What will Spotify’s recent acquisition of Loudr mean for the music publishing community? Eamonn Forde takes a look at how the streaming giant plans to improve royalty payments and protect itself against future lawsuits.
Spotify dominated the headlines on 3rd April when it listed on the New York Stock Exchange, with plenty of media hysteria around its opening share price, news of Sony Music cashing in at least some of its shares and speculation about what this would mean for the further growth trajectory of the streaming service.
But exactly a fortnight later, Spotify did something that has much more interesting long-term implications for the publishing community – arising from a tacit admission that it has a serious and highly deleterious royalty payment problem to fix that was only going to exponentially worsen as its user and subscriber base grows.
On 17th April, the music service announced that Loudr had “joined the Spotify family”. The company was founded in February San Francisco in 2013 and was, for a Californian tech company, incredibly well bootstrapped. It has only had two funding rounds to date – $200,000 in July 2013 and a further $400,000 in October 2015 – which stands in sharp contrast to the $2.7bn across 22 funding rounds already invested into Spotify between October 2008 and June 2017.
Describing itself as “Big Data for Music Rights”, Loudr was previously partnering with key platforms in the independent distribution space like CD Baby and DistroKid. But it also has software to identify, track and pay out royalties to music publishers, which is where Spotify comes in as these are leaks in its digital royalties bucket that the Swedish music service really needs to patch – and fast.
In its press statement on the deal, Spotify said that Loudr would continue to work with select clients, but its main focus would be on “contributing to Spotify’s continued efforts towards a more transparent and efficient music publishing industry for songwriters and rights holders”. There is quite a lot to read between the lines here.
Interestingly, Loudr co-founder and CEO Chris Crawford told Music Ally back in August 2017 that Spotify was sitting on a time bomb with regards to publisher payments slipping through the net. Responding to Spotify’s $43.4m settlement in May that same year to end a class action over use of music without the payment of mechanical royalties in the US, Crawford said it was too little, too late.
“I don’t think it has been addressed properly!” he said of the rumbling issue. “I think there is a huge opportunity to fix this problem. The settlement is terrible because it’s basically a speeding ticket for not doing things correctly.”
He said at the time that this settlement was little more than a stopgap and would not mitigate against future problems. “To really solve that problem, it’s unifying the data, it’s understanding the relationships, it’s removing the ambiguity when one publisher says they own a certain percentage and that conflicts with what percentage another publisher says it owns,” he proposed.
In this regard, then, Spotify’s purchase of Loudr is putting a speed limiter under its bonnet, with the hope being that it will not collect any more speeding tickets.. All digital services are facing issues with mismatched or incorrect data and how pending royalties should be distributed when doubt hangs over who owns what and how much of a share they should get.
Crawford was right when he said last year that the issue was not going away for Spotify and it is currently facing down a $1.6bn lawsuit from Wixen Music Publishing which argues the service has been allowing its users to steam thousands of songs by its writers – including major names like Tom Petty, Neil Young and Missy Elliot – without a proper licence.
The backdrop of the Music Modernization Act in the US is also another indicator of the pressing need for all digital services to quickly tidy up all the metadata and rights issues related to the growing catalogue of music they are offering their users.
Loudr is tiny, relatively speaking, with under 10 employees, according to Crunchbase, all of whom will be added to Spotify’s rapidly expanding US team. They might be a small team, but Spotify is hoping they can, in licensing terms, punch well above their weight and help futureproof the company against more, and potentially bigger, publisher-led lawsuits.
Spotify is, of course, no stranger to acquisitions, having already bought up a dozen tech companies before it added Loudr to its portfolio. Among them were Tunigo (a playlist-sharing app), Seed Scientific and Soundwave (both analytics tools), MightyTV (an AI-based video recommendation service) and Soundtrap (an online music studio). These all gave the company new layers of expertise and make it a type of digital Swiss army knife that puts it far ahead of the competition in terms of skills and functionality.
But it is Spotify’s second acquisition, way back in March 2014, that perhaps has the most parallels with the Loudr deal. The Echo Nest was set up in 2005 and had raised $25.6m in funding before Spotify paid $100m for it (albeit 90% of that being in equity).
The Echo Nest is the secret sauce in Spotify’s recommendation and discovery algorithms. It has, of course, human curators for its biggest playlists like RapCaviar, Acoustic Covers and Peaceful Piano, but for those playlists that are highly personalised to the listening habits of individuals – notably Discovery Weekly and Release Radar – this is where The Echo Nest is operating at full steam.
Without the huge differential that The Echo Nest gives it, Spotify would arguably be a good service but, in UX terms, not that much different to the competition.
Transfer this pre-emptive thinking across to the Gordian Knot of streaming mechanicals and it is clear that Spotify is hoping that Loudr will not only protect it against future lawsuits but will also put miles of clear blue music licensing water between it and its keenest rivals.