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Can Spotify Not Pay For Mechanical Licenses?

Sep 06, 2017 by Happy Hour Beats - 0 Comments

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
  • Mechanical:
    • 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

Mechanical License Chart

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!


ASCAP & BMI Are Building A Song Database

Aug 02, 2017 by Happy Hour Beats - 0 Comments

If you keep up with industry news, there was a significant development made last week in the PRO sector. It was announced that ASCAP & BMI are building a song database that will be available to the industry. If you read that and are not quite sure why this is important – don’t worry. We’ll break it down with PROs and cons (pun intended)!

What does this mean?


Good question. What does this all mean? Well, it’s actually fairly simple. You see, songwriters & producers are signed to a PRO (Performing Rights Organization). The PRO collects performance royalties on behalf of their clients and pay them. ASCAP & BMI are two of the largest PROs and have hundreds of thousands of songs in their database they represent.

When songwriters from different PROs write a song together, they split the royalties. This means that different PROs are collecting a portion of the song’s royalties to pay their respective songwriter. This can cause some concern, confusion, and headache for the industry. It’s difficult to keep track of the approved splits and which PRO each songwriter signed to. Each PRO has their own database to keep track of their clients, but there isn’t a global databse that combines them all. See where this is going?

ASCAP & BMI are joining forces to fix this problem. They want to create a joint database and begin a revolution in the PRO sector.

The Benefits:

There is an inherit lack of transparency in publishing. Since there are various PROs and songwriters can jump from one to the other every few years, it’s very difficult to keep track of splits. Databases might not always be up to date and other times filings are incorrect. Having the ability to cross reference the databases of ASCAP & BMI, the industry can find gaps and inaccuracies in the data. With ASCAP & BMI representing probably 60-70% of all songwriters & producers in the US this will be a huge step forward.

For music supervisors, this is a dream come true. No more scouwering the internet looking for this information and following up with PROs to confirm. Instead, synchronization submissions will be more accurate and faster. This means songwriters and producers will receive the correct royalty amounts, make payment tracking easier and hopefully more timely.

ASCAP & BMI, But?PRO Logos

What about SEASAC and Global Music Rights? How can we have a database that only has half of the PROs? This is the largest dissatisfaction within the industry at the moment. SEASAC and GMR both have high profile clients that would make any database incomplete withouth their information.

Many believe the reason ASCAP & BMI pursued this without including the others was to prevent government intervention in terms of regulating consent decrees (that’s another story, but know that it dictates how the PRO operates and handles their client’s rights). There could be a delay to the project if ASCAP & BMI include SEASAC and GMR. Moving forward without them allows the two to get their database to market quickly. It’s not to say the other two could join in down the road, which I’m sure they will.

Or, because the two are not included the government can see it as means to intervene regardless and regulate this sector more closely. It’s not something that the industry wants. The government currently controls digital radio rates, and that hasn’t been beneficial for the artists and songwriters.

What’s Next?

The efforts of ASCAP & BMI are expected to be complete by the end of 2018. That’s when the first phase of the project will launch, which will have a majority of the repertoire available to the public. Phase 2 will include more searchable data points, while the final phase will be an API integration.

Perhaps Phase 4 will include SEASAC and GMR. Only time will tell.

How YouTube Paved The Way For Soundcloud

May 04, 2017 by Happy Hour Beats - 0 Comments

As we briefly discussed how Soundcloud is different from other music services here, it got us thinking there’s a larger story to tell. How is a service like Soundcloud able to differentiate itself from the other competitors? How did this company come to be without being shut down by the major labels? It all leads back to how YouTube paved the way for Soundcloud.

History of YouTube

When YouTube came to prominence in 2005, it allowed users to upload their home videos. This ultimately grew into movies, music videos, and audio tracks. Copyright infringement became rampant and record labels didn’t quite know how to handle the situation. Why? Because YouTube uses the Digital Millenium Copyright Act to avoid wrongdoing for copyright infringement.

DMCA protecting companies

Not familiar with DMCA? It’s a law enacted in the late 90’s to tackle copyright issues with digital media. The most prominent and used piece of the DMCA is Safe Harbor. It allows companies to deflect liability for copyright infringement when users upload content to the service. Copyright owners are able to request takedowns on infringing content. In this case, companies have 24 hours to comply. If the company does not, the copyright owners can hold the company liable.

The Safe Harbor provisions is a heated topic amongst the music industry. Many wish for congress to update the governing laws to remove safe harbor. Labels and publishers are refraining from renewing deals with YouTube due to this concern. The only label to extend its relationship with YouTube is Warner Music, which is only to take advantage of potential revenues.

DMCA Safe Harbor vs. Piracy

Piracy is often associated with the likes of Napster and other P2P services. The difference between P2P and services like YouTube is how files are stored. P2P is a network that shares files directly to each computer. There isn’t a centrally stored file and thus a way to “take down” a file. Instead, the network must be taken down. This is what led the RIAA’s to sue grandmothers and teens.

