Spotify Royalty Drama Casts Shadow Over Songwriter Consensus

Musicians and streaming services’ compromise over songwriters’ royalties is corroding just six years after landmark legislation was enacted to redefine music copyright law and the licensing regime used to distribute industry revenue.

Spotify Technology SA’s move in March to reclassify its premium subscription service narrowed its royalty payments and lit a fuse that sparked a lawsuit against it, a push from the music publishing industry to change the law, and a novel complaint against the streaming giant at the Federal Trade Commission.

The flurry of activity in the songwriter and music publishing industry is reminiscent of the “end of a fireworks show,” said Joseph Fishman, an intellectual property law professor at Vanderbilt University.

“Those last two minutes, they’re just going to give you everything they have—that’s what we’re seeing right now with this multi-pronged approach,” Fishman said. “Trying to change legislation, bringing lawsuits, cease-and-desist, an FTC complaint—which is a totally new maneuver in this space which we haven’t seen before—it just seems like any tool that the music publishing industry has, it’s using now.”

Trust between the music industry and the platforms is approaching a breaking point as songwriters, music publishers and streaming services all vie for larger slices of a shrinking pie caused by the maturation of all-access audio services, said Richard Burgess, CEO of American Association for Independent Music said. With seemingly “not enough money to go around,” the groups are resorting to every tool in their toolbox to rework the law in their favor.

The Music Modernization Act of 2018 was supposed to cure some of that angst around the rise of streaming. For songwriters, it introduced one big change: no longer would platforms like Spotify send each artist a copyright notice saying it would be streaming their song. Instead, a new entity, the Mechanical Licensing Collective, would give streamers a blanket license to play the music they want. In turn, the MLC would take over the distribution of royalty payments.

Six years out, deep-seated dissatisfaction is beginning to unspool. First, the MLC sued Spotify on May 16, alleging the streaming giant reclassified its premium services to include audio-books as a way to skirt higher royalty payments, according to its complaint. Then, on May 21, the National Music Publishers Association asked Congress to change the licensing framework for songwriters. Finally, on June 12, the NMPA filed a complaint against Spotify with the Federal Trade Commission calling the reclassification a “bait-and-switch subscription scheme.”

And the grievances go beyond that. Some indie songwriters are calling for regulatory changes to the MLC, saying the current system failed to effectively manage royalty payments.

The MLC began operating in 2021, so any major changes to its structure are likely to face hurdles so early in its existence, said Jamie Simpson, chief policy officer and counsel for the Council for Innovation Promotion, who worked on the Music Modernization Act during her time working with the House Judiciary Committee. But a moment of reflection is warranted.

“It’s worth having a conversation now that we’ve seen how the MLC has played out since its creation, because it has changed the marketplace,” Simpson said.

The NMPA’s ‘bomb’

National Music Publishers Association, among the most powerful industry groups representing songwriters, wrote to Congress on May 21 demanding revisions to the rigid framework used to determine how songwriters are paid.

Under US copyright law, musical compositions are protected separately from sound recordings. Unlike recording artists, songwriters generally can’t negotiate their royalty rates. Instead, their rates are set every few years by the Copyright Royalty Board.

Now, the NMPA is attempting to “lob a bomb into the middle of the whole music-licensing framework,” Vanderbilt’s Fishman said, by desiring to grant songwriters the choice to opt out of the blanket license managed by the MLC altogether and negotiate their rates in the free market.

“Songwriters have always wanted to have a more control over the ability to say no, which they don’t currently have, and the ability to negotiate those rates,” Kristelia García, copyright law professor at Georgetown Law, said.

The move comes after Spotify reclassified its ‘Premium’ plan as a ‘bundle’ of services now including access to audiobooks in addition to music. The change allows the company to cut its payments to songwriters by as much as $150 million according to a calculation by Billboard.

“What Spotify is attempting to do here is take a structure that was adopted by the court and fraudulently manufacture a product to try to take advantage of something to pay songwriters less,” NMPA CEO David Israelite told Bloomberg Law. “And we think that that was kind of the final straw that proves the system doesn’t work.”

