Spotify's rapid ascendance has a price: A $1.6 billion lawsuit for failing to pay some artists for their songs.
The music publisher Wixen, which represents artists like Neil Young, the Black Keys' Dan Auerbach, and Tom Petty, has sued Spotify to the tune of $150,000 per song. Wixen says Spotify failed to get the necessary licenses to play over ten thousand songs.
The lawsuit underscores that while Spotify has grown quickly, it still faces issues with how it compensates artists and songwriters due to complex questions around music rights. Spotify will need to adapt to address that issue ahead of its debut as a public company — and as it looks to turn a profit for the first time.
The Hollywood Reporter first spotted the lawsuit, which Wixen Music Publishing filed last week in California. Wixen specifically cited that Spotify, "in a race to be first to market, made insufficient efforts to collect the required musical composition information" and "built a billion dollar business on the backs of songwriter and publishers."
The lawsuit suggests that a whopping six million songs could lack the necessary licenses, although Wixen has dominion over just a portion of these songs.
"Music licensing for the kind of streaming that Spotify does is inherently complicated and imperfect," said Larry Miller, the director of New York University's music business program, in an email.
Every song, like Neil Young's "Heart of Gold," is copyrighted in two ways. The actual sound recording is owned by the record label that produced the song. Then, there's the ownership of the song's actual composition (technically called "mechanical licensing") — in which the all the song's writers must be paid. Take, for instance, The Rolling Stones' "Start Me Up," which was co-written by Mick Jagger and Keith Richards.
The problem — and this lawsuit — lies in the second copyright, the crediting of a song's composers.
"Licensing musical compositions is far trickier, and from Spotify's perspective, far riskier," said Miller.
It's trickier because for each song Spotify must know all the co-writers "of literally every song Spotify wants to play," explained Miller (Spotify says it offers over 30 million songs). And accordingly, there's great risk for infringing upon the rights of songwriter they've excluded or didn't know about — as the $1.6 billion lawsuit shows.
But Spotify simply doesn't have an efficient way to know who was responsible for writing every song on every album. A single song can have three or more songwriters. Or an artist could cover a song — meaning Spotify would need to pay the actual songwriters for the streamed song — not just the artist who recorded it.
"There’s an information problem here," said Robert Weitzner, an assistant teaching professor at Drexel University's Music Industry Program.
Weitzner refers to this informations as "metadata," which incorporates all the background information about the song. This includes all the songwriters and how much songwriting credit, or split, each songwriter is entitled too.
"There's incomplete metadata that’s delivered to streamers," he said, noting that record labels (who own the sound recording) often don't provide this information to streaming companies.
This leaves the burden on sleuthing out all the songwriters on streamers like Spotify, which might not wait to tediously compile this information in a competitive music market.
"There's a race to market," said Weitzner.
But there's also a solution: Adapting to the way most people listen to music today (six out of every 10 dollars in recorded music revenue go to streamers) and developing a system to make this songwriting information more easily available. Such a weighty lawsuit — while perhaps not ideal — could move the needle.
"The information around the songs — who wrote it, who recorded it — needs to be readily available to people," said Weitzner. "That’s what's going to happen. What we’re seeing through these lawsuits is this system working its way through that."
This certainly isn't Spotify's first lawsuit on the matter. In May, the streaming giant agreed to pay $43 million to artists that had filed a class-action lawsuit for not properly licensing songs. Wixen, however, did not agree to this settlement — which is still pending approval by a judge.
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Even without these licensing disagreements, adequately compensating musicians for streamed songs is still complicated. The basic formula involves dividing an artist's streamed songs (relatively tiny) by the total number of streamed songs — which is a huge number (in the billions). This tiny percentage is then taken from Spotify's total revenue for subscriptions and advertisements, which is then paid to record companies. Companies then give a small percentage to publishers like Wixen, which then pays songwriters.
"So you might understand why songwriters and publishers feel marginalized under the current licensing regime for streaming," Miller said.
Still, Weitzner believes it's important for Spotify to adapt and solve its recurrent copyright struggles. Spotify, he notes, is a stand-alone company (not part of the likes of Google or Apple) generating billions dollars (though is not quite yet profitable) — something that the long-struggling music industry can continue to thrive on.
"We have got to sort this out now," said Weitzner. "It’s important to see Spotify survive. It’s important for the industry to see Spotify successfully navigate this transformative period."