As Warner and Spotify Face Off Over India, What Comes Next?

        

Illustration by Ryan Snook

The streaming service launched on the subcontinent without major publishing rights, angering publishers amid the latest salvo in a long-running business conflict

When Spotify launched in India on Feb. 26 after years of planning, it did so without hits like Ed Sheeran’s “Perfect” and Cardi B’s “I Like It” because it wasn’t able to reach a licensing deal with the owner of those recordings, Warner Music Group (WMG).

But it is offering Indian users songs that WMG publishes, such as Maroon 5’s “Girls Like You” and Beyoncé’s “Formation,” despite the company’s objections -- setting a stage for a battle royale that could have significant international implications for Spotify’s relationships with the music industry and Wall Street, not to mention the future of copyright law in the world’s second-most populous country and beyond.

On Feb. 25, WMG filed a request for an injunction to try to stop the inclusion of Warner/Chappell songs in Spotify’s impending launch. Spotify quickly accused WMG of “abusive behavior [that] would harm many non-Warner artists, labels and publishers, and prevent Spotify from competing in the market.” WMG called Spotify’s comments “appalling,” adding, “We’re shocked that they would exploit the valuable rights of songwriters without a license.”

Still, Spotify has sometimes been the kind of company that begs forgiveness in an industry based on asking permission. After a Mumbai judge deferred WMG’s request for injunction for several weeks, Spotify’s choice to launch its on-demand service with Warner/Chappell-owned songs without permission highlights the continued tension developing between the major labels and the digital service.

While it’s impossible to calculate the percentage of songs owned or distributed by other labels that Warner/Chappell has a stake in, for the fourth quarter of 2018, it claimed a piece of 55 of the top 100 radio songs in the United States, according to Nielsen Music, good for a market share of 16.81 percent. Of those 55 songs, 21 were distributed by Universal Music Group, and 14 were distributed by Sony, though that may not necessarily be the case for India. The company counts Katy Perry, Kendrick Lamar, Madonna, Radiohead and Rihanna among its stable of songwriters.

Since Indian copyright law doesn’t provide statutory damages for copyright holders, if Spotify is found to be infringing WMG copyrights, the company would only have to pay in damages what it would have paid anyway in royalties, and maybe the music company’s legal fees. But Spotify appears to be claiming it does have a statutory license to use the Warner/Chappell songs because streaming is akin to the broadcasting done by radio and TV.

The problem with that Spotify claim is that India’s amended Copyright Act of 2012 does not exactly define what a collective statutory license entails, other than to say it applies to the “broadcasting of ... musical works and sound recording.”

Whether the collective license applies to on-demand streaming has been discussed among India’s music-industry stakeholders, but local on-demand streaming services have so far been unsuccessful in lobbying the government to move ahead on this issue, except for getting the Ministry of Commerce’s Copyright Section to broaden the interpretation of broadcasting to include internet broadcasting, i.e. digital radio. Until Spotify came along, it was still an open question in India.

If Spotify prevails in court and the statutory license is extended to on-demand digital services, publishers and songwriters could lose the ability to negotiate better payment rates than what the local copyright board, the Intellectual Property Appellate Board, assigns for programmed radio airplay. One publisher says that it may not forgive WMG for awakening “this sleeping issue. Unlike other majors, WMG has no direct presence in India, and its market share is negligible. Why pick a fight in a market where you have no leverage?”

But a WMG source unauthorized to speak on the record says the company’s main goal is only to achieve a fair rate for itself and its songwriters, instead of the extremely low pay outs that Spotify is offering in royalties for both master recordings and music-publishing rights.

Spotify has been public about its plans to open in India since March 2018 and had been negotiating with rights holders for months. But WMG’s injunction request laid bare the frustrations that delayed the launch, underscoring a broader discontent that’s bubbling beneath the surface of a recovering music business.

Spotify’s decision to launch without all three major labels onboard doesn’t come with much legal risk. But the move could damage Spotify’s relationships with both creators and its content partners at a time when Spotify’s competitors like Amazon and Apple Music are catching up. And on Wall Street, Spotify’s stock price has taken a nose dive since the dispute erupted Monday, falling from an opening price of $152.02 per share on Feb. 25 to $135.70 at the open of business March 1.

Meanwhile, the outcome of the Spotify court case could reshape Indian copyright law in other ways, if the statutory license is extended to on-demand streaming.

Another issue that is unclear in India is whether collective licensing covers mechanical licensing -- and whether streaming needs a mechanical license. Some sources say it seems clear that the temporary downloads that premium streaming services offer would require the mechanical license. But again, that issue has never before come up in India, because Western publishers do direct deals that cover both licenses, while local repertoire from local labels typically own both as well. While Spotify may claim to have the performance right, in the view of the Warner Music Group, it certainly doesn’t have the mechanical right.

Another issue that may come into play is the concept of fractional licensing, and whether that exists in India. If so, it could be used to amplify a publisher's market share -- but once again, India’s copyright law has never addressed the matter.

While some local players might be annoyed at the Warner Music Group for upsetting the statutory-licensing apple cart, some executives from the Western music industry are miffed at Spotify’s tactics -- particularly their attempt to get local copyright laws changed by the courts.

“They could have launched without [WMG and Warner/Chappell], but because they apparently feel that they are entitled to rights, they went to an unprecedented place,” says one U.S.-based music industry executive. “Its abuse of market power.”

Others are concerned that Spotify might broaden its gambit to claim that the statutory license also covers a master recording license for on-demand streaming services, since the section of India’s copyright law on the broadcasting statutory license also includes sound recording in its definition. If that happens, label executives worry that could result in lower royalties for labels and artists.

“We want to see a thriving and competitive music industry in India for artists and fans,” RIAA chairman and president Mitch Glazier said in a statement to Billboard. “An incorrect interpretation of the statutory license would jeopardize that goal and set a dangerous precedent.”

The battle over India comes as all three major record companies gear up to renegotiate their higher-stakes global licensing deals with Spotify, which is pushing to pay labels a lower share of its revenue as it amasses subscribers.

While both sides -- Spotify and WMG -- are publicly decrying each other’s behavior as their legal wrangling became public, both also issued comments that said they hope to resolve the dispute through negotiations.

A version of this article orginally appeared in the March 2 issue of Billboard.

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