...although that giant payday is built on the back of songwriters' "sweat and precog"*, Spotify still has trouble finding them to pay them. Even when they're as world famous as Ed Sheeran**. The cash that Spotify has such difficulty handing over is the mechanical royalty. This is the payment that goes to a songwriter or composer when music is sold or streamed. Songwriters also get a separate performance royalty. Traditionally mechanicals were handed over by the record company to the Harry Fox Agency, which then paid the writers.
For more than a year, music services have been exploiting a loophole in US copyright law. Instead of sending a cheque for mechanical royalties, they've been filing a statutory "notice of intention" to pay them instead. The NOI is a piece of paper which isn't redeemable for cash. (The curious can peruse the most recent NOI filings – and Spotify is not alone in filing them! – with the Licensing Division of the US Copyright Office
here**).
Millions of NOIs have now been filed. How come? Amazingly, the law does not oblige the user of the music, Spotify, to do a diligent search on who wrote it. Nor does the law oblige them to maintain and use their own records. So you can be sure that Spotify knows exactly how to find Ed Sheeran to pay him his
performance royalty.
In this instance Sheeran – we're using him because he's famous – registered his details with performing rights society BMI. But Spotify isn't obliged to look at that BMI data. Instead, it only needs to have a quick rifle through the records kept by the US Copyright Office. These records are decrepit, and months out of date.
It is worth noting that, historically, the major labels did the accounting, and passed on the mechanicals to their signed artists. They couldn't afford to piss them off too much: artists had managers and publishers and were likely to remember non-payment when at contract renewal time. These days, of course, the artist-money broker relationship is very different. Artists aren't signed to Spotify or Google. The remaining three major labels are significant shareholders set to net hundreds of millions in revenue from the Spotify IPO – and we don't hear much of a noise from that corner.
