Spotify files to go public amid $1.6-billion copyright lawsuit

Music streaming giant Spotify has confidentially filed to go public — moving forward with an unusual plan to list its shares directly on the New York Stock Exchange — even as it faces a new $1.6-billion lawsuit alleging copyright infringement.

Calabasas music publisher Wixen Music Publishing Inc. is suing Spotify, alleging that the company violated its copyright on more than 10,000 songs — including titles by Tom Petty, Neil Young and Stevie Nicks.

A high-stakes lawsuit of this nature could scare potential investors, upset existing investors and tank the company’s market value.

Spotify confidentially filed paperwork for an initial public offering with the Securities and Exchange Commission, a person familiar with the matter said Wednesday. Axios first reported news of the filing.

Instead of holding a traditional IPO, Spotify plans to list its shares directly on the New York Stock Exchange without raising capital or issuing new shares. That unusual move would enable Spotify to go public while saving money on the hefty underwriting fees that companies typically pay to investment banks when they hold an IPO.

The company could be worth as much as $20 billion when it goes public, according to recent reports.

Founded in Sweden in 2008, Spotify is one of the world’s largest music streaming services. It boasts a catalog of more than 30 million songs, more than 60 million paying users and more than 140 million total users, and it is available in 61 countries.

In 2017, in preparation for going public this year, the company inked multi-year licensing agreements with record labels including Sony, Universal, Warner and Merlin.

But now it needs to deal with Wixen’s lawsuit. At the heart of the suit, filed Friday in U.S. District Court in Los Angeles, is Wixen’s allegation that

that Spotify failed to obtain one of two licenses required to distribute music.

Under the Copyright Act, there are two separate copyrights to every recorded song: one for the sound recording (this revenue typically goes to the record label) and one for the musical composition (this revenue typically goes to the publisher and songwriter). The lawsuit alleges that Spotify took a “shortcut” and did not obtain the musical composition copyright for some 10,784 songs published by Wixen.

The lawsuit alleges that Spotify outsourced its copyright responsibility to a third party, Harry Fox Agency, which was “ill-equipped to obtain all the necessary mechanical licenses.” It also alleges that Spotify knew the agency “did not possess the infrastructure to obtain the required mechanical licenses,” that it knew it didn’t hold the licenses required to stream certain songs, and that it barreled ahead anyway.

Spotify did not respond to a request for comment.

Music licensing is notoriously complex, with each song having multiple rights holders who

can be difficult to identify and locate. Unlike performance rights for musical compositions, which are typically administered through a handful of performing rights organizations, mechanical rights are not centrally administered and could belong to one of thousands of independent music publishers.

Wixen handles titles by Stevie Nicks, Neil Young, Tom Petty, the Doors, and Weezer’s Rivers Cuomo, among others. In its lawsuit, it said its songs have been downloaded or streamed billions of times through Spotify, and that it received no revenue for that.

“Spotify has built a billion dollar business on the backs of songwriters and publishers whose music Spotify is using, in many cases without obtaining and paying for the necessary licenses,” the lawsuit says. “Spotify brazenly disregards United States copyright law and has committed willful, ongoing copyright infringement.”

Wixen demands injunctive relief, as well as payment of $150,000 per song whose copyright it says Spotify infringed, or at least $1.6 billion.

In 2014 Taylor Swift pulled her music from Spotify, taking umbrage with the fact that her music was offered free on the service.

Swift made her music available on Spotify again last year.