would be too regressive-sounding and too bluntly honest.  Instead, they’ll try to scare consumers in one way or another that their streaming services will cease to operate or have to adopt new pay models or charge more for access, and so on; but the reality is that while these services dangle cheap and free in front of consumers in the short term, failure to reform the present system may result in higher prices, disenfranchised licensees, and/or decreased diversity in production over the long term.  Meanwhile, there’s no question songwriters and composers are getting pretty well hosed, shackled to an obsolete model from which they can neither effectively opt out nor negotiate within as free agents in a normal supply/demand market.

This matters now because streaming is how consumers want to listen to music, and why wouldn’t we?  If I’m in the mood to listen to a song I haven’t downloaded, I launch Spotify just like anyone else. Who wouldn’t want such on-demand convenience?  And for free?  But our convenience is presently subsidized by the dramatic underpayment of songwriters and composers who are increasingly dependent on revenue from this new way we want to listen to music. At the same time, these creators of the music we love are the folks without any other source of revenue.  They don’t tour, and they don’t sell merchandise.  Elton John is a big damn star and a knight and all that, but I don’t think anyone ever bought a Bernie Taupin tee shirt, if you know what I mean.

Music licensing can be confusing.  There are multiple ways to use music and different rights associated with each use as well as multiple stakeholders with any given track.  Readers will thank me for not attempting to wade too deeply into all the variables; I’d probably get some of it wrong, and it’s not exactly spellbinding.  Suffice to say that the rights associated with the consent decree and its reform are public performance rights covering uses like radio broadcasting, music streaming, live performance by musical artists, and uses in venues like bars, restaurants, and theaters.  Licenses for these types of use are granted automatically upon request, and they are generally bulk licenses covering tens of thousands of songs for a single, annual fee paid to a performing rights organization, commonly called a PRO.

ASCAP was the first PRO (founded in 1914) and is the largest of these organizations, followed by BMI, but in the present landscape, other PROs have emerged that are not subject to the consent decree.  Still, a PRO the size of ASCAP enables hundreds of billions of typical public performances for users through a collective licensing and fee structure that compensates the organization’s membership of composers, songwriters, and publishers.  For instance, the coffee house where I’m writing at the moment has a sign on the door with the logos of the three leading PROs because this place hosts open-mic nights and other live performances, and it has music playing continuously during normal hours.  A little venue like this pays a relatively low licensing fee that provides blanket coverage for this type of public performance, allowing any local musician to come in and play any cover she wants for whatever size crowd will fit in here.  In a similar way, if I wanted to use music incidentally on this blog site, I could get a license with the three major PROs for a few hundred bucks a year and have the use of just about every song in existence.

Without reform of the consent decree, the PROs could see the resignation of major publishers from membership, effectively abandoning collective licensing.  This would mean individual negotiations between publishers and new media services, which would almost certainly increase costs that would be passed on to consumers one way or another and would also create unnecessary burdens for traditional licensees like my local coffee house.  It is not hard to imagine a future in which the full adoption of music streaming wipes out a whole class of professional music creators. After all, nobody can argue that a sustainable market can be built on a model in which “success” in the primary market buys a half-order of groceries once in a while.  And regardless of what the Pandoras etc. may say in defense of the current system, there is simply no way they can promise that a world without professional songwriters and composers will not be a world devoid of the kind of music we’ve been lucky to enjoy so far.

Adding insult to injury, many start-up Internet companies offering music streams as the foundation of their business model are employing stall tactics to avoid paying any licensing fees at all.  The Silicon Valley culture has a long tradition of steal now, apologize and pay something later, and the PROs are seeing this first-hand with various web businesses.  Once the request for a license is made, it has to be granted; but then the PRO requests information about the applicant’s use, audience, etc. in order to set a fee.  ASCAP and the others are seeing a trend in which these companies stall on providing information and, therefore, stall on paying any fees while freely using all the music they want in order to grow their business.  (Man, I’d like to see somebody try that with construction and the cement supply company.  Just once.)  The recourse available to the PRO in this case is federal court, which is costly and time consuming.

Presently, the songwriters, composers, and publishers are proposing certain reforms to congress that release them from this outdated consent decree and enable them to negotiate (still through the PRO) more flexibly in response to current market realities.  For instance, ASCAP proposes shifting cases from the purview of the federal rate court to a more expedited process of private arbitration; and it calls for voluntary rather than compulsory licenses in order to create bundles of works, allowing the PRO to license music more complexly than the all-or-nothing model that exists now.   With these types of reforms, the PROs feel they can negotiate sustainable fees for songwriters and composers while keeping intact the collective licensing paradigm that keeps public performance licensing easy and affordable for tens of millions of users.