Swedish Artists Looking To Take Labels To Court Over Spotify Royalties

from the surprisingly,-spotify-is-not-the-villain-here dept

A couple of major labels and Spotify are headed for a legal showdown, but not the way anyone would first assume — and in, of all places, Sweden, where Spotify has enjoyed tremendous success. This isn’t friction between Spotify and major labels coming to a head, but rather artists taking on the labels for devouring a majority of Spotify’s payouts. It goes beyond inequitable royalty distribution, though. Those bringing the lawsuit are also accusing the labels of granting themselves rights they never had and infinitely extending those they do.

Even Thom Yorke can’t pull his old Radiohead classics from Spotify, because the label has those rights. But what if that isn’t quite true? That’s the question now being tested by Per Herrey and the Swedish Musicians’ Union, Svenska Musikerförbundet. The threatened lawsuits, first reported by Sveriges Radio in Stockholm, allege that labels are not only screwing artists, but extending digital streaming rights that they simply don’t have.

Herrey points to possible legal action against Universal Music Group and Warner Music Group, both majors that have received massive advances and equity shares from Spotify while passing little on to artists.

It’s been argued several times on this site that Spotify’s royalty payments, which are portrayed by its opponents as insultingly low, aren’t truly or completely its fault. Someone’s taking a huge portion of those payouts before they hit the artists. Spotify pays out over 70% of its revenue in royalties, a percentage the labels certainly aren’t willing to match. Herrey compares the payout artists receive from their labels — which he estimates is only 6-10% of what’s collected from Spotify — to the normal radio payout, which is split 50/50. A streaming service comprised of mostly non-paying members is going to be hard-pressed to generate sizable artist incomes, but the labels’ ability to grab 90% of the payments makes it impossible.

The additional accusation suggests the labels are working to make this situation even worse. According to Herrey, labels are crafting digital rights ownership out of thin air, especially on older, long-running contracts. Herrey suggests the labels should remove all digital works until these contracts can be renegotiated to deal with the shift in content consumption.

Herrey’s suggestion (and planned lawsuit) can probably be traced back to Eminem’s successful suit against UMG. UMG had been (and likely still continues to do so) playing terminology games in order to maximize its share of royalties from iTunes. UMG called these “sales” in order to claim 85% of the royalties. Eminem’s legal team called them “licenses,” which would have meant Eminem was due 50% of each sale/license. As anyone who’s seen the amount of restrictions applied to your “purchase” of a track from iTunes can attest, you’re not really “purchasing” these songs from iTunes — you’re merely “renting” them. Any right of first sale does not apply to most digital goods. Hence, a “license” rather than a “sale.”

If UMG’s shifty semantics are any indicator of common major label tactics, there’s little doubt the digital rights conjured up have been been severely tilted in the labels’ favor. And if Herrey’s statement about the 6-10% trickle-down from Spotify is correct, then the labels are utilizing some very generous contractual language that somehow views a streamed song as a “sale.” Or, perhaps, it doesn’t address it at all and hopes the affected artists won’t notice.

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Comments on “Swedish Artists Looking To Take Labels To Court Over Spotify Royalties”

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Ninja says:

When the MAFIAA comes with the “think of the creators” bullshit and how the “pirates” are making money by exploiting the artists hand them a copy of this article and simply tell them to shut up and die already.

On a side note….

Soldier: Sir, I’m afraid they are not anomalies anymore.
Captain ootb: *sound of brain exploding*

Anonymous Coward says:

and yet the public are always the ones that are called ‘pirates’! the public are alwyas the ones accused of stealing from artists, causing them to be unable to feed their families and causing untold hardship and job losses. it’s always the labels and the rest of the entertainment industries that governments, politicians and law enforcers that are taken notice of, never the public! the people buy more music and movies after having perhaps downloaded something, had a taste and liked it. the people are not the thieves, it’s the labels, but because they can stick money into powerful peoples pockets, they are always believed. governments have brought in new laws allowing the entertainment industries to track IP addresses. it wasn’t done for that reason primarily. it was done so governments could execute their spying programs via these laws and if there happened to be a ‘copyright infringement’ found, it was put to the industries as a by-product. let’s see what happens when this case is sorted out and whether stupid ‘i believe what my label tells me’ people like Katy Perry has to say. her label is probably ripping her off just as badly, but she’s so wrapped up in blaming the ‘pirates’, she cant see what’s right in front of her!

