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.

Filed Under: artists, labels, royalties, sweden
Companies: spotify


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  1. icon
    RollRoland (profile), 1 Nov 2013 @ 8:17am

    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.

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