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The $1.6 Billion Spotify Lawsuit: What You Need to Know

What’s behind the Tom Petty and Neil Young publisher’s massive suit against the streaming giant?

This week, Spotify cemented plans for the world’s biggest streaming service to go public on the New York Stock Exchange. However, the months-in-the-works announcement was marred Tuesday by the arrival of a $1.6 billion lawsuit filed against Spotify by Wixen Music Publishing, which represents the works of artists ranging from Neil Young and Tom Petty to the Black Keys and Janis Joplin.

The massive lawsuit – the latest in a string of legal actions Spotify has faced in the past year – seeks to remunerate songwriters and rights holders, under-compensated as the music industry shifts to streaming, before legislation is passed in Washington, D.C. that would hinder future reimbursement.

Here is everything you need to know about the potentially industry-changing lawsuit, from what precipitated it to what it could mean for the future of streaming.

What is Wixen Music Publishing?

Founded by Randall Wixen in 1978, the California-based publishing company licenses the catalogs of more than 2,000 artists, from rock legends like Tom Petty, Neil Young, Jefferson Airplane and the Beach Boys to alternative rockers like Black Keys and Rage Against the Machine to hip-hop acts like Missy Elliott. By Wixen’s estimates, their stable of artists represents between one to five percent of the music streamed on Spotify.

“From the beginning, the emphasis has always been on providing ultra-high-quality administration with extra consideration given towards royalty analysis, while both protecting and exploiting our clients’ copyrights,” Wixen tells clients on its website. “We don’t try to function as bankers and collateralize your earnings with advances. We function simply as copyright administrators. You keep and control your copyrights, we keep our money, and you get to retain more of yours.”

Wixen Music Publishing also prides itself as “tough negotiators,” which likely facilitated their $1.6 billion lawsuit, as the company was unsatisfied with the result of past class action lawsuits as well as forthcoming legislation.

“Understanding the value of music and pricing songs accordingly is very important to maintain its worth and not erode its earning power,” Wixen promises clients. “Some may call our pricing model aggressive; our clients see it as watching out for their interests and getting them the best deal for their song.”

Didn’t Spotify recently settle another class action lawsuit regarding licensing?

In May, the Sweden-based streaming service reached a $43 million settlement to a class action lawsuit filed by songwriters Melissa Ferrick and David Lowery, the frontman of Cracker and Camper Van Beethoven. Ferrick and Lowery – who merged separate lawsuits into one legal action in 2016 – initially sought $150 million, but after Spotify’s numerous attempts to have the class action lawsuit dismissed, the two sides – with Spotify eager to resolve the suit ahead of its plan to go public on the New York Stock Exchange – ultimately reached the settlement.

“This is a good first step, but we have a long way to go,” Lowery said of the settlement. “This is like the first victory that the workers have towards better working conditions, like unionization for fair pay. It’s what’s going to help our digital future for the music business grow — to make the system fairer for all.”

However, that settlement drew criticism from music publishers and their clients for being “inadequate” restitution. Wixen Music Publishing said it did not opt into that class action lawsuit “because too much of the settlement is going to legal fees, and because the terms of the go-forward license in the settlement are not in their long-term best interests.”

Wixen and its artists were among the hundreds of musicians and publishers to come forward and object to the $43 million settlement, saying it is “procedurally and substantively unfair to Settlement Class Members because it prevents meaningful participation by rights holders and offers them an unfair dollar amount in light of Spotify’s ongoing, wilful copyright infringement of their works.”

In the aftermath of the Lowery/Ferrick settlement, songwriters like Bob Gaudio – a founding member of the Four Seasons – and publishers like Wixen have filed their own lawsuits against Spotify.

In its lawsuit, Wixen alleges that Spotify employs a licensing and royalty service, the Harry Fox Agency, that is “ill-equipped to obtain all the necessary mechanical licenses.” However, politicians, streaming services and the music publishing industry are collaborating on a means to remedy that issue in the future.

Didn’t lawmakers and the major publishing companies propose legislation to fix music licensing in the streaming era?

On December 21st, politicians from both sides of the aisle proposed the Music Modernization Act. Backed by the major music publishing companies like the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI) and the National Music Publishers Association (NMPA), the bill aimed at simplifying the process of music licensing in the digital era as well as increasing royalty payments.

The bill also would have removed Section 114 of the U.S. Copyright Act, allowing “a rate court to consider all relevant evidence when determining songwriter compensation – including the rates that recording artists earn – an ability that is currently prohibited by law.”

ASCAP CEO Beth Matthews said of the Music Modernization Act, “For too long, songwriters have had to work within an outdated system that over-regulates and undervalues their music. ASCAP and our members have long advocated for a more flexible framework that can adapt to the realities of the modern music marketplace.”

Matthews added that the proposal is the “result of compromise between stakeholders from the music and tech sectors.” However, not every music publishing company is fully onboard with the Music Modernization Act, including Wixen.

While Wixen praised the efforts of the music publishing community, “unfortunately the bill disenfranchises our clients from legal redress for infringements made of their songs without proper licenses by various streaming services,” Randall Wixen said in a statement.

Why did Wixen file the lawsuit now?

Although news of the lawsuit first surfaced on Tuesday, the lawsuit itself was filed on December 29th. The timing of the lawsuit is significant: If the Music Modernization Act passes, the bill “would eliminate important legal remedies” for any music publishing company’s lawsuits that were filed after January 1st, 2018.

“We are very disappointed that these services will retroactively get a free pass for actions that were previously illegal unless we actually file suit before January 1, 2018,” Wixen said in a statement Tuesday. “Neither we nor our clients are interested in becoming litigants but we have been faced with a choice of forfeiting rights and damages, or taking action at this time. We regret that this otherwise admirable proposed bill has had this effect, and we hope that Spotify nonetheless comes to the table with a fair and reasonable approach to reaching a resolution with us. We are fully prepared to go as far forward in the courts as required to protect our clients’ rights.”

In its response to Wixen’s lawsuit, Spotify questioned whether the publishing company had the authority of its clients to pursue the $1.6 billion lawsuit.

Why did Wixen single out Spotify and not the other major streaming services?

While Apple Music, Tidal, Spotify and others all pay a fraction of a cent per stream, Spotify’s per-stream compensation is notoriously low compared to its streaming competition. Recent estimates put Spotify’s pay-per-stream at approximately $0.0038. By comparison, according to Forbes, Tidal streams yield $0.01 per play, while Apple Music compensates at $0.0064 per stream.

Other factors – global currency, individually negotiated rates – factor into and fluctuate the overall compensation rate, but Spotify’s pay-per-stream is well below industry standards, to the point that the streaming services has been repeatedly singled out by artists.

Radiohead’s Thom Yorke called Spotify “the last desperate fart of the dying corpse” in 2013 and kept his solo discography off the streaming service until December. Even after Spotify licensed Yorke’s solo works, the singer continued to mock the service, retweeting comments that were critical of Spotify and its pay structure.

Randall Wixen added in his statement Tuesday, Spotify has more than $3 billion in annual revenue and pays outrageous annual salaries to its executives and millions per month for ultra-luxurious office space in various cities. “All we’re asking for is for them to reasonably compensate our clients by sharing a minuscule amount of the revenue they take in with the creators of the product they sell,” he said. “Music fans should be able to enjoy Spotify, knowing that their favorite artists are being treated fairly.”