PaulT (profile) says:

“that LABELS are not only screwing artists, but extending digital streaming rights that they simply don?t have” (emphasis mine)

I might as well put this at the top of the thread before the usual Spotify bashing commences. This is, once again, the legacy industry ripping people off. Nothing’s changed here, they’ll take any chance to make a profit by removing the rights and royalties owed to others.

Sadly, I’ll bet the usual suspects will be falling over themselves to pretend that this is theft or “grifting” by Spotify, rather than the usual middlemen raping their clientele. Save your righteous indignation for a story about Spotify actually doing something wrong, or exercise intellectual honesty for once and apply blame to those in the wrong rather than a handy scapegoat.

Anonymous Coward says:

Re: Re: Re:

But the question is: How would a studio-musician make a sustainable income in that case? No copyright = lower sale = economic gains would have to be made in other ways. Music companies would also be under pressure to change and diversify their services, but they still hold some contacts some musicians might like in terms of knowhow on booking concerts, promotion, physical token releases and legal services.

Anonymous Coward says:

Re: Re:

For the vast majority, no.

However, what they do provide is a “low-risk” method of actually recording your music. Remember that the labels actually provide the studio, producer, equipment and so on. They then use other tricks to deny artists further payment for their work.

However, for the rare Megastar, they provide a convenient management model…whilst they are popular.

S. T. Stone says:

Let me crunch the numbers for people.

Assume Spotify makes one dollar for every song played. (It?s a hypothetical. Run with me.) After one million plays of the same song, the math for payments/revenue looks something like this:

1,000,000$ ? .7 (70% Spotify royalty payment) = 700,000$

700,000$ ? .5 (typical 50/50 revenue split) = 350,000$
700,000$ ? .1 (10% ?best? artist revenue) = 70,000$
700,000$ ? .9 (90% ?best? label revenue) = 630,000$

Anyone who wants to argue that artists have gotten a bad deal from Spotify might benefit from taking a better look at the word games that the record labels have played to make sure artists end up with those ?bad deals?.

out_of_the_blue says:

Re: And now some real numbers for stoner "S. T. Stone"

To begin with, you can’t handle math. It’s seven tenths of a cent per play, tops:

You wrote: 1,000,000$ ? .7 (70% Spotify royalty payment) = 700,000$ — You don’t even bother with real numbers! You just: “Assume Spotify makes one dollar for every song played. Not even a valid RATE, just the Techdirt way of assuming whatever the hell you want. — And then go on to assert that large sums are going to labels.

Actually, with a semi-valid rate of 0.42 cents (that I saw in one link), per million plays royalties would be:
1,000,000 * .0042 = 4200 = FOUR THOUSAND, TWO HUNDRED DOLLARS.

Now, that’s tops. — The other grifters may well be scraping off 90%! — And that TOO is grifting that I don’t support.

But here, from among admittedly confusing and contradictory assertions that we can’t directly verify, is a claim that the actual payments to artists are MUCH lower:

“Lowery?s assertion: that 1 million plays on Pandora yielded a net payment of just over $16, representing 40 percent of the songwriting for hit song ?Low?; the total earnings for the million-plus streams come out to around $42.”


And that’s why artists don’t at all care to enrich Spotify! Pays them less per million plays than a decent meal out.

Anonymous Coward says:

Re: Re: And now some real numbers for stoner "S. T. Stone"

I don’t know why I’m bothering to do this, but…

You don’t even bother with real numbers! You just: “Assume Spotify makes one dollar for every song played.”

Congratulations on leaving this bit out.

(It?s a hypothetical. Run with me.)

It’s an example blue, using the hypothetical example of 1$ makes the math easier to follow. We are all well aware that the actual royalty rate is nowhere near that high.

