Spotify vs All

Spotify is now waging legal confrontations in Europe, Asia, and Washington D.C. The result may be horrible P.R. and unfavorable decisions.

For a while, Spotify has been the leading player in the streaming revolution. When it launched in October 2008, the music industry changed forever. Just a few years later, a light at the end of the tunnel finally became visible as record labels might finally return to form as master recordings once again became a revenue generator. Fast forward to 2019, the WSJ reported that Apple Music has surpassed Spotify in paid subscribers in the US. Apple Music’s subscription service trails Spotify’s globally but is growing at a faster rate.

In addition to fighting for global supremacy in the streaming race, Spotify has waged several legal battles that could have a significant impact on the future of music streaming. Spotify has always taken heat for it’s low per stream payout to artists and songwriters but now many in the industry feel as if the company is making a concentrated effort to not pay songwriters a higher and more equitable rate.

Spotify vs Songwriters

Perhaps the most concerning, dangerous and daunting battle on the public opinion front, is Spotify’s reluctance to pay songwriters more. Spotify intends to appeal — along with Google, Pandora, and Amazon — the Copyright Royalty Board’s February decision that would boost payments to songwriters and publishers by 44 percent between 2018 and 2022. Obviously, songwriters have not responded well to this position. National Music Publishers’ Association president/CEO David Israelite equates the appeal as digital services “suing songwriters. We will fight with every available resource to protect the CRB’s decision,” said Israelite in a statement. “Every songwriter and fan of music should stand up and take notice.”

Spotify issued a response in a Blog Post dated March 11th. In this post, Spotify agrees that songwriters should be paid more. “Does Spotify think songwriters deserve to be paid more? Yes — this is important to songwriters and it’s important to Spotify. The industry needs to continue evolving to ensure that the people who create the music we all love — artists and songwriters — can earn a living. The question is how best to achieve that goal.”

The Swedish tech giant also stated, “ Music services, artists, songwriters, and all other rightsholders share the same revenue stream, and it’s natural for everyone to want a bigger piece of that pie. But that cannot come at the expense of continuing to grow the industry via streaming. The CRB judges set the new publishing rates by assuming that record labels would react by reducing their licensing rates, but their assumption is incorrect. However, we are willing to support an increase in songwriter royalties provided the license encompasses the right scope of publishing rights.”

Many in the industry feel that Spotify actually avoided answering the tough questions and wasn’t truthful in their message because their proposal would equate to songwriters getting paid less. NMPA Chief David Israelite even shared a point-by-point ‘Fact Check’ of Spotify’s Royalty Rate Appeal explanation. The most notable point below:

Spotify: Do you support the CRB rates? We are supportive of US effective rates rising to 15% between now and 2022 provided they cover the right scope of publishing rights. But the CRB’s 15% rate doesn’t account for all these rights. For example, it doesn’t consider the cost of rights for videos and lyrics.

NMPA: Spotify’s answer is an attempt to trick you. Let’s be clear, Spotify knows Section 115 doesn’t include the video and lyric rights of songwriters. So, Spotify tries to fool you into thinking it supports the 15% rate as long as it includes the “right scope” of rights, and then names two rights over which the CRB has no authority. The CRB ordered a 15.1% rate for ONLY the Section 115 mechanical reproduction rights structure. If Spotify wants the video and lyric rights of songwriters, Spotify knows it has to negotiate for those rights in a free market, on TOP of the Section 115 compulsory rate. What Spotify is saying is that it doesn’t want to pay any more for your lyric or video rights, even though every other digital service must do just that. No one should be fooled by this smokescreen.

Other prominent figures in the industry have also called Spotify out for its appeal and explanation:

Notice Amazon Music, Pandora, and Google, all have sided with Spotify but Apple Music has not, leaving them in a position to leverage this into more support among the music community.

Understandably, Spotify is working toward a place of profitability but it is hard not to side with songwriters on this issue. Most significantly the position that if Spotify wants the video and lyric rights of songwriters, Spotify knows it has to negotiate for those rights in a free market.