In response to the NMPA’s legislative proposal, the Digital Media Association, representing streamers from Spotify to Apply Music, published a statement on May 21, saying it was “disappointing that the NMPA would propose dismantling the MMA in this way.”

Reps. Ted Lieu (D-Calif.), Adam Schiff (D-Calif.) and Sen. Marsha Blackburn (R-Tenn.), who weren’t addressed in the NMPA’s letter, wrote to the US Copyright Office on June 12 in response to Spotify’s actions, asking whether there are enough protections in place to prevent exploitation by the licensees under the MMA, and if rightsholders have sufficient recourse if they encounter abuse.

Spotify is also currently facing a lawsuit from the MLC who has alleged it contrived the bundle service to whittle the revenue it owes the clearinghouse by 50%. The MLC discovered the plan had been tinkered with in a monthly usage report for March sent by Spotify to the clearinghouse in April.

While a choice to opt-out of the blanket license would improve their control over streamers, their sought revisions may not equally distribute that control between major players and underdogs in the industry, said Rick Carnes, president of the Songwriters Guild of America.

“Unless it’s one of the giant music publishers, this won’t work for independent creators, because we don’t have any leverage to make outside deals with them,” Carnes said.

Yet another wrinkle in the fight against large streamers is the FTC complaint filed against Spotify. NMPA’s Israelite called Spotify’s move a “war on songwriters” and said their subscription plan change violated consumer protection laws.

“The songwriter community is numb,” Nashville Songwriters Association International executive director Bart Herbison said. “Every time we get a little hope and a little progress, something like this happens.”

Discontent with the MLC

While songwriters appear united against Spotify’s new premium plan, there are fractures under the surface.

The MLC is up for its first 5-year evaluation mandated under the MMA, wherein the Copyright Office can either re-designate the title of the clearinghouse to the same nonprofit, or pass the crown to a different entity.

Some indie songwriters and publishers are pushing back against the re-designation, saying the current framework established by the MMA has handed them the short end of the stick, and demanding stronger oversight on its operations, according to comments submitted to the Copyright Office.

The bulk of the concerns aired focus on the way MLC matches songs to songwriters, and what it does when it cannot find them. Some trade groups like the American Association of Independent Music said the MLC’s matching tool isn’t “versatile enough” to effectively match many songs and lets many works—like those from obscure genres or with titles in foreign languages—fall through the net, in a letter submitted on May 30.

“The system was not built for the constituency it serves,” said Jeff Price, CEO of Word Collections, and board member of the American Music Licensing Collective who lost the bid in 2019 to operate as the clearinghouse for the royalty payments. “There are billions of dollars earned that never make it into the pockets of the entities that earn them.”

There are approximately $397 million in blanket royalties that songwriters have yet to receive, out of the total $2.2 billion the clearinghouse received after 2020, the MLC said. Of that, $209 million are “unmatched” royalties—that is the money that has been accrued for a song but is yet to be matched to the correct composer. Beyond those numbers, there is another bucket of $397 million in royalties collected before the MLC began operating in 2021, although the MLC said a large portion of that was only recently unlocked for distribution.

Some songwriters have also submitted comments expressing concerns about purely technical issues like the searchability of the database, the file formats of data download, or the type of meta-data used to tag songs.

“There are certainly plenty of opportunities for the MLC to enhance the tools and the processes that we’ve built and to do better and get better, but I believe that we have made significant improvements in the process,” MLC CEO Kris Ahrend said in an interview with Bloomberg Law.

Groups like Spirit Music Group have said “kudos are due” to the MLC for creating a vehicle to dole out interactive mechanical royalties, but have pushed for more transparency around the bucket of unclaimed royalties and improvements to its matching methodology. The unmatched money is eventually to be distributed to songwriters and music publishers based on their streaming share, although the MLC has yet to pay any money from the unmatched pool, Ahrend said.

Not everyone has critiqued how the MLC works. Comments submitted to the Copyright Office from groups like the Church Music Publishers Association, the Nashville Songwriters Association International, and the NMPA have strongly supported the re-designation of the MLC.

“While there may be, anecdotally, situations that are more challenging, we have set up something that’s really positive and really effective,” Ahrend said.