Music, and especially songs, are treated differently in digital commerce than are other products. Amazon won’t sell you a CD or a download without a credit card on file, and they won’t ship a CD without a credit card payment authorization. Neither will Spotify sell you a subscription without a credit card to charge it to. No payment, no product. Amazon, Spotify and other online retailers protect their accounts payable risk carefully, and consequently their revenue.
Songs are different, particularly on streaming services like Amazon and Spotify. The services get to use the song first, and then songwriters often have to chase them for payment. This chasing is particularly true with songwriters who are not writing the current hits, but even hit writers may be chasing payments. Or more accurately their publishers or collecting societies are.
In fact—chasing the money is becoming an increasingly common exercise for songwriters with companies like Spotify, Amazon, Pandora, Google, Loudr and others. And through the manipulation of loopholes, these companies get the benefit of the product without paying at all in the case of the mass NOIs in the US.
Bad Timing on Spotify’s Charm Offensive
But this play and no pay is not just an American loophole. According to MusicAlly, Spotify has recently taken dodging songwriters to a whole new level by refusing to pay the Swedish authors’ collecting society Svenska Tonsättares Internationella Musikbyrå or “STIM.” That’s right—Spotify the Swedish company is stiffing the Swedish collecting society STIM for payments to Swedish songwriters (and any other writers STIM collects for). And in a great example of Spotify’s seemingly endless right hand/left hand problem, Spotify is stiffing STIM at the same time as Spotify is launching its high profile charm offensive for superstar songwriters (“Spotify Secret Genius”) and trying to get a federal judge to approve a class action settlement.
It is a common mistake (or dodge) for music users to think that there should be some great master database for songs like the county recorder’s office keeps for real estate. This is a fundamental mistake–they’re not making any more dirt (Mischief Reef notwithstanding) and so a database for relatively static ownership information for real estate is a manageable problem. New songs are written every minute somewhere in the world, so asking for this Great Pumpkin database of song ownership is clearly inapt (which is probably why it has always failed). There being no connection between real estate and songs, attempting to connect the two is what Mill would call a fallacy of analogy. Yet it is one of the most importune asks and is the principal Great Excuse from the Unlicensed.
Remember when Spotify complained of the lack of comprehensive ownership information on all the world’s songs in their response to David Lowery’s class action lawsuit? That was, of course, after they used the songs anyway (see “Sorry We’re Not English”). An underlying theme of that unavailing defense was America lacks the blanket license the rest of the world provides through authors’ collecting societies like STIM. And yet here we are again.
How the Blanket Licenses Work (More or Less)
So how can Spotify get away with this latest dodge? At a high level, the way these ex-US blanket licenses work is that a service like Spotify sends each society a data feed of its song usage under the terms of the society’s blanket license with the service. (All these ex-US deals work essentially the same way in countries with a single authors’ society.)
Having received that data feed, the society then determines how much of the usage for that accounting period is from songwriters it represents. That society then determines how much money the service owes in royalties by applying the terms of the society’s blanket license to the usage. The society then sends the service an invoice for the royalties and—way, way after the moment that the song is performed and the service gets the benefit of the song—the service pays the invoice. Or is supposed to.
This whole process has to take place in a hurry in what is obviously a give to the services—reportedly the society has to invoice millions if not billions of transactions for an accounting period in a matter of a couple months, or potentially lose the right to claim payment for that accounting period.
Like everything else in music publishing for the last 100 years or so, sometimes there are conflicts between what the societies claim and what they actually represent (either over or under 100%). Given the importance of Sweden in contributing some of the world’s top songwriters like Max Martin (who is a member of STIM if I’m not mistaken), you would think that any company, much less a fellow Swedish company like the monopolist Spotify, would not want to be holding Max Martin’s money hostage.
But Spotify Leverages Its Market Power
“[STIM] have informed our rightsholders that the royalties from Spotify will be delayed, since Spotify has not yet payed the invoice regarding Q4 2016,” STIM’s spokesperson told Music Ally.
“We have invoiced according to the same routines as during the whole of 2016, but Spotify now makes a new interpretation of the terms of our current agreement. STIM’s position is that already agreed principles and business standards shall apply.”
