Insider: Spotify Argument Won't Upend Music Industry Recovery

Sep 15, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney.

Legal Campaign Against Spotify Intensifies Ahead of Plan to Go Public (Billboard)

How Spotify’s Argument in Copyright Lawsuit Could Upend the Music Industry’s Newfound Recovery (Billboard)

Benom’s Take: The plot thickens! This week, a third lawsuit from music publishers was filed against Spotify. In addition to that, a number of notable names (Tom Petty, members of Rage Against The Machine, The Black Keys, Weezer and others) made appearances in court to object to the $43 million class action settlement Spotify made with music publishers. In the dissenting arguments, they bring up the same objection Bluewater Music did in its lawsuit filing - that the class action settlement gives Spotify a ridiculous discount for copyright infringement, equating to approximately $4 per song. Maximum copyright damages for willful infringement is $150,000 per song. Not too bad for Spotify.

Of course, all of this is coming on the heels of Spotify reportedly meeting with U.S. regulators to go public on the NYSE. Not a good omen for an IPO, especially when support for the streaming service from the music publishing and songwriting community is at an all-time low. But who can blame them? Spotify has kicked dust in the face of the music publishing community by objecting that interactive streaming mechanical royalties do not apply to them. With that response, in one single swoop, Spotify essentially declared war with the music publishers. As the President of the National Music Publisher’s Association is quoted in the second article, “As long as this is an active argument, we are in a state of war with [Spotify].” Spotify knows its argument cannot be true because it has these licenses in place, has paid the royalty before and in fact, admitted in copyright office filings in 2014 that it “needed” these particular licenses.

I want to comment in particular about the second article, regarding the notion that Spotify’s argument could upend the music industry recovery. After reading the article, I get the sense that the author is basically saying that Spotify is “too big to fail.” The author also alludes that if the music publishers win their legal battles against Spotify, that it will be the end of the music industry recovery. And this will essentially be all of the music publishers fault for suing Spotify and halting the growth we’ve seen in streaming. It’s a sensational argument that is lacking foundational truth.

First of all, the music industry has already reached a consensus on this issue. The argument dates back as far as 2001, even though 2008 was the year the compulsory royalty rates were set for interactive mechanical royalties. The mechanical royalty is required when there is “reproduction” and “distribution” of a song, i.e.: normally making copies of some kind. Spotify clearly makes copies of songs to put on its service and the service makes copies for subscribers when they are able to stream offline. The Spotify argument falls apart right there. If Spotify truly thinks it should be exempt from this royalty, then they should cease being an interactive streaming platform tomorrow and join the ranks of SiriusXM and traditional Pandora.  

No, the Spotify argument will not “upend” the music industry recovery. In fact, it may speed it up. For better or worse, one or all of these music publishing lawsuits will likely set a legal precedent that could hasten much needed U.S. Copyright reform. I see Spotify’s argument as a rallying cry to the music industry and copyright regulators. We have a terribly broken system and Spotify’s “stream now, pay later” model to build market share on the backs of creators proves how broken the system is. Spotify was in trouble before the flurry of publishing battles. The company hasn’t turned a profit yet and it clearly gave up too much to the major record companies to just get started. If anything “upends” streaming growth, it will have been Spotify’s risky business decisions and lack of turning a profit from the beginning. And if Spotify goes down, someone else will replace their market share.

Abraham Lincoln once said in regard to the expansion of slavery before the Civil War, that the United States would either become “all one thing or all the other” and that “a house divided against itself cannot stand.” These are my sentiments about government regulation of the music industry. The music industry “house” is divided between government regulation and free markets. These contradictions have caused a lot of the chaos we’ve seen over the years. If we are to hasten the recovery of the music industry,  then I challenge our industry leaders and government regulators to make it “all one thing or all the other.” We either make it all free market or all government regulated, for everyone. Spotify’s argument won’t “upend” the recovery. It may just hasten a copyright reform solution which would eventually stabilize the industry for decades to come.