US collecting society SoundExchange has filed a lawsuit over $3.3 million in allegedly unpaid royalties and fees relating to Sonos Radio, the non-interactive streaming service operated by smart speaker company Sonos, which relies on the SoundExchange licence in the US. According to the lawsuit, the unpaid fees are mainly the fault of Napster, but primarily the problem of Sonos.
Napster is a co-defendant on the lawsuit because it powered the Sonos Radio service from its launch in 2020 through to 2023. Problems began, SoundExchange explains, when Napster was acquired by two blockchain companies in May 2022. Those companies, Hivemind and Algorand, are described in the lawsuit as “venture capital firms focused on ‘web3’ - ie cryptocurrencies and blockchain technology”.
At the time of the acquisition, it adds, Hivemind founder Matt Zhang talked up the “exciting opportunities” he saw for the future of Napster, adding that “music and web3 is one of the most exciting spaces we’ve come across”. However, SoundExchange says, “Hivemind’s excitement did not extend to building value for artists and rightsholders”.
When the company powered Sonos Radio, Napster was in charge of managing the service’s relationship with SoundExchange. From April 2020 to April 2022, that all worked fine, with Napster reporting usage and paying royalties to SoundExchange for the recordings it streamed. The collecting society then passed that money onto the record labels and artists whose music had been used.
However, that all stopped after the Hivemind acquisition, with a subsequent audit revealing that the Napster employee who was responsible for reporting to and interacting with SoundExchange left the company shortly after the change in ownership, and was never replaced.
As a result, Sonos Radio stopped reporting usage and paying royalties to the collecting society, with SoundExchange’s auditors reckoning that - taking into account interest and late payment fees - about $3.3 million is now owing. Perhaps unsurprisingly, Sonos has tried to shift the blame for the unpaid royalties onto Napster. But SoundExchange isn’t tolerating any such blame shifting.
The back-end of Sonos Radio may have been powered by Napster, it says, but it was a service “owned and operated” by Sonos, and therefore Sonos is “ultimately responsible for ensuring compliance” with the SoundExchange licence, “including the payment of royalties”.
Sonos Radio is a non-interactive music and radio streaming service available via Sonos hardware. Because it doesn’t offer the on-demand functionality of a service like Spotify, rather than negotiating licensing deals directly with record labels, Sonos and Napster could rely on the ‘statutory licence’ provided by US copyright law, which is administered by SoundExchange.
Napster, of course, is the streaming service everyone forgets still exists, utilising the brand of the game-changing and long defunct file-sharing service of the late 1990s. As well as running a little known consumer facing streaming service - and dabbling, with limited success, in things like virtual reality and web3 - Napster has also offered a B2B service powering other companies’ music platforms.
In 2023, Sonos ended its partnership with Napster, and then Deezer became the company that powers the Sonos streaming service instead. Since then things have been fine regarding Sonos Radio and SoundExchange, despite the wider Sonos company going through a particularly turbulent period after a major app update in 2024 caused all sorts of issues for users.
However, SoundExchange is still due payment for music used in 2022 and 2023, hence the lawsuit. Napster got yet another new owner earlier this year in the form of Infinite Reality. It is also involved in this litigation, via Napster, though again SoundExchange stresses that “it is Sonos who is ultimately responsible for ensuring compliance with that statutory license, including the payment of royalties”.