Spotify vs Apple Music

As mentioned above Spotify has lost the lead in the U.S in the streaming race. Apple might be positioned to overthrow Spotify because of its financial standing. Simply put, Apple Music is far from Apple’s top product and because of its lucrative technology business spanning across phones and laptops to watches, Apple has been able to offer 3-month free subscription plans as well as exclusive rights deals with artists like Chance The Rapper and Drake. Additionally, Apple Music has not joined in on the appeal to the Copyright Boards ruling that songwriters will get an increase in royalties annually through 2022.

If that wasn’t enough already, on Wednesday, March 13th, Spotify filed an antitrust complaint with the European Commission over Apple’s business practices, saying that it uses unfair tactics to suppress its competitors. Spotify’s CEO Daniel Ek explained in a blog post, that the company is disturbed about the 30 percent Apple takes from subscriptions made via the App Store. Spotify alleges that this “tax,” severely targets and harms streaming services that compete with Apple’s own. Of note, the EU has really championed antitrust law in recent years. In 2017, Google was fined €2.4 billion for complaints related to its shopping business, and in 2018, it was fined €4.3 billion for complaints about stifling competition in Android.

Spotify has also launched a press campaign, including a website dedicated to Apple’s unfair behavior and a YouTube video explaining the company’s issues.

Apple has since responded stating “The only contribution that Apple requires is for digital goods and services that are purchased inside the app using our secure in-app purchase system….As Spotify points out, that revenue share is 30 percent for the first year of an annual subscription — but they left out that it drops to 15 percent in the years after.”

Another key statement from Apple:

Let’s be clear about what that means. Apple connects Spotify to our users. We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions. Spotify is asking to keep all those benefits while also retaining 100 percent of the revenue.

Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong.

It’s clear these two giants are battling for position, but Spotify nonetheless has taken an aggressive approach, filing complaints and launching campaigns to take shots at its counterpart. Ultimately, this antitrust lawsuit could shift things back in favor of Spotify because they will be able to keep prices the same or lower than Apple Music.

Spotify Abroad

Spotify’s (SPOT) India was announced in 2018 however it was finally unveiled for use in 2019. The delay was because Warner Music Group (WMG) filed an injunction in a Mumbai court to prevent Spotify from offering Indian users music from artists like Beyoncé, Katy Perry, and Kendrick Lamar. WMGs music is still not available in India as Spotify decided to launch without the WMG catalog. This includes every track Warner’s roster of songwriters is credited on, totaling over 1 million compositions.

“We had no choice but to ask an Indian court for an injunction to prevent this,” a Warner Music spokesperson told CNN. “It’s our goal to hammer out a deal that works for everyone. We hope this is just a speed bump in the expansion of our long and successful global partnership,” the spokesperson added. via https://www.cnn.com/2019/02/26/tech/spotify-india-warner/index.html

This battle while not necessarily initiated by Spotify also marks a prominent music industry group fighting back against the Swedish company. While a deal with WMG will probably be struck sooner than later as both parties are losing out on money, this sets the stage for clearer global publishing and distribution deals between the big three music companies and streaming services.

Takeaway

While the battle with Apple Music and WMG are significant, the most significant battle lies between songwriters, the CRB and Spotify. Spotify is fighting for profitability and does not have the stable financial backing like Apple Music or Amazon Music thus they can ill afford to take losses in regards to the number of new users or higher royalty payouts. The sad news for them is each day it seems as if another prominent songwriter or music industry veteran is lashing out against Spotify for not wanting to pay songwriters more.

It’s important to note nonetheless that Spotify isn’t actually suing songwriters. What Spotify is appealing is the CRB’s most recent decision about mechanical royalty rates. The effect of this decision would raise royalty rates from the current 10.5 percent to 15.1 percent over a five-year period from 2018 to 2022. This would be the biggest rate increase granted in CRB history.

Regardless, the race for supremacy in the streaming space continues to heat up. If Spotify comes up on top, it will likely take some mending with artists and songwriters alike. Fighting to reverse a ruling for higher royalty rates for songwriters will have a lasting impact on the minds of musicians and fans. The real reality is that Spotify knows that if the ruling stands, higher royalty payouts could be crippling to there customer pricing model.