Spotify Lawsuit Settlement Aims At Solving Music Industry Data Problems – Forbes

A song is playing on your favorite streaming music service. What is that song? The fact that there is often no single answer to that seemingly simple question has led to lots of problems for the music industry. Spotify’s proposed settlement in a major lawsuit this past week shows how bad the problems have become and the urgency of solving them.

If you follow the music industry professionally, you’ll have heard that it has a “data problem.” There are many aspects to the music industry’s data problem, but a lot of them share a root cause: each track of recorded music you buy, listen to on the radio, download, or stream has not one but two copyrights. One is on the musical composition (the music and lyrics, if any), created by songwriters; the other is on the recording of that composition, created by performing artists.

Separate silos of the music industry have evolved around each of these types of copyright: one centered on music publishers, the other on record labels. Copyrights in musical compositions date back a very long time, while copyrights in sound recordings only date back to the 20th century. Each silo has its own set of companies, business practices, and quirks of copyright law.

The problem is that there is no authoritative way to link a sound recording to its underlying composition (or compositions, if it’s a mashup or remix). In the past, the music industry as a whole has managed to work around this problem in various ad-hoc ways. But as interactive streaming services like Spotify (and Apple Music, Google Play, Napster, Tidal, Deezer, etc.) have risen in importance, the workarounds have stopped working, and the recording-composition linking problem has been exposed as a gaping hole.

A fundamental difference between the recorded music and music publishing industries is that one has developed with the need to manage lots of data with precision, while the other hasn’t. For the past century, record labels have sold products through retailers. This has forced them to keep track of things like how many of which records sold at retail stores and whom to pay royalties (and how much) for those sales.

In contrast, music publishing is really a B-to-B business, one that hasn’t required the same transaction-level precision of data. Instead, music publishers — and their associates, such as collecting societies like ASCAP and BMI — have relied on various types of arrangements based on incomplete data: revenue percentages, estimates of music usage, sample data, blanket licenses, and other mechanisms (apart from data from record labels for retail sales) that have made it unnecessary to collect and track precise data about music usage in many cases.

As a result, today’s music industry has one part (recorded music) that has pretty good data and is able to handle large volumes of transactions fairly well, and another (music publishing) that doesn’t and isn’t.

This wasn’t much of a problem until interactive streaming became a major part of the industry over the past few years (it is now the recorded music industry’s biggest source of revenue). Interactive streaming generates billions of transactions per year — orders of magnitude more than were ever generated from retail sales of recorded music. But apart from sheer transaction volume, the problem with interactive streaming is that it requires songwriters and music publishers to be paid royalties on each track streamed, with precision.

Songwriters and music publishers get two types of royalties from streaming services: performance and mechanical (reproduction). Performance rights organizations (PROs) like ASCAP and BMI have papered over the need for precise transactional data for performance royalties through blanket licensing agreements with streaming services. But there are no blanket licenses for mechanicals.

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