Vast Majority Join Royalties Settlement Between Spotify and Publishing Group

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The $30 million settlement negotiated between Spotify and the National Music Publishers’ Assn. (NMPA) over unpaid publishing royalties, a dispute which instigated two class action lawsuits against the company (since combined) has landed participation from NMPA members who comprise 96% of the trade group's market share.

The window for music publishers to decide whether they wanted to partake in the deal or join the class action lawsuit against Spotify, or for publishers to initiate their own legal proceedings, closed June 30.

"The vast majority of our members have opted into our settlement," NMPA president and CEO David Israelite tells Billboard, saying the agreement has "one of our highest opt-in rates ever." The NMPA has successfully sued or settled with various entities to the tune of $546 million through its history, the organization revealed at its annual meeting held in June.

Spotify will issue a list of sound recordings that it couldn’t match and thus owes mechanical royalties for, which they have estimated to be $25 million. Publishers will be allowed to analyze that list to claim songs and plays from it ahead of receiving their allotted share of the settlement. If any funds are left over after that process they will be liquidated and distributed by publisher’s market share, as calculated by Spotify. Meanwhile, a $5 million bonus pool will be distributed by U.S. market share, as calculated by NMPA. The NMPA is in the process of hiring an administrator to oversee the payout process and to help clear conflicting claims. Israelite reports that the NMPA is entertaining bids from four rights administration entities.

Critics of the settlement between the NMPA and Spotify charge that the three majors all took part in the settlement because it minimizes Spotify’s financial obligations to most publishers. If NMPA publishers had gone the class action route or if they had initiated their own legal payments, then a substantial Spotify payout could hurt the company financially, and likewise impair the value of equity stakes in the company that are potentially, and probably, worth hundreds of millions.

Israelite says that participants in the settlement "have a real desire to see streaming work," because it is the future of the business. They didn’t want to penalize Spotify financially and possibly derail the service on its way to helping to grow the streaming business -- and along with it the wider recording industry, which is increasingly reliant on streaming revenues.

Israelite contends that Spotify is paying a significant penalty and, more importantly, will be "taking on the duties to clean up" processing publisher reports and payouts.

While there is a 96 percent participation rate among NMPA members, bitterness remains directed toward Spotify and other streaming services. Some publishers and songwriters claim that these services started their businesses irresponsibly, failing to ensure they had systems in place for properly licensing from and paying out to music publishers.

Some of the songwriters and publishers affiliated with the class action lawsuit claim Spotify and other services knowingly infringed on their copyrights in order to get their businesses off the ground. Moreover, they charge that Spotify and some other services are poised to raise billions of dollars through initial public offerings, largely on the backs of publishers.

Those publishers foresee penalties of up to $150,000 per infringement, or settlements that will yield a much larger penalty than the $5 million claimed in the NMPA deal with Spotify.