day 6

Spotify just got sued for $2B and this Canadian-owned company laid the groundwork

Jeff Price, founder of Canadian-owned company Audiam, says it's time for Spotify to pony up and start paying songwriters their fair share of royalties.
Headphones are seen in front of a logo of online music streaming service Spotify in this Feb. 18, 2014 photo. Spotify is facing a $2-billion lawsuit from artists. (Christian Hartmann/Reuters)
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by Brent Bambury

One of the reasons recording artists like Bob Dylan hire Jeff Price is because they're not getting paid.

Price is the founder of Audiam, a Canadian-owned company that collects royalties for major artists, including Dylan, Jack White, Aimee Mann, Kris Kristofferson, James Taylor and Frankie Valli and The Four Seasons.

Jeff Price, founder of Audiam, says Spotify hasn't been paying its fair share of royalties to songwriters and music publishers. (Courtesy of Audiam)

Price has no qualms about going afterdigital streaming services that millions of people use to listen to music. 

"I was particularly frustrated by Spotify," Price tells me on Day 6.

Price says streaming services do pay royalties, but not always to the songwriters. That's where he comes in.

"I worked very very, very hard to provide Spotify all the information it needed to do what it was supposed to do over a three-year period, repeatedly sending information, and they still wouldn't change the way they were operating."

Now his data is being used in a whopping $2-billion ($1.6-billion US) lawsuit brought against Spotify by artists like Tom Petty, Neil Young and Stevie Nicks.

"It's cool if you want to use our music," Price says, "But geez, just get a licence and make the payments."

     

Spotify did not acquire the necessary composition rights for many songs penned by Bob Dylan before it started streaming them, according to Jeff Price. (Ki Price/Reuters)
                 

A missing licence

Streaming services have been notoriously lax in honouring one of the two copyrights attached to a song.

"For every piece of recorded music, there are two separate and distinct copyrights," Price explains.

The actual recording of a song is owned by the record label. They hired the artist, the musicians and paid for the studio.

But to use the song, there's a separate agreement with the composer. Whitney Houston, a Sony artist, had a huge hit with I Will Always Love You, but the song was written by Dolly Parton. So Houston and her label Sony had to license the song to make sure Parton also got paid.

Price says streaming services playing Houston's recording are paying Sony, but they're not honouring the licence and songwriters like Parton are getting stiffed.

"It appears that the Dolly Partons of the world never gave their permission, never got licensed in the first place. So the services were using their lyrics and the melodies without having a licence," Price says.

"That's called infringement in the United States and other parts of the world. In some other places we might even call it theft. You took someone else's stuff to make money."

            

Whitney Houston has recording rights for I Will Always Love You, but Dolly Parton is the composer — and the Dolly Partons of the world aren't getting their dues from streaming services like Spotify, says Price. (Getty Images)

'Two different languages'

Streaming services are not a niche — they're the new normal. Spotify is a monster in the field, streaming over 750,000 tracks per minute worldwide.

How could companies like Spotify, which is expected to go public this year with an estimated valuation of up to $24 billion, make such a critical error when it comes to paying for content?

"The music industry is not going to make a smartphone any more than Apple is going to write the song Hotel California and record it," Price says.  "So what you had is two different types of entities speaking to each other in different languages."

Price says the music industry was at a disadvantage when it came to analyzing the data generated by the millions of streams of individual songs.

"And that's where we came in — it's kind of a bridge between music copyright and technology."

His company makes sense of the data, matching the use of the song to the payment agreement and determining if everyone who is owned money is paid out.

"And once you build the system, you're able to take a look at what's going on and go, 'Oh my god, this is what's actually happening and here's the data to back it up.' And what we've discovered is: in almost every instance, be it the Red Hot Chili Peppers, who are a client, Metallica, Jason Mraz — the list goes on and on — 80 to 85 per cent of the sound recordings of their compositions were not getting paid on."

As a result, there's been a flurry of lawsuits, but nothing close to the $2-billion grievance filed against Spotify this week.

     

Spotify CEO Daniel Ek is preparing to launch an IPO later this year. (Shannon Stapleton/Reuters)
            

Misaligned interests

Price says Spotify has brought in some measures to improve accountability and ensure payment.

"Spotify has improved the way it operates and communicates, and we have a far better relationship with them now than we had a number of years ago," Price says.

But there's still a major problem in the backlog of money Price says is owed to artists.

"Imagine a ship with a hole in it," he explains. "You can patch the hole and you can stop the water from coming in, but the boat is still full of water that you need to bail out."

I wondered if streaming services like Spotify, which has never turned a profit, can pay all the royalties owed and still remain solvent.

Price's response was surprising.

"Streaming services don't care if they can pay the royalty and break even," Price insists.

He says there's a fundamental misalignment in the interests of the parties and the way they make their profits.

"The music industry makes money off of the stream of recorded music. The digital services make their money off the aggregation of people," he notes.

"And so when you have this lack of synchronization between interests, you create the very issue we have now, where Spotify can lose hundreds of millions of dollars every quarter and still have an increasing valuation."

Why care about the product you're selling if all that matters is the number of people in your store?

"If Spotify could only have an IPO and go public if it actually made money off the music, we would be having a very different conversation."


To listen to Brent's full interview with Audiam's Jeff Price, download our podcast or click the 'Listen' button at the top of this page.