Spotify buys 'cover song' licensing firm to tackle copyright risks

A smartphone and a headset are seen in front of a screen projection of Spotify logo, in this picture illustration taken April 1, 2018. REUTERS/Dado Ruvic/Illustration

LONDON/STOCKHOLM (Reuters) - Spotify, the world’s largest music streaming service, said on Thursday it is to buy, a San Francisco-based provider of licensing technology to help it to locate songwriters and pay them royalties they are due.

The acquisition helps address a major weakness Spotify has warned exists in its business model, namely locating and ensuring the right artists get paid for their copyrighted work, an issue which, left unaddressed, leaves it open to lawsuits.

Financial terms of the deal, the first since it began trading on the New York Stock Exchange earlier this month, were not disclosed.

Spotify was hit late last year with a lawsuit seeking damages of up to $1.6 billion (£1.1 billion) by Wixen Publishing, a California-based company that represents artists including Tom Petty, Neil Young, Rage Against the Machine and Missy Elliott.

Loudr was set up in 2013 by its three co-founders to simplify the process for musicians who publicly perform songs by other artists to identify, track and pay royalties for so-called “mechanical licenses” owed to music publishers. These may include cover versions of songs, samples, remixes or medleys.

The company offers a system for automatically acquiring mechanical licenses under U.S. copyright laws, which do not require musicians to engage in up-front licensing negotiations before performing songs by other artists. Charges for licenses range from $35 for electronic filings to $85 for paper ones.

Loudr will relocate to Spotify’s offices in New York, the company said in a blog post.

Spotify has made at least ten modest, typically technology focussed acquisitions in recent years to improve its service.

Shares of Spotify closed at $149.10, little changed on the day.

Reporting by Eric Auchard in London and Helena Soderpalm in Stockholm. Editing by Jane Merriman