Publishers Said to Be Missing As Much as 25 Percent of Streaming Royalties

By some industry estimates, as much as 25 percent of mechanical royalties due publishers and songwriters are going unpaid by streaming services due to identification difficulties.

Yesterday, Oct. 19, Spotify’s U.S. service pulled down thousands of songs from Victory Records' catalog. The dispute between Spotify and Audiam/Victory came when Audiam identified 53 million streams from Another Victory which Spotify hadn’t made any payments on.

The label hired Audiam -- a digital distribution and monitoring company founded in 2014 by former TuneCore CEO Jeff Price, which looks to help songwriters and publishers ensure they receive proper payments from digital services -- to monitor payments from streaming services to make sure its publishing company, Another Victory, gets paid correctly.

Audiam "created unique technology indexing and cataloging every digitally, commercially released sound recording," Price claims. "It then finds every commercially released sound recording of a particular song available in the streaming digital services." For example, Audiam identified 803 sound recordings of the Bob Dylan song "All Along The Watchtower."

Before undertaking a comprehensive audit, during the summer Audiam had provided Spotify with the results of its audits for January and June 2014 for Another Victory's catalog. Audiam also provided Spotify with back-up data and other information so that Spotify could analyze the audits, Price claims.

In addition to building technology to help match songs to master recordings Audiam, where it can, takes master recording performance royalties statements and matches them against mechanical royalty statements from the digital services, contrasting the results in order to determine which songs are not receiving payments.

Using Spotify's royalty statements on Victory Records' master recordings, and comparing those statements from 2012 through September 2015 against publishing royalty statements made to Another Victory over the same period, Audiam found that, of the 3,245 recordings that Another Victory holds a stake in, only 1,062 had received payment from Spotify. That leaves 2,183 songs in which Another Victory has a publishing stake but that did not receive mechanical royalty payments, accounting for 53 million total streams for those songs.

Billboard estimates that, at a blended mechanical rate for the ad-supported and premium services of $0.00043 per stream, the amount left unpaid comes to nearly $23,000.

Spotify tells BIllboard they are working to resolve the issue.

While some suggest that the removal of portions of Victory's catalog from Spotify was due to the streaming service becoming nervous over possible legal ramifications, others  speculate that Spotify could be taking punitive action against the label by ending the flow of payments on the removed songs. Since the records Spotify removed also include those not owned by Another Victory, the removal also damages RED, Victory’s distributor -- thus impacting Sony Music Entertainment, RED’s parent company.

Many of the services have valuations in the hundreds of million and even billions of dollars, Victory’s Brummel says, but they forget that "without the content, they are worth nothing. They need our content to get their high valuations… Yet without music, what is Spotify worth? So are they saying their users are valuable but the music is nothing?"

Making matters worse, the services "aren’t doing anything to fix the hole in the dike" Brummel adds. "We are not looking to go to war with anyone. We want to be fairly; not like indentured servants."

Before Spotify pulled down Victory’s music, it tried to get Another Victory to do a direct license with it. But since Victory already had a contract with Audiam that included a letter of direction to Spotify to pay Audiam for Another Victory publishing, Brummel says he couldn’t consider that option.

"It sounds like Spotify fired shots across the bow," says one publisher observing the situation play out in the Wall Street Journal, which first reported the news. Tony Brummel, owner of Victory Records and Another Victory, "is not a guy you want to shoot at," that publisher, who also has a vested interest in the payment of mechanical royalties, adds. "This should get very entertaining."

Victory Records is one of the more successful indie labels of the past 20 years, discovering and breaking records by such bands as Taking Back Sunday, Hawthorne Heights and Atreyu, among others. And Brummel is known as a savvy, sometimes scrappy, indie label owner who is not afraid to stand up on behalf of his companies' interest.

As songwriters and publishers became increasingly aware of this issue, the National Music Publishers Assn. has initiated settlement talks with such services as Spotify, Apple and Rhapsody, in order to facilitate the payment of unpaid publishing royalties on songs streamed by the services' users. NMPA president and CEO David Israelite says he estimates that as much as 25 percent of royalty payments are not being paid to publishers, or are being distributed to the wrong entities. Many companies employ a third party -- such as  such as Music Reports Inc., the Harry Fox Agency slingshot operation, Medianet and, once upon a time, RightsFlow, since ;purchased by Google for use within YouTube -- to attempt matching composition songwriters to master recordings.

Regardless, Israelite estimates a significant amount of activity, perhaps as much as 25 percent of streams, do not get properly identified. While some say that as much as $100 million in unpaid mechanical royalties is currently trapped in "black boxes" within the various interactive services, others say that the number more likely floats between $50 and $75 million. (That doesn’t include YouTube, which so far is not a part of any settlement talks -- though some publishers suspect it has the same problem with this type of royalty as the other services.)

Moreover, not only are the services not paying songwriters when they are the artist, the services are having a hard time paying for cover versions, too. "I am finding that the labels are reporting more usage than the publishers to artists/songwriters," says GSO Business Management director of royalties Steven Ambers, whose company oversees the publishing catalogs of George Thorogood, Mike Campbell and Ruthless Records. GSO also serves as the business manager for some artists and songwriters, giving it access to a lot of royalty statements.

"The labels are reporting 5 million streams for a song to an artist/songwriter, while the publishers will only show 4 million streams," Ambers reports. "The publisher should always show more transactions than the master recording because of cover versions, but so far it is not happening in the streaming world."

The music publishing community only became aware of the scope of the problem this year.

"We are in discussions [with the interactive services] on how to resolve this issue, and the talks are very productive," says NMPA'S Israelite. "This is not a contentious issue. I am not alleging any bad faith on the part of the services."

He says that, while labels have to know who to pay on mechanical royalties, that information isn’t readily apparent for services unless they are told by someone -- either the label or the publisher.

Jeff Price isn’t buying that. He says that the services have built systems to pay the labels, not the publishers, alleging that they instead shift that responsibility to third-party companies that are overwhelmed by the influx of hundreds of billions of transactions.

"The interactive streaming music services built no infrastructure to make payments to songwriters or publishers," Price says. "The music services don’t pay the songwriters or publishers [completely], and then blame the [songwriters for their non-payment. The fault is not with the music industry, the fault lays with the music services."

Some are afraid that the NMPA will use the same strategy to solve this problem as it did when it negotiated a settlement with record labels over pending and unmatched royalty payments. In that negotiation, publishers got paid by market share. However, Israelite maintains they will first try come up with a system to get the money paid out correctly, before resorting to a market share system.