Securing music licenses is one of the most difficult tasks streaming services such as Spotify must complete. Each song usually has many rights holders and there is not a single database that provides complete information on who those right holders are. This results in streaming services missing a license here or there. This is the position Spotify is in with a few parties who claim they have not received payment for mechanical licenses. The response from Spotify is they actually do not need to pay for mechanical licenses and it’s causing a bit of an outrage. This situation poses the question, “do subscription services need to pay for mechanical licenses?”
What Are Mechanical Licenses?
When companies or people wish to use a song, there are different licenses they must obtain. You can secure specific licenses through Record Labels, Publishers, and PROs. Below is a list of these licenses, what they cover, and who you need to talk to for them:
- Performance Royalty:
- What: The right to play a song in public
- For: Radio, Online Radio, Streaming Services, In Stores, Concert Venues, etc.
- Who: The PROs & SoundExchange
- Master Recording:
- What: The right to use the master sound recording for your digital service
- For: Streaming Services, Interactive Radio, & Downloads
- Who: The Record Label
- What: Allows the distribution and reproduction of a song
- For: Physical Music, Digital Downloads, On-Demand Streaming
- Who: No governing body, so it’s a mixture of labels, Harry Fox Agency, & publishers
The Issue With Mechanical Licenses
As mentioned above, there isn’t a governing body that administers and collects mechanical licenses. The closest thing the industry has to it is the Harry Fox Agency (HFA). They were instrumental in collecting and administering mechanical licenses to publishers when physical (CDs, cassette, vinyl) was the main revenue driver.
Having a deal with HFA does not guarantee your mechanical licenses are fully covered. Since HFA does not represent everyone, there are gaps that occur. If a song that’s not a part of HFA plays, the artist will not receive their royalty. It’s an unfortunate situation. Services try to be compliant but due to the complexity of music licensing, things fall through the cracks and lawsuits ensue.
Music copyright law has not been updated to deal with streaming. When digital downloads and online radio emerged, the laws followed their non-digital counterparts. Digital radio would only need to pay for performance royalties and downloads would only require mechanical licenses. Since streaming sits in the middle, it was assumed services would need to pay for both mechanical and performance royalties.
Spotify vs. Bluewater Music Services & Bob Gaudio
This brings us to Spotify’s lawsuit against Bluewater Music Services and Bob Gaudio. Both are suing Spotify for not receiving mechanical royalties. Their argument is that the service is reproducing their songs and distributing it to fans, which would require mechanical licenses. Spotify’s response was that they are not reproducing or distributing content, which raises some eyebrows in the industry.
To understand Spotify’s position, you’ll need to understand how streaming works. Once a service completes a label deal, the label delivers their catalog to the service’s servers. When streaming a song on Spotify, the user is directed to a URL where the song is stored on Spotify’s server. Thus, the service does not reproduce the track. A reproduction would require Spotify to create a copy of the song file. Instead, it points the user to the exact file they received from the label.
However, if the user is to download the song for offline listening, then the user is creating a copy of the song on their mobile device. In this instance, which is likely to come up in the lawsuit, Spotify would be liable for mechanical licenses.
What’s causing concern though, is Spotify’s claim that they do not distribute the music. Ultimately, this would come down to how a judge interprets the definition of distribution and whether or not that aligns with what Spotify is doing. Frankly, this will be a tough argument for Spotify to uphold. What makes it tougher are the settlements of previous mechanical license lawsuits. This precedent has already been set by themselves and will be hard to get out of.
Can Spotify Not Pay For Mechanical Licenses?
This will come down to the ruling of their current lawsuit. It will be the make or break decision for other streaming services as well. If the judge rules in Spotify’s favor, it’s safe to say other services will follow suit and stop paying mechanicals. This would, of course, provide better margins for the services and help them reach profitability.
The industry will continue to keep a close eye on this lawsuit. It might shift how services license music. HHB will be sure to keep you up to date with any further news!