Almost three years after the law firm Michelman & Robinson filed a putative class-action lawsuit against Rhapsody International on behalf of David Lowery and fellow songwriters Victor Krummenacher and David Faragher for infringing their mechanical rights, a deal to end the case is moving forward.
Late Friday night (Feb. 15), the firm filed in the U.S. District Court of Northern California a motion for preliminary approval of a settlement that will get self-published songwriters $35 for every composition Rhapsody played that’s registered with the U.S. Copyright Office and $1 for every unregistered composition the service played at least 24 times. Like the case against Spotify settled in 2017, this involves the service’s failure to properly license and pay for songwriters’ mechanical rights — and bringing it to a close will allow Rhapsody to move forward with less uncertainty….
Although many streaming services have infringed mechanical rights, this could mark the last major class-action lawsuit on the subject, since the Music Modernization Act offers streaming services a safe harbor from lawsuits for statutory damages for mechanical rights infringements filed after Dec. 31, 2017 under most circumstances.
[Rob Levine puts his finger on the central objection that most songwriters have about the Music Modernization Act–the lack of incentives to stop paying the current hit songwriters with other people’s money on black box distributions. Every songwriter knows that what a wise man one said–they may be riding high in April, but they could get shot down in May. With very few exceptions that black box will eventually be their money.]
The focus should be on getting as much unclaimed royalties as possible to the publishers and songwriters who actually earned it.
The part of the Music Modernization Act that reconfigures the way mechanical royalties are collected and distributed in the online world has something for everyone in the publishing business. Streaming services that comply with the new law can no longer be sued for statutory damages for copyright infringement. Music publishers gain more control over how mechanical royalties are paid. Most publishers and songwriters should make more money. So it seems almost churlish to point out that the only issue that involves mechanical royalties that the bill won’t necessarily fix is how hard it is for streaming services to match recordings with compositions in order to accurately pay publishers — which is what created the push to pass it in the first place.
The bill does create a mechanism to improve that situation, and a relatively simple fix to the law would make sure it did. Congress should make this fix and then pass the bill, since it will stabilize the music streaming business and update the way publishers are paid in the online world.
With an impending IPO finally on the horizon and copyright-infringement lawsuits worth over $1 billion stacking up, the streaming leader has plenty to deal with in the new year.
Spotify has established itself as the leader in on-demand audio, with 70 million paid subscribers worldwide. But the company now faces a series of hurdles as it barrels into 2018, with a long-awaited initial public offering on the horizon for the first quarter and several copyright-infringement lawsuits that could cost the company dearly — and hang a dark cloud of uncertainty over its head.
During a hearing on Friday (Dec. 1) in the U.S. District Court for the Southern District of New York before Judge Alison J. Nathan, lawyers for Spotify and the putative class argued for final approval of the settlement, while two other rightsholders filed objections that the damages for each composition streamed were insufficient. Under the terms of the settlement, the writers of compositions that have been streamed between zero and 100 times would receive a minimum payment, while the rest of the money would be divided on a pro rata basis.
The basic issue is fairly straightforward: Spotify didn’t license mechanical rights for the compositions it streamed, even when it had rights to recordings of them. Although the company says that poor record keeping makes it very difficult to identify and find rightsholders, it also failed to issue the appropriate NOIs — Notices Of Intent — with the U.S. Copyright Office. In March 2016, Spotify agreed to a $30 million settlement with the National Music Publishers Association. Rightsholders can choose to opt out of the settlement and sue on their own, as several have already done.
Dealing with the issue is proving more complicated, especially since Spotify hasn’t said — and no one else knows — exactly how many compositions the company has infringed. That means lawyers for the putative class couldn’t say how much each class member would receive. “It’s hard to give a precise range,” said a lawyer for the putative class.
“How about an imprecise range?” Judge Nathan asked.
This, too, was difficult, apparently, although a lawyer for Spotify, Andrew Pincus of Mayer Brown, suggested a “ballpark” estimate that the company had infringed 300,000 songs. That would mean each rightsholder would get an average of about $100, although the actual numbers would vary widely. Statutory damages for willful copyright infringement range from $750 to $150,000.
Another outstanding podcast from Portia Sabin’s Future of What podcast, this time with the music credits services Jaxsta and Discogs on the importance of credits. Credits are also known as the moral right of attribution, currently under review at the U.S. Copyright Office. Yet another artist rights area where the U.S. lags behind the rest of the world. (See also Robert Levine’s recent post on Billboard about Auddly, a different and also important approach to the credit issue and MTP’s previous post on how Facebook sell artist names as keywords without rights.)
For the last few years, Barclays’ annual research reports about the music industry reflected the challenges of a business in transition — or, more specifically, one that had slowed a rapid decline but had not returned to growth. In 2014, as track sales fell, the bank’s report declared that “Streaming Killed the Download Star”; the 2015 edition was titled “Swimming Upstream.” But the bank’s latest research report, published in October and titled “Dancing Days Are Here Again,” starts with much better news: “2016 is the year recorded music appears to be turning a corner.”
However, it’s not time to pop the bubbly just yet. As streaming grows, sales of downloads and CDs are plunging — by 22.1 percent and 12.7 percent, respectively, in the first nine months of 2016, according to Nielsen Music — and it still remains to be seen just how many casual fans will pony up for subscriptions when music is available for free on YouTube and Spotify’s ad-supported tier. While streaming has been great for the major labels, its economics are rarely as rewarding for songwriters, publishers and even some labels and artists. And so far, none of the companies in the streaming business are making money.
In other words, if this is a turnaround, then it’s a fragile one. “We’re in recovery,” says Michael Nash, Universal Music Group executive vp digital strategy. “It’s one day at a time.”
Another insightful post by the author of Free Ride! We’re looking forward to Mr. Levine turning his attention to the racketeering at Facebook.
As Spotify begins to prepare for an IPO, which sources say the company is planning for late 2017, the relationship between the Swedish streaming giant and its trifecta of major-label frenemies (Universal Music Group, Sony Music Entertainment and Warner Music Group) is going through some drama.
Finding compromise is more important than ever for both sides. Spotify needs the majors’ vast catalogs and without long-term deals in place, it would be hard for the company to go public — which it essentially has to do in order to satisfy the terms of a financing deal.