The only thing you have shown here is that you are still incapable of taking things within context.

Moving on:

The other grifters may well be scraping off 90%!

Ahh, so you do admit that this is really a problem with the Labels. I like how you avoid actually calling them out though and simply refer to them as “the other grifters”, very clever.

Here’s the thing, Spotify is providing a service to artists and they cannot be expected to provide that service for free. Likewise, the Labels provide a service to artists, and likewise they cannot be expected to provide that service for free. The quibbling point here is over what is a reasonable rate for Spotify and the Labels to to charge the artists for providing their services. Round these parts, most people agree that the rate Spotify charges is reasonable, and the rate the Labels charge is not.

So my question to you (and I have zero expectation that you’ll answer) is do you agree that it is reasonable that Spotify and the Labels charge artists for their services, and if so, since you apparently don’t agree with the current rates, what rates do you propose would be reasonable? Or do you actually propose that Spotify provide it’s services to the artists for free?

PaulT (profile) says:

Re: Re: And now some real numbers for stoner "S. T. Stone"

“You don’t even bother with real numbers!”

So, we can add “hypothetical” to the words you don’t understand? You’re free to provide a list of actual numbers, complete with citations, if you wish and we’ll use them. Your corporate friends keep these secret for a reason (hint: so they can effectively rip the artists off ).

“Actually, with a semi-valid rate of 0.42 cents (that I saw in one link)”

Which link? How does this compare to a comparable alternative such as per-listener rates for radio airplay? If they’re the same, why is it only suddenly a problem now after decades of radio services? If they’re different, why?

Come on, you nearly stated a fact, let’s see if you can keep up with that inadvertent attempt at intellectual honesty.

“Lowery?s assertion”

Given his track record, I’ll assume anything after this phrase is a distortion or outright falsehood. Do you have any sources not relating to a known liar?

I assume not, since you’ve used a story about how your friends in the legacy industry are ripping artists off again to go on another moronic rant about someone else. Why are you scared to address honest arguments with relevant facts?

PaulT (profile) says:

Re: Re: Re:2 And now some real numbers for stoner "S. T. Stone"

Yeah, I never really expect a response, I tend to reply to things like this just to make it clear to lurkers how full of crap these things are. There’s no reason to leave any doubt about how dishonest these people are.

I’d have plenty of follow-up questions that could lead to an very interesting and informative discussion if someone with a shred of honesty were prepared to talk about the real issues being discussed. Alas, all we get are misdirection, personal attacks and uncited figures we’re supposed to accept without question from people proven to be liars.

A pity, but the invitation’s still open to any honest person who wants to discuss the real questions.

Anonymous Coward says:

I seem to recall reading somewhere that a typical record contract has different royalty payouts for different media. CDs and radio pay well enough, while anything classed as “new media” usually has a royalty payout to the artist between 0 and 5%.

“New media” is basically anything connected to the internet, such as streaming which has only been around for what, 20 years?

I think it’s rather refreshing to see that someone somewhere has finally realised that they are being screwed by their labels and their contracts, rather than Spotify.

One, JUST ONCE, I’d like to see one of these artists who blame spotify publish the numbers:

1 How many plays did your music get?
2 How much did Spotify actually pay in royalties for those plays?
3 What was the size of the artist’s paycheck?

Pragmatic says:

Is it me or is the Crazy Copyright Lady being suspiciously quiet here? I expected to find her here shouting, “It’s just an anomaly!” and ranting about teh ebil G00glez r spyin on us, etc.

But we knew it all along; the real “pirates” are the record companies that rip off the artists. So much for the “everyday good of copyright.” Like Bigfoot or unicorns, I’ve never seen any evidence that such a thing exists.

any moose cow word says:

6% to 10% isn’t surprising, that’s almost in the typical 10% to 15% range that labels give of their cut for sales. However, Spotify streams clearly are not sales. The sales/license thing ain’t hard to figure out: if the publisher actually produces a product for sale…it’s a sale, If the publisher licenses something to a third party…it’s a license. But of course, labels playing these games over royalties is the kind of BS you’d expect, the accountants are working for those who employ them.

