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Spotify: Being number one is nice, but it also makes you a target

Spotify CEO Daniel Ek 2013Spotify CEO Daniel Ek 2013
Spotify founder and CEO Daniel Ek in New York in December 2013.Photograph by Emmanuel Dunand — AFP/Getty Images

Apple Music has been getting a lot of attention since its launch, at least from the media, with a lot of speculation about whether it would become a “Spotify killer,” given the computer company’s massive reach and resources. It doesn’t look like Spotify has much to worry about just yet, however: It topped the highest-grossing app list for the first time this week, while Apple announced that just over half of the users who signed up for its Music trial have converted into paying customers.

Admittedly, for a new streaming-music service to acquire 6.5 million paying customers right out of the gate is still fairly impressive, even if it is a drop from the 11 million that Apple (AAPL) said were using its service to begin with (it’s unknown how many of those subscribers just forgot to cancel and were automatically billed).

Regardless, having 6.5 million subscribers puts Apple Music in the lower tier of music services, alongside players like Deezer, the French service that just filed for an IPO with 6.3 million paying subscribers (although the company admits that almost half of those paid for a phone that had Deezer bundled with it, but don’t actually use it).

Spotify is currently the leader of the streaming-music pack, at least when it comes to revenue, with 20 million paying customers, out of a total user base that it says is around 75 million. Pandora’s user base is somewhat larger, at almost 80 million users, but fewer than 4 million of those are actual paying subscribers.

Unfortunately for Spotify, being number one also means that it is the highest-profile target for criticism, and it has been getting plenty of that. One recurring trend is a chorus of complaints from musicians that the company doesn’t pay enough in royalties for the music it streams, despite the fact that Spotify notes it has paid more than $3 billion in royalties since the company began in 2008.

In one of the latest scuffles over this issue, a U.S. record label known as Victory Records complained that Spotify has removed its entire catalog from circulation, after the record company alleged the company was underpaying for its content.

According to a survey by a royalty-tracking service called Audiam, Spotify hasn’t paid royalties on millions of streams involving more than 3,000 recordings that Victory Records and a sister company hold the rights to. Among the songs in dispute are several by a Florida-based punk band called A Day To Remember.

Spotify, for its part, says that since it can’t verify the claims made by Victory Records, it had no choice but to remove the entire catalog until the legality of those claims could be assessed. The catalog was only removed in the U.S., but remains available for listeners in other countries where Spotify operates.

Victory’s allegations may make Spotify look like the bad guy, but the reality of the digital music industry is that figuring out how much a company like Spotify has to pay in royalties — and to whom — is not as simple as it sounds.

An audio recording of a song, for example, is typically owned by a record company, as a result of a contract with the artist who performs it. As a result, most streaming royalties flow to record companies, who then pay the artists involved. But whoever wrote the songs — who may or may not be the same artist that performed it — is also due a share of the royalties, as is the original publisher. These are known as “mechanical” royalties.

In most cases, however, songs uploaded to streaming services don’t include the original songwriter or publisher in the “metadata” that gets bundled with the music. That makes it difficult for services like Spotify to know who they are supposed to pay, which is why there are firms like Audiam that specialize in tracking down missing payments.

Audiam says that it has provided Spotify with detailed Excel spreadsheets and other documents that show which songs have been streamed and which the service has failed to pay mechanical and other licensing fees for.

Music services like Spotify and recording industry groups have repeatedly called for some kind of co-ordinated effort to centralize the process of royalty licensing, but it remains an elusive goal, in part because of industry infighting and the number of separate players involved. But until that gets sorted out, Spotify and others will make a convenient scapegoat for both musicians and publishers.

You can follow Mathew Ingram on Twitter at @mathewi, and read all of his posts here or via his RSS feed. And please subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.