This new suit will make similar claims as Lowery and Michelman’s, alleging that the subscription service is not fully licensed for some of the music it offers subscribers, and that the company is not issuing complete royalty payments. One source counters that additional lawsuits won’t add to Spotify’s problems because the company’s potential liability remains the same regardless. As well, class-action lawsuits are difficult to implement and maintain, especially in instances where similar suits are ongoing in parallel. The law firm was unavailable for comment.
“We would look to see what crossover there was” with any parallel actions, says Mona Hanna, co-lead counsel on the Lowery/Michelman & Robinson case. “This is not a turf war. It is about protecting the industry and the artists. Let’s get this issue resolved.”
The major labels could add to the drama by threatening their own cases against the company as leverage in licensing negotiations. And while Spotify may be the service under fire, all interactive streaming services are at risk on this issue, including Rhapsody, Rdio, Amazon Prime and Apple Music. To that end, sources tell Billboard a similar lawsuit is being prepared against a competing company.
For its part, Spotify is betting that settlement talks currently underway with National Music Publishers’ Assn. (NMPA), and the company’s announcement of plans to build a publishing administration system, will placate music publishers and songwriters. The NMPA settlement would allow publishers to claim payments for monies owed to them by Spotify in exchange for waiving any legal claims they might have against the music service over copyright infringement or copyright non-compliance. Any money remaining at the end of the process would likely be divided between the participants by market share. The proposal could also result in a code of best practices intended to plug any holes in royalty distribution going forward, as well as bolstering Spotify’s plans for a music publishing database with the aid of the NMPA and other collection organizations.
An executive involved in the negotiations contends that the class-action suits won’t impact the NMPA talks. “Remember, there was a class-action lawsuit against YouTube,” that executive tells Billboard. “When the NMPA reached a settlement with YouTube [in 2011], most music publishers opted in instead of pursuing the class action lawsuit, which was eventually dismissed.”
At least one company will not participate, believing they can secure better remuneration for their songwriters through an independent deal. At press time, only Warner/Chappell Music had been confirmed to be opting out of the negotiations and going its own way on the issue. Sources suggest that the major’s choice to opt out of the NMPA settlement is directly tied into the current licensing negotiations between the three majors and Spotify.
A major issue in negotiations between Spotify and the three majors is the service’s free tier, which pays one-seventh as much per stream as its paid tier. Some would like to see the free tier eliminated; others say they will work with the free tier, but will demand a bigger minimum payment this round.
“These lawsuits… increase negotiating leverage over rates on the free tier,” says one major label executive. Another executive counters that Spotify’s leverage increases with its revenue, which continues to rise.
The major labels are fully committed to interactive streaming services — with paid subscribers — as the industry’s future. Warner Music Group’s second quarter saw streaming overtake downloads as its central source of digital revenue, and companies don’t want to short-circuit that growth by engaging in damaging lawsuits against the services. If Spotify were to be held fully liable for each copyright infraction, it could trigger mutually assured destruction, according to one industry participant.