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Spotify adds to its American woes by seeking to recoup over-payments to songwriters

By Chris Cooke | Published on Monday 24 June 2019

Spotify’s relationship with the music publishers and songwriters of America took another knock last week. Why? Because it emerged that the streaming firm plans to recoup over-payments made last year out of the royalties it is due to hand over this year.

The over-payments that need to be recouped are the result of the already controversial Copyright Royalty Board ruling on the monies due to publishers and songwriters in the US under the compulsory licence that covers the mechanical rights in songs Stateside.

That ruling – which applies to royalty obligations from January 2018 – was revealed at the start of last year but not fully ratified until the start of this year. Which means the old rates were still being paid as 2018 went through the motions, but now the new rules need to be applied to everything that happened last year.

One of the new rules covers the family plans and student offers that have become routine in the streaming business. Under the revised compulsory licence, discounts are now available to streaming services which operate schemes of this kind, so that each user on a family plan or student offer no longer counts as a full user for royalty calculating purposes.

By applying this new discount to usage since January 2018, it turns out that Spotify overpaid many publishers in relation to the songs being streamed. And it now wants to recoup those over-payments by deducting monies from royalties due in the months ahead.

The streaming firm said in a statement: “According to the new CRB regulations, we overpaid most publishers in 2018. While the appeal of the CRB decision is pending, the rates set by the CRB are current law, and we will abide by them – not only for 2018, but also for future years in which the amount paid to publishers is set to increase significantly”.

The impact of the new discounts on payments already made shouldn’t have been a surprise to the music publishers, given they knew that said discounts were incoming and that the uptake of the streaming companies’ family plans and student offers has been significant. Though whether the average publisher could predict the exact impact of the new discount would depend on the data available to it.

But either way, while annoying, the reclaim of over-payments caused by the slow nature of CRB proceedings probably wouldn’t have been too controversial. Except that Spotify is appealing that CRB ruling, the key outcome of which – of course – was an overall increase in the royalties being paid to publishers and songwriters, from a 10.5% to 15.1% revenue share.

As David Israelite, the boss of America’s National Music Publishers Association, has already pointed out, that means that the streaming firm is fighting against a CRB decision that was generally favourable to publishers and songwriters, while concurrently cashing in on one of the elements of the same ruling that benefited the streaming sector.

Obviously, in its statement, Spotify noted that the CRB ruling was “pending” – because of its appeal – but insisted that, while that appeal drags on, it will abide by the bits of the all-new compulsory licence that it doesn’t like, as well as the bits that it does. Which means that, as that overall rate increase kicks in, over a number of years, publishers and writers will start to see their royalty payments increase rather than decrease.

All of which is true. Though with Spotify now routinely derided by pretty much all the key players in the American publisher and songwriter community, announcing that it now needs to take some monies back is – in PR terms at least – a bit like chucking a bucket of petrol onto an already pretty raging fire.