Following the news that Wixen Music Publishing, which controls the publishing rights for the likes of Tom Petty, Neil Young and Stevie Nicks, is suing Spotify for at least $1.6 billion, commercial litigator and music industry expert Simon Conroy examines the complexities of the music publisher’s decision.

Spotify has 50 million paying customers and generates annual revenue of around $3 billion. Despite that, streaming music services such as Spotify generally generate relatively low royalty income even for very successful artists. It would therefore take an awful lot of unpaid streams to generate $1.6 billion. Surely streaming companies such as Spotify are not in the habit of failing to account to rights owners on such a scale (particularly when Spotify is widely expected to float on the New York Stock Exchange this year)?

The way in which companies that exploit music account to rights owners has always been complicated. In an attempt to simplify the process, interested parties have been working on a draft piece of US legislation called the Music Modernization Act. The thinking behind this Act is to:

  • Simplify the system of licensing music in the US in the digital age. This would be achieved by the introduction of a single licensing organisation – funded by digital music services – and a blanket licensing system for mechanical publishing licences.
  • Increase royalty payments to rights owners.

All of which sounds great, with both Spotify and rights owners supporting the draft Act. The sticking point, however – at least for Wixen – relates to the proposed safe harbour deadline which, if enacted, would apply to any lawsuit for unpaid mechanical royalties from companies like Spotify filed after 1 January 2018. This would let companies like Spotify off the hook for any such action that would otherwise have been unlawful before 1 January 2018.

Wixen claims that the agency Spotify uses to account to rights owners (the Harry Fox Agency) is ill equipped to obtain all the necessary licences. Wixen further claims that it has no desire to sue Spotify but that, given the current status of the Act, it feels that it had no option other than to protect its clients’ positions by issuing the lawsuit before the deadline. Wixen therefore filed the lawsuit on 29 December 2017.

It remains to be seen whether Wixen and Spotify will be able to agree a settlement before Spotify’s planned listing. Possibly seeking to clear the decks ahead of its proposed listing, Spotify did recently offer to settle a similar US class action brought by other music rights owners, reportedly offering to pay $43 million. Wixen opted out of that action, saying that the proposed settlement was inadequate and so it cannot bound by it. If that is correct – and $43 million between all claimants in a class action seems like a lot less than $1.6 billion to one music publisher – then one has to wonder why other music publishers do not appear to have also filed similar claims to Wixen’s.

Wixen says that it remains keen to reach an amicable settlement with Spotify. Given the complexities of the existing US mechanical licensing system, there would seem to be much to be said for the two resolving their differences and collaborating with other interested parties, to introduce the proposed more efficient system.