YouTube Safe Harbor

Youtube is different. They own the servers where files are stored and can take down content if flagged. That was the smartest move the company made when first starting out. The second smartest was allowing creativity from their users. This sparked various types of content hosted by YouTube and pushed it into a massive platform. Shutting it down would be a difficult task, especially with Google behind it. There was more to gain from licensing YouTube than shutting it down.

Grooveshark Takes One For The Team

Before Soundcloud and Spotify were household names in the USA, Grooveshark was all the hype. The service was a blend of iTunes and YouTube. It allowed users to upload music, create playlists, and build a library. Any uploaded music was available to the whole Grooveshark community. Grooveshark was a stepping stone to what Soundcloud is today. Though, after years of court battles with the major labels, Grooveshark shut down in 2015. Grooveshark had two issues it created. One dealt with user experience and the other with legal mistakes.

Grooveshark Shuts Down

Major labels didn’t like Grooveshark relying on safe harbor to justify their service. After failed negotiations to properly license the company, labels began sending DMCA takedowns for each infringing song. With tracks being removed, a user’s playlist and library were constantly changing. Therefore, fans had to continually rebuild their library which became enough of a headache for them to leave for other competitors.

Grooveshark’s true downfall though was building their music library. As it states in the DMCA, a company falls in safe harbor only if users upload infringing content. That is because a company cannot control users and can only request that they upload copyright content they own. Unfortunately, Grooveshark employees were also uploading content to the service, which makes the company liable for infringement. This is where the legal battle against the major labels begins and the company ends.

How YouTube Paved The Way For Soundcloud

Most were perplexed why YouTube and Soundcloud weren’t shut down after Grooveshark. Looking at it in the perspective of the record labels and publishers will reveal the truth.

Labels and publishers had a lot to gain by licensing YouTube. It would first begin a relationship with the biggest tech company, Google. That relationship can open up many doors from endorsements and data to marketing opportunities. The second reason is the pay day. At the time, YouTube had over 1B views on the platform, 55% of which was music. Do the math and you can see that anyone who turns away from that check is a fool.

Once YouTube and the industry struck a deal, Youtube created a system that changed the DMCA takedowns. Instead of requesting takedowns, labels and publishers now had the ability to claim songs they owned. This would allow your mom’s cat videos that happened to have the radio playing in the background to stay uploaded. It would also allow YouTube to monetize claimed videos and pay the labels/publishers accordingly. In the event an artist wishes to stay off YouTube completely (à la, Taylor Swift & Coldplay), the DMCA takedown is implemented. It is a win-win for both companies.

Solving The Issue

For Soundcloud, they positioned themselves in a unique way. Instead of being a nuance to the labels like Grooveshark, Soundcloud became an opportunity like YouTube. Labels utilized the platform to showcase new singles and gain buzz that they can then use to drive radio promotion. No other platform provided labels the flexibility to “unofficially” release content, and the data was immeasurable to them. This made it difficult for labels to shut down the service, but they couldn’t find a way to license them due to remixes.

How YouTube Paved The Way For Soundcloud

Up until Soundcloud, nobody knew how to license a remixed track. How do you split royalties between the original artist and the remixer? How about a mashup that includes elements of multiple songs? It is a nightmare. Try determining which piece of the mashup gets paid the most. It could be based on what’s used for the hook or what song is used the most. Thankfully, labels and publishers both closed a deal and figured it out.

To date, Soundcloud is the only service that offers DJ remixes. Because of that, they offer 120M more tracks than any other streaming service. However, without YouTube paving the way, Soundcloud easily could have been another company on memory lane…

Splice Sound Library Adds SFX

Apr 25, 2017 by Happy Hour Beats - 0 Comments

If you’re not yet familiar with the Splice sound library, your world may change forever! Splice is a cool startup that offers music producers a home online. The platform offers producers the ability to backup DAW sessions to a cloud and access production tools. From plugins to a million samples, to presets, Splice is a one-stop shop for producers. Now, as of today, the Splice sound library has added SFX to their sound library. This opens the platform up to film composers!

History of Splice

Splice sound library logo

A few years ago, while working at Universal Music Group, we had the opportunity to meet the Splice team. Back then, Splice was looking to offer Stems to DJs and music producers. If you’re not familiar with the term stem, it’s an audio file of a specific instrument isolated from the rest. An example of a vocal stem is an acapella.

Right then, we knew the team is solid and had the vision to address a music creator’s needs. The downside is that stems are costly to produce and take a while to clear. It’s also an untapped market which makes it a risk to invest heavily in without knowing the potential revenue outcome.

Luckily, this did not stop Splice in pursuing their goals of supporting the creator community. Instead, they found an alternative route – offering music samples and presets. These are just as valuable (if not more) to a music producer than a stem. Welcome to Splice 2.0 or the Splice that you know of.

Producers Love Splice

Aside from offering samples and a cloud backup system, Splice also allows producers to collaborate. Producers are able to share their sessions and ask others to jump in and help out. It’s quite cool to see in person and helpful when you’ve reached a roadblock on your track.