RollRoland (profile) says:

Royalty rates, new media, old media

I have some numbers too. So an artist makes a recording deal and gets a generous 15% royalty rate from the sale of each CD containing 10 songs. The price of a CD before tax is around 15 euros. That, then becomes 1.5 euros per song, and the artist’s cut is 0,225 euros per song. Spotify pays out X amount per listen, of which Y percentage is passed on to the artist.

If we want to run with the current business model, the question then becomes the following:

What is Z, the average amount of plays of one song for an album on average, per consumer, while the album is still listed as full price? Assuming Z is constant for both Spotify and physical album, X*Y*Z should yield 0,225 euros for Spotify payout.

One source (http://www.spotidj.com/spotifyroyalties.htm) claims Spotify pays 0.004 euros per stream to an independent artist, so we have X. Assuming Y is 15%, solving for Z gives 375 listens to a song.

Leaving out the record company – we have an independent artist – Z yields 56,25 listens of a song to gain the same amount of money that the artist would have gotten on a major label, for each song. For a 45 minute album that means over 40 hours of listening. I love music but I don’t think there is one album I have ever listened to for 40 hours in total so far at age 32.

Considering that the role of the record companies has changed, since with a service such as Spotify one can slash the costs of distribution and physical pressing. The role is focused on financing and marketing instead. This suggests the split should be much closer to 50-50 than 15-85 in digital music.

So the implications are the same royalty split should not apply as the same economy does not apply either. Another implication is one hit wonders will suffer greatly, since buying an album (or even to lesser extent a single) for one song brings in the same money as 3750 listens to a song on a major label deal. Finally, the rate the monies come in is vastly different for more long-term artists: Even considering a 50-50 deal with a record company on digital sales, accumulating 80 hours of streaming time for one album for one user is going to take a long time – at average 4 album listens a year for a 45 minute album, it’s going to be 27 years as opposed to getting the money today.

What is forgotten in the above is that the current way money in record business changes hands can be seen as screwing over the artist as well, so in this calculation I am trying to come up with numbers that would make the new boss the same as the old boss. So much for thinking that the new media will empower the artists to do whatever they want and create more viable business models that help celebrate diversity of music.

My calculations are leaving out essential parts such as what fraction of album sales should be calculated as mid-price, on compilations, etc. Typically mid-price albums sell for half money, and royalty rates are smaller too. Additionally, a physical album can be resold, increasing the effective amount of listens, while a Spotify stream can not. This is compensated by physical format changes that enables record companies to sell the same album many times. But you get the ballpark figure.

So do I have any ideas on how to fix the system? I’d have to say that Spotify is working bass ackwards: They are paying out what they are able to. Instead, the numbers for reasonable royalty rates should be fixed first with regards to artist compensation and record company compensation. Pricing then happens based on these figures, not the other way around. If that means ad prices are too high to make free listening nonviable, and monthly subscription costs 100 euros instead of 10, it is what the business needs to conform to. The current way the deals are set up is descriptive of the music industry in general: Squeezing every last drop out of the peons.

PaulT (profile) says:

Re: Royalty rates, new media, old media

You’re missing the major point – a Spotify listen is not a sale. Nothing like it. The consumer does not own the track along with all the rights that implies. They don’t have access to physical medium, cannot time shift, does not retain access to the track if it goes out of print (removed from Spotify), cannot copy to another medium and cannot resell the product.

Therefore, apples to oranges. The reason compensation is different to a CD is that it’s a completely different product. They get compensation based on the service rendered, not on what they’d ideally like to have for their most valuable product type.

Do you have any figures on something that’s actually comparable both in scope and product type, such as per-listener radio royalties? I’d honestly love to see some real figures on comparable products rather than misdirections and irrelevant comparisons.

You can argue that for some consumers Spotify replaces sales, but it’s really not as simple as that for most consumers. Plus, so what? If I opt to rent a car instead of buying a new one, that doesn’t mean it would be right for Ford to force Hertz to charge me whatever revenue they’d get from a new purchase. They’d have to deal with the market as it stands – why can’t the record companies?