The spokesperson added that STIM is in “constructive discussions with Spotify to have this resolved in a quick manner”, so that it can pay out the royalties as soon as possible.
For its part, Spotify’s spokesperson provided this statement to Music Ally:
“We are always working to ensure that royalties are paid out to rightsholders in a correct and efficient way. Spotify offered to pay STIM the full amount to matched rightsholders, but STIM declined,” said the spokesperson.
“The amount in dispute relates to unmatched tracks. We are actively working with STIM on having this resolved in order to present rightsholders with their earned royalties [when they get a final nonappealable judgement?].”
This is the second time that STIM’s Spotify payouts have been delayed. In September 2016, payments for the first quarter of that year were delayed for two weeks, although that was due to negotiations still being finalised at the time those payouts should have been distributed.
The way this process works is that it is possible that all the societies together may claim more than 100% of the revenue because of the usual glitches in the claiming system. The likelihood of overclaiming is increased given the time pressure to render the invoice (for the service’s benefit). Any digital service that is paying attention knows going into the deal that this glitch will happen, so has an opportunity to negotiate a solution in advance.
It is likely STIM’s responsibility to make adjusting payments to sums it collects which is one of the reasons why the societies have interlocking agreements about how these matters are to be addressed. It is also STIM’s responsibility to credit Spotify’s account with any overpayments.
One possible reason why STIM does not want a partial payment is the astronoimical transaction costs of determining who gets what on a partial payment, then determining it again when claims are resolved on a rolling basis. This is a prime example of when the transaction costs of accounting for streaming exceed the miniscule royalties payable.
Not only would the transaction costs of administering the Spotify license in this case likely exceed the payable royalties, such an accommodation allows Spotify to use the songs at issue without paying at all until some future time that may never come. Given Spotify’s spotty—see what I did there—reputation on paying publishing royalties, there are few guarantees that the second adjusting payment will ever come in. Not to mention the third, fourth, fifth or sixth iteration of the September 16 payment as more songs are matched on a rolling basis, answering songwriter questions, and bank fees. And of course there’s always a risk of a Spotify bankruptcy that can’t be completely discounted to zero.
In other words—just because a song is unmatched does not mean that Spotify doesn’t owe someone for the stream. It is more likely that STIM will find out who that someone is in the normal course of business than a company with a monopoly position in streaming that is looking at a never ending cascade of copyright infringement litigation for failing to keep its publishing house in order like at least one of its competitors. You know, the competitor they complain about to any government agency who will listen in an infinite loop.
Is It Retaliatory?
For a company that has been the subject of two multimillion dollar songwriter settlements–that we know of–to be expecting trust in its payment of songwriter royalties is a bit much. The right move would be to audit STIM if Spotify feels it has overpaid and make sure that it gets credit for the right amount of any overpayment. Surely Spotify’s lawyers would not allow their client to suffer the indignity of being prohibited from auditing STIM.
Unfortunately, any Swedish songwriter who has licensed Spotify under the U.S. compulsory mechanical license system doesn’t have the same audit right against Spotify in the US due to the oppressive mechanical licensing rules.
You have to wonder if it is just STIM that the monopolist Spotify is refusing to pay. The same overclaiming problem potentially exists at all collecting societies. It is also a bit odd that we haven’t heard Apple complain of the same problems. Or any other service for that matter.
It’s also worth noting that Swedish songwriters and STIM members signed an open letter to Spotify last year demanding fair royalties which probably did not help Spotify’s cred with the songwriting community. There’s no evidence that Spotify has singled out these Swedish songwriters for retaliatory treatment, at least no evidence yet, but it does seem awfully coincidental that STIM members complained about Spotify and it appears that STIM is the only society being treated this way by Spotify.
Do you wonder how the songwriter “ambassadors” in Spotify’s “Secret Genius” charm offensive are doing on getting paid? Since they all wrote mega hits, my bet is that they are in the group that is getting regular payments and is consistently matched to revenue.
The rest of the world’s songwriters must have a genius that’s so secret they are unmatched in earning power.