Everything Wrong With The Spotify/NMPA Settlement
Following the filing of a class action lawsuit against Spotify, the popular streaming service announced that it had reached a landmark deal with the NMPA which it quickly tried to get publishers and songwriters to sign on to, a deal which is rife with problems, says the respected Future Of Music Coalition.
Guest post from the Future Of Music Coalition
In December of 2015, musician and songwriter David Lowery filed a class action lawsuit against Spotify over unpaid mechanical royalties.
Though mechanical royalties are covered by a compulsory license, Lowery argues that Spotify did not live up to the terms of that license, failing both to inform him of the use of his music or to pay the government-set royalty required by federal statue. For its part, Spotify claims that it never intentionally played music without compensating songwriters and publishers, but was sometimes unable to determine what parties to pay.
Three months later, Spotify announced that it had reached a “landmark” deal with the National Music Publishers Association (NMPA)—the trade industry group representing the interests of many publishers—would see the service paying $30 million dollars in unpaid royalties and damages. The two sides then wasted no time contacting songwriters and publishers to ask that they sign on to the deal.
However, this agreement has turned out to be anything but a slam dunk for the two sides, with its terms generating immediate criticism from a number of songwriters and independent publishers. Some of the strongest pushback came from Lowery himself, who when presented with the opportunity to settle, balked at the offer on his blog.
Nevertheless, songwriters and publishers have to decide whether or not to join this settlement (and waive their rights to join the other class action lawsuits against Spotify). Unfortunately, the concerns over the settlement are very serious and worth pondering before signing your name on the dotted line (or Survey Monkey form).
As such, here are the key concerns that are raised by the settlement and what they mean to those considering signing on.
1. Lack of Transparency
This is especially complicated because the NMPA founded and maintains close ties to HFA—the organization that receives plays data from Spotify in order to match master recording data to publisher members who would then receive their share of mechanical royalties for the underlying compositions. The structure of this agreement means that the agency that was unable to perform comprehensive matching and the company that had went live without maintaining its own systems to ensure licensing compliance brokered a deal along with a trade association with a history of enticing new members via settlement agreements only to carve up the monetary awards by market share.
Things are made more complicated by the fact that the NMPA is not a party to the settlement. This means it cannot hold its members to the settlement, only advise that they take it. This is even more true for songwriters, who aren’t actually members of NMPA at all, despite what the organization’s leadership frequently implies.
Many songwriters are understandably unsure about taking a deal that was brokered privately between three parties that were responsible for unpaid royalties that doesn’t actually enjoin one of the parties.
With no direct artist participation in the negotiations and no transparency, songwriters and composers have reason to be wary.
2. Does Not Address the Infringement
While the settlement aims to pay unpaid royalties, it doesn’t address the fact that Spotify played many tracks without securing the proper licenses. This, according to the critics of the deal, means that Spotify committed copyright infringement that the settlement itself does nothing to resolve (though it does repordedly absolve Spotify from prior infringements via a separate “oopsie-daisy” fine of $5 million).
This was one of the issues that Jeff Price, former CEO of Tunecore and current boss at Audiam, raised when he was offered the settlement. Price’s argument is that Spotify is doing nothing to atone for its infringing ways, but rather, is just paying the royalties they set aside. (We’re not sure this is accurate, as we have heard many rumors of activity within the company to build in-house mechancial royalties tracking and matching capacity.)
The issue gets even worse because the settlement doesn’t necessarily stop Spotify’s practice of playing unlicensed tracks. It puts the onus on publishers and songwriters to devote additional efforts to establish systems for future payments and leaves the Harry Fox Agency in charge of handling a big chunk of Spotify’s mechancal royalties obligations.
While we know that Spotify is spending $30 million on the settlement and that $25 million is unpaid royalties plus a $5 milion penalty added on top, we don’t know how much an individual songwriter is likely to receive.
The exact amount a songwriter should expect to get is unclear. Though the amount is supposedly proportional, there’s just no way of knowing how much money an individual music creator will see from this.
Things did not become more clear when the HFA sent Lowery a check, supposedly as part of the settlement. The check did not stipulate which compositions it applied to or provide any indication of how the sum was calculated.
With so many questions about the how much this settlement will be worth to songwriters and how the funds will be calculated, the apprehension is understandable.
4. TuneCore’s Involvement
Artists who publish through services like TuneCore and CD Baby are among the most likely to have had their compositions used by Spotify without mechanical royalties being paid. That’s because they are the least likely to be in the HFA database.
However, TuneCore has been extremely aggressive in trying to get its members to agree to the deal, which seems odd, given the low likelihood of its members being accounted for in reconciliation.
In one form of outreach, TuneCore sent an email to songwriters who use its publishing administration service asking them to join the deal. However, the request directed songwriters to a Surveymonkey page that simply asks for an email address and composer’s name on top of some check boxes. Neither the email nor the form linked to the complete agreement, meaning it was encouraging its members to agree to the deal without knowing its terms.
5. Dilution of the Class
Finally, Spotify is currently facing two separate class action lawsuits, the second filed weeks after Lowery’s. Though the complaints will likely be merged, both are seeking significantly more money than the currently NMPA settlement—$150 million in the Lowery’s case and $200 million in the more recent action.
However, for a songwriter to join the NMPA settlement, they must agree not to participate in any other class action lawsuit. This means that they will be ineligible to be part of either of the ongoing cases and will not be a counted in the class.
The smaller the class, the less damages would be awarded should the songwriters prevail. Class action lawsuits depend upon the idea of there being strength in numbers; by recruting songwriters and publishers into the NMPA settlement, Spotify is able to whittle down the numbers for the actual lawsuits against them.
In the end, every songwriter and publisher needs to make their own choices about whether or not to accept this settlement. However, there are plenty of reasons to be wary and not very many reasons to be comforted.
While this settlement may may turn out to be a good deal for many songwriters and composers, there’s simply no way of knowing if that’s true right now. Between the non-transparent way the agreement was reached, the opaque accounting methods employed and the heavy-handed methods to encourage songwriters to join, it’s tough to know whether its a potentially good option.
With so much uncertainty and so little representation of music creators at the negotiating table, these kinds of deals tend to further sour relationships between songwriters and publishers at a time when they should be pulling together. But a decision will have to be made if you are a songwriter who believes their music has been used without a license. We should know soon if the class action lawsuits are moving forward; songwriters have a month before a decision has to be made about joining the NMPA settlement.
Hopefully, more answers can be gleaned over the next month and, with it, more certainty about what songwriters and composers gain by signing on.