“Instead, the numbers for reasonable royalty rates should be fixed first with regards to artist compensation and record company compensation”

You haven’t been following this, have you? Spotify can only operate on agreed licences with its suppliers, very successfully so far since they’re able to offer music to many more countries than many of their competitors. The major labels’ response has been trying to charge Spotify so much money that they could not possibly operate. Spotify already pay most of its revenue out in compensation to labels, squeezing them for more could put them out of business and get the labels $0. They do tend to operate on a fantasy where if only everyone was forced to buy a new copy instead of streaming or pirating then they’d make all the money in the world, but that’s not reality.

As for “artists compensation”, did you read the article above? The one about how labels are not paying the artists the money they’ve collected from Spotify? Why is this Spotify’s problem to solve?

RollRoland (profile) says:

Re: Re: Royalty rates, new media, old media

Fair points there, I’ll address what I can.

The major point that a listen is not a sale does apply. However, a Spotify listen is not the same as a radio broadcast either, an analogy many make in their calculations. Basically, what you are buying with Spotify is the right to listen to a track that you wish, at a moment of time you wish. The difference of having an offline playlist to just having a bunch of DRM’d MP3 files tied to a client machine is something I don’t see. Songs do get taken down from Spotify, as apparently it is bad for business to have an artist’s entire catalogue there. Why that is the case given the generous compensation rates beats me.

Comparison to radio is irrelevant, because radio plays what it wants, not what the customer wants to hear. The music is force fed to listeners. Furthermore, if one wants to hear that same artist again, or hear what other songs they have, traditionally one needed to go out and buy the album. Spotify is a “radio” where one can accomplish this by next/previous song buttons at no charge. There’s a reason that internet radios – which are so plentiful everyone should be able to find one they really like – are rarely discussed, but Spotify is always a hot topic.

On the licensing: The privileges and responsibilities afforded by national and international laws is a jungle of which I have little understanding,. The little I do have informs me that all obligations to copyright holders do not always hold, for instance songwriters of certain countries have not been able to collect from Spotify until recently. Who gets to collect compensation from what is not easy to ascertain. For instance, did you know music videos shot in the USA do not bring profits to the performers when shown in Europe?

Compulsory licensing schemes and ancient contracts and compensation amounts tied to technology features that do not apply to current services will not make sense, ever, however much they are adjusted. As discussed before, Spotify is not buying CDs, but it is not radio either. As such, the scheme should be built from scratch.

The part about artist compensation is related to the news: Record companies raking too much out of the currently paid compensation. The other issue is that the current payout rate is not enough. In the entire scheme, record companies owning parts of Spotify is enough to create a conflict of interest. This is Spotify’s problem to solve – how to create enough value for the artist and for the songwriter.

In the vein of the Ford/Hertz analogy, it wouldn’t make sense for me to create a service for “all the gasoline you need, 200 euros a month”, enter a contract with the oil companies to provide me with such amount of gasoline, who would be in a position to requisition oil from OPEC for a compensation the oil companies see fit. Then of course I would claim the market needs to adapt because gasoline is too expensive otherwise.

My interest is not in keeping the record companies afloat. My interest is in having a scheme where reasonable compensation is provided for the artists and songwriters. Reasonable isn’t what one gets from radio airplay per person. It probably isn’t the same as from CD sales, either. Yet another angle is what the payout should be based on, and to whom: Songwriter, performer, (financial) producer?

To provide a glimpse of hope for the Spotify fans: The music industry’s retail revenue in USA according to Wikipedia was 4.8 billion dollars in 2005. If everything was in Spotify and everyone in USA had a license, it’d only cost about 15 USD per person in a year. This tells me Spotify should work in the grand scale. However it’s a chicken-egg problem since that would also define the size of industry revenue.

PaulT (profile) says:

Re: Re: Re: Royalty rates, new media, old media

I’ll address a few points, if you wish to discuss further I will be back online tomorrow:

“However, a Spotify listen is not the same as a radio broadcast either, an analogy many make in their calculations.”

