Spotify Announces Database to Properly Manage Royalties

Against a backdrop of controversy over interactive music services not properly licensing songs or paying publishing royalties to music publishers and songwriters, Spotify’s global head of publisher relations James Duffett-Smith has posted a blog on the service’s website, writing that the company “will invest in the resources and technical expertise to build a comprehensive publishing administration system to solve this problem.”

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According to sources, Spotify will work in conjunction with the National Music Publishers’ Assn. and other publisher organizations around the globe to build a music publishing database that, when completed, will properly manage licenses and publishing royalties distributions going forward.

While some applaud the move, saying non-payment and compliance is a mess that can and should be fixed, others say it’s something the company should have prioritized from the start — instead of chasing a billion-dollar-plus valuation at the expense of proper payments to publishers.

Since it initially choose to rely on outside vendors like Harry Fox’s Slingshot operation, industry sources tell Billboard that Spotify currently owes publishers and songwriters about $25 million for music played on its U.S. service. But a source close to Spotify disputes that amount and says its closer to $17 million.

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Spotify is said to be one of the interactive services in the midst of settlement negotiations with the NMPA, the goal being to bifurcate the publishing royalty payment system. In this new two-step process publishers would have the opportunity to claim payments for songs played by the participating services and then, if any unclaimed money remains at the end of that process, the remainder would be disbursed according to publishers’ market share, according to sources.

In exchange for opting into that settlement, music publishers and songwriters would have to give up any legal claims they may have over licensing issues, sources say.

Beyond those negotiations, Spotify has been involved in a very public dispute with Audiam and its client Another Victory, the publishing arm of Victory Records, over non-payments and playing music without proper licensing.

Spotify says the overarching issue “is a complex problem — we are committed to solving it, but it is going to take significant time and effort… we want to fix the global problem of bad publishing data once and for all, and that’s why we’re making this commitment today.”

Spotify infuriates some publishers, who say the company is downplaying the issue by saying it owes publishers and songwriters less than one percent of all the royalties it has paid — $3 billion to date, including $300 million in the first quarter of this year alone, according to yesterday’s post.

Some publishers, however, object to the publishing money involved being classified in that context because it lumps in payments to record labels amidst the company’s global operation, instead of just looking at U.S. publishing revenue. If Spotify looked at it that way, some sources estimate that it is misassigning 10 to 20 percent of those royalties. But a source points out that no matter what percentage is used to describe the issue, the Spotify blog notes  “that doesn’t change the fact that those royalties are important revenue to songwriters and publishers and we want to make sure they end up in the right hands.”

Spotify declined comment.