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New York Attorney General asked to investigate Spotify’s unpaid mechanicals

By Chris Cooke | Published on Tuesday 10 November 2015

Musician David Lowery – who has long been vocal on the streaming market and the royalties such services pay – has called of the Attorney General Of New York to investigate the various issues surrounding the payment of mechanical royalties by streaming services in the US.

This follows the recent spat between Spotify and Victory Records, which led to the latter’s recordings catalogue disappearing from the streaming service in the US, even though the dispute is actually with Victory’s music publishing company. As previously reported, Victory reckons that it is owed mechanical royalties on about 53 million streams of songs published by its Another Victory business.

Streams exploit both the ‘reproduction’ and ‘communication’ elements of the copyright, and in music publishing those two elements have traditionally been managed and licensed separately, commonly referred to as the mechanical and performing rights respectively.

However, recognising that digital firms need licenses for both sets of rights, in most countries publishers and their collecting societies have sought to provide both elements through one deal. The exception is the US, where the big collecting societies like ASCAP and BMI only license the performing rights.

Mechanical rights are covered by a compulsory licence in America, so digital services don’t need permission as such from the copyright owners, but they do need to pay royalties, and have certain obligations under the compulsory licence. Most people on both the music and digital sides of the fence recognise that the processing of mechanical royalties in the US streaming domain is inefficient, and money is being lost to the system.

For their part, the digital services insist that the lack of a central database of copyright ownership makes it hard for them to locate the publisher and/or songwriter who is due royalties for any one song, and there is only so much the agencies they hire to process mechanicals can do to ensure that all the money is received at the other end.

Some music publishers acknowledge that weakness and forgive the digital services to an extent, but others argue that – even if the music industry is to blame for some of the inefficiencies – that doesn’t alter the digital services’ obligations to ensure royalties are paid.

In his letter to New York Attorney General Eric T Schneiderman, Lowery argues that services like Spotify could and should be doing more to ensure publishers and songwriters are being paid, perhaps by publishing a list of songs streaming on their platform where no publisher has claimed outright ownership and accompanying mechanical royalties.

The musician has chosen to write to Schneiderman because, back in 2004, a previous New York Attorney General, Eliot Spitzer, investigated the way record companies processed royalties, and in particular allegations that the labels did not do enough to ensure each and every beneficiary of the sound recordings they controlled received all the royalties they were due. After a two year investigation, the US record industry committed to up its game in the royalty processing domain, particularly where labels had lost contact with legacy artists.

In his letter, which is published on The Trichordist, Lowery says: “I see no difference between the 2004 situation regarding record companies and the 2015 situation involving digital services. I think that highly sophisticated and well-funded high-tech digital services like Spotify and Google should be held to at least the same standard as the record companies regarding unpaid royalties if not a higher standard – if licensees don’t know who to pay, then why are they using the music in the first place?”

He goes on: “If what Spotify told the Wall Street Journal is true, then Spotify knows which songs they are ‘escrowing’ royalties for, and Google likely has the same information. They should know the song title and the name of the artist who performed the song. Even if Spotify doesn’t know the name of the songwriters concerned, they could at least publish the song title and artist name so that there could be a hope of the songwriter tracking down what was owed to them. I suspect the same is true at YouTube and all the other digital services”.

Concluding, he says: “This situation seems ideally suited to the kind of investigation that your office undertook in 2004”.

Another solution would be for the US music publishing sector to licence mechanical and performing rights together in the digital domain, though the consent decrees that regulate performing rights organisations like BMI and ASCAP currently hinder that aim. However, they are currently being reviewed by the US Department Of Justice and reform could be incoming.

In the meantime, it remains to be seen whether Schneiderman concurs that there may be something worth investigating here. Spitzer always seemed to have a particular interest in this area, and his successor is probably less likely to want to intervene. Though his response to Lowery will be interesting nonetheless.