By: Adriana Obeso, J.D. Candidate, May 2018, St. Thomas University School of Law.

Those who are involved in the music industry should be wary of entering into royalty agreements with Spotify, the music streaming company.  As of late, Spotify has earned a reputation for failing to pay artists mechanical royalties they are owed[1]. Mechanical royalties can be explained simply: every time a streaming service, such as Spotify, streams an artist’s music, the songwriter is owed a mechanical royalty[2] for that stream, which is deemed to be a reproduction of their music.  Songwriters are free to split such royalties with others including, but not limited to, band members and others involved in the songwriter’s performances.  In addition, if the songwriter has a publishing deal, a percentage of their mechanical royalties are paid to those companies before they are paid out to the songwriters.

Streaming services like Spotify are only one of the many interested parties who are required to pay songwriter’s mechanical royalties.  Anyone obtaining a mechanical license to reproduce and distribute music–including an interactive stream of the type utilized by Spotify–is responsible for the payment of mechanical royalties to the songwriter tied to that license.  However, a songwriter’s payment of these royalties is not guaranteed immediately upon granting mechanical licenses.  To be paid, the songwriter must be registered for a collection society that specifically works on mechanicals, and in the U.S., that group happens to be the Harry Fox Agency.  If a songwriter’s music is available in other countries, they must register with each country’s group in order to be entitled to the same royalties from those countries.

What exactly is Spotify is doing to earn the resentment of various groups of songwriters and publishers alike?  The most outrageous of Spotify’s actions stems from its undeniable self-contradiction.  Spotify is now attempting to argue that its similarity to streaming services like Pandora, which are not required to pay mechanical royalties, entitles Spotify to the same treatment, meaning it would only be liable to songwriters for performance royalties.[3] On one occasion, Spotify stated that it actually “needed” mechanical rights in order to maintain its operations.  Additionally, Spotify contradicted itself by excusing its non-payment on the basis that it was too difficult to pay all songwriters since there was no “comprehensive music industry database,”[4] but simultaneously admitted to being liable for paying them.

If that was not sufficient to inform Spotify it should retract the argument of being justified in its non-payment, copyright law itself provides the basis for Spotify’s liability to pay said royalties.  Spotify is an interactive service, meaning its users can choose songs to listen to on demand, while Pandora is a non-interactive service, since their users cannot choose the songs they wish to play on demand.  The former type of service is required to pay both performance and mechanical royalties, while the latter is only required to pay performance royalties.  These requirements stem from the fact that interactive services employ technology consisting of both reproduction and performance of data files that pertain to specific songs, while non-interactive services merely perform the data files but do not engage in any reproduction of the songs.

Where exactly is Spotify’s status as an interactive service evident?  Simply put, whenever a Spotify user plays music through their phone through the use of Spotify’s mobile application, it creates a reproduction of the song files on all of its user’s mobile devices.  Despite the clear evidence displaying Spotify’s payment responsibilities, the fact that Spotify is so profitable means that the company can easily continue to try changing the current laws through repeatedly litigating the same issue.

With music streaming services on the rise, physical album sales are on the decline as a result.  Admittedly, streaming services like Spotify and Apple Music are highly convenient to the almost all music fans, but exactly how is this change in the way fans are listening to music impacting those artists that we love listening to?  In short, musicians are being paid sufficiently less for the music they put into the world than they ever have been.  Some commentators on the streaming phenomenon even go as far as saying that “musicians are essentially giving away their music.”[5]

The music industry’s frustration with the foregoing Spotify situation is not without merit.  Spotify only operates as successfully as it does in large part due to the existence of songwriters and the music they create.  Without songwriters there would be no music, and without music there would be no Spotify.  Rather than attempting to excuse itself from the obligations it owes those that make Spotify as successful as it is, the company should instead freely own up to its legal obligations, and not require those who majorly contribute to their profitability have to fight for what is rightfully theirs.

[1]See Erin M. Jacobson, How Spotify Has Waged War With The Music Industry, Forbes (Sept. 22, 2017, 8:35 PM), https://www.forbes.com/sites/legalentertainment/2017/09/22/how-spotify-has-waged-war-with-the-music-industry/#75ba098256d5 (explaining what Spotify is failing to do and how it is subsequently angering songwriter’s who would normally be paid mechanical royalties under the circumstances).

[2]See Heather McDonald, Mechanical Royalties, The Balance (Nov. 15, 2017), https://www.thebalance.com/mechanical-royalties-2460503 (explaining what mechanical royalties are and when their payment is owed to songwriters).

[3]See Jacobsen, supra note 1 and accompanying text (noting how Spotify is trying to compare itself to other music streaming services, like Pandora, that are not required to pay out mechanical royalties).

[4]See Jacobsen, supra note 1 and accompanying text (elaborating on how Spotify has made various contradicting arguments in an attempt to justify its non-payment of mechanical royalties to songwriters).

[5]See Kabir Sehgal, Spotify and Apple Music should become record labels so musicians can make a fair living, CNBC (last updated Jan. 26, 2018, 11:04 AM), https://www.cnbc.com/2018/01/26/how-spotify-apple-music-can-pay-musicians-more-commentary.html (explaining how musicians are actually making much less than ever before due to music streaming services including, but not limited to, Spotify).