Major producers, such as Just Blaze, have partnered with Splice over the years. For Just, he released his “Meow The Drums” sample pack exclusively on Splice. He also collaborated with them on Beat Maker, an online tool to create beats using Just Blaze’s drum samples. This comes in handy when you need to create something quick for one of their online remix competitions.

just blaze collborates with splice sound library

Yes, remix contests. Splice offers contests that allow producers to remix tracks using supplied acapellas and stems. It’s another way Splice provides an opportunity for music producers.

Splice Sound Library

With sound effects added to the library, Splice is looking to capture a new set of customers – foley artists and film composers. As a startup, you always need to find ways to maximize your revenue. It’s what makes the company valuable for a potential IPO or acquisition. I don’t think Splice is quite there yet, but this is definitely a move in the right direction for either.

The startup is already generating revenue and potentially profit.  Their monthly subscription is now meaningful to a subset of customers who need sound effects (DJs perhaps?). Now, why couldn’t I join for a month and rip all the samples? I guess you could, but Splice continues to add new presets, samples, and sound effects monthly – all of which are exclusive to their service. Is $8/month really that expensive to spend hours ripping content? Is it really worth it? I don’t think so and neither should you, especially when you have to spend that time making new tracks!

So now that you know about Splice, what are you waiting for? Go check out their library and see if it’s a fit for you!

Samsung and Google Partner Up

Apr 21, 2017 by Happy Hour Beats - 0 Comments

It has been many moons since a subscription service has partnered up with a mobile device company. This used to be all the rage during 2012 – 2014 when music services sought out partnerships with telcos and mobile manufacturers. The most famous partnership back then was between Jay Z and Samsung for the release of his Magna Carta Holy Grail album. Now, it looks like Samsung and Google struck a new deal.

Jay Z & Samsung

Samsung and Google

Both Google and Samsung have stiff competition in their industries. That is why partnering together will be a win-win for both companies.


is battling a year of plagued press with the recall of their Note 7 device (you know, the one that sets itself on fire). Therefore, their public image and device sales need a boost. Having a streaming service they can offer to their customers is a serious value add. Did we mention they are paying for 3 months of free Google Music Play and YouTube Red? Yeah, some serious value add for Samsung owners who aren’t yet tied to a subscription service. Queue in Google.


has stiff competition in the music subscription marketplace. Spotify and Apple have built up a large amount of paid users to their service. Google, on the other hand, has a large user base in YouTube but has not found a way to convert them into paid users. Therefore, a different strategy is capturing a new segment of potential subscribers through a mobile device. The hope is Samsung purchasers will test out Google Play Music & YouTube Red for the free 3 months, and hopefully get hooked to either platform to continue paying after the free period ends. Going back to the Telco deals in 2012, services know mobile partnerships are an effective way to increase paid subs.

The Economics:

So who pays for it all? Well, that’s something we may not find out. Most often, the mobile manufacturer will pay the music service for the subscriptions. In this case, Samsung is paying 3 months (probably 2 months if the first month is a free trial) to Google. Now, it’s possible Google is going to the labels to request a lower per subscriber minimum (we can get into that down the road). If granted, Google would then charge Samsung this discounted price. And no, Google would not be able to pocket a difference if they decided not to offer Samsung a discount. Record Labels and Publishers would not allow it and is a mechanism to protect the artists.

For more on the partnership, check out Billboard’s write up here.

Growth for Music Streaming

Apr 19, 2017 by Happy Hour Beats - 0 Comments

Nielsen just released its quarterly Music Industry report. After collecting all the data the report shows an explosive growth for music streaming. It’s easy to believe music streaming is booming with Spotify surpassing 50M subscribers and Apple Music at 20M,

Music Streaming & Digital Performance Q1 2017

As Nielsen reports, on-demand streaming is up 35.2% going from 99.1B to 133.9B streams Year over Year (YoY). That’s a very significant shift as it gives padding to the industry while physical and digital album sales drop (-21.2% and 18.9% respectively).

Top Artists in Q1 2017

Currently, the hottest track right now on streaming services is Migos’ “Bad & Boujee” having been streamed over 464B times in the first three months of 2017. However, it’s Ed Sheeran who sold the most albums in Q1 with 1,100,000 album equivalent units.

For a deeper look into the Q1, check out Billboard’s roundup here.

Source: Nielsen 2017

Spotify Upgrades Fan Insights Feature to ‘Spotify for Artists’

Apr 18, 2017 by Happy Hour Beats - 0 Comments

A few weeks ago Kobalt announced they are making streaming data more transparent.  Now, every DSP is looking to build out their dashboards to improve the experience for artists. Today the top streaming service announced their offering with Spotify For Artists.

Spotify For Artists

Formerly known as Fan Insights, the service is a rebranding of their data dashboard. It’s complete with new features and controls that allow all artists to peek under the hood at their performance on the service, and manage their presence within the service itself.

Follow news updates in our Industry News section.

Click here to read more

Source: Billboard.biz