It’s the closest analogy we have, as the reality is somewhere between traditional music distribution and radio airplay. But, however it’s spun it’s not a purchase and thus both what the consumer receives and what is paid differ greatly. It’s not a great comparison to talk about radio rates, but at least that’s apples to pears rather than the apples to real estate analogy of CDs. If you have a closer analogy, I’m all ears.

“Basically, what you are buying with Spotify is the right to listen to a track that you wish, at a moment of time you wish. The difference of having an offline playlist to just having a bunch of DRM’d MP3 files tied to a client machine is something I don’t see”

Well, if you’re bringing DRM into the equation then you’re already talking about something than CDs. A CD is a non-DRMed collection of an average of 15-20 tracks with no limit on when, where and how they may be consumed, including additional rights such as resale. Spotify is an on demand service that only grants you access to one track at a time with no additional rights beyond playback and no guarantee that any specific track will be available at any time (music is added and removed all the time).

There’s a massive number of differences. In fact, apart from the fact that they both deal with music, there’s very few realistic similarities.

“Comparison to radio is irrelevant, because radio plays what it wants, not what the customer wants to hear.”

In terms of compensation to artists, so what? Does it matter whether a radio station played the new Miley Cyrus song once to 100,000 listeners or 100,000 people listened to that song individually in terms of royalty payments? If so, why? What’s the difference (other than lack of payola control over whose song gets played of course)?

“There’s a reason that internet radios – which are so plentiful everyone should be able to find one they really like – are rarely discussed, but Spotify is always a hot topic.”

Partly because the RIAA spent its time trying to kill internet radio before Spotify existed. From memory, it was around 2006 when they passed a bill insisting on royalties that killed many smaller outlets. Many of those still operating do so only because they’re small or niche enough to escape the RIAA’s attention. They then spent their time trying to make sure nobody outside the US could access services like Pandora and Rhapsody. Spotify is not only more relevant to today’s market reality, but it’s the current favourite target. If they lose their plce as the market leader, the attention will turn to whoever comes next.

Spotify is “always” a hot topic because they’re currently the most successful at addressing consumers’ needs. But even that whining didn’t really start till they entered the US market (though there were some complaints before that).

“On the licensing: The privileges and responsibilities afforded by national and international laws is a jungle of which I have little understanding,”

I’ll agree here. Which makes it even more frustrating that the industry’s efforts have been in keeping those artificial barriers rather than allowing them to move into a modern world where geographical barriers mean a lot less, especially to the consumer. I dare say that if the last decade had been spent adapting to the way the world was clearly moving rather than trying to regain the market realities of 1996, we wouldn’t be talking about most of this stuff.

“For instance, did you know music videos shot in the USA do not bring profits to the performers when shown in Europe”

Citation? I have no doubt that this happens, but it’s doubtful that music videos made by Warner Brothers shown legally on MTV Europe don’t include payments to Warner artists, even if they’re made through Warner’s European division. It seems somewhat strange, given that the music has to be licenced with royalties going somewhere. I’m happy to defer to any actual evidence, however.

“Reasonable isn’t what one gets from radio airplay per person.”

Again, why? It’s worked for radio for many years, the only difference here is that people can get to listen to what they want rather than what’s prescribed by a radio station. Or, considering payola, more realistically by major labels. Which is probably the real issue here – lacking the control, people may not listen to what they want to sell.

“If everything was in Spotify and everyone in USA had a license, it’d only cost about 15 USD per person in a year.”

I’m in Europe and I spend ?10/month to Spotify (to remove ads and access extra features such as playlists). That’s ?120/year and is more than I spent on music every year before Spotify came alone (I stopped buying CDs as my lifestyle made them far less convenient and refused to buy downloads infected with DRM – I have far fewer qualms about renting music with such restrictions, but am unwilling to pay as much for them individually).

Add to that the fact that people who listen on Spotify don’t suddenly stop consuming music in any other way (including purchases), and that’s not really a convincing argument that they’re doing something wrong.

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