Spotify aiming to solve its unpaid royalties problem with acquisition of Mediachain startup

Spotify has long been the subject of discrepancies of unpaid royalties to artists, as well as the actual rates it pays. For instance, the latest RIAA report showed that the company pays artists less than half of what Apple Music pays. Spotify has now, however, made an acquisition that will ideally help with those problems…

First noted by VentureBeat, Spotify has acquired startup Mediachain. This company created a bitcoin-style secure database to manage ownership information for Internet media companies. Mediachain attempts to solve the problem of companies like Spotify wanting to pay artists fairly, but simply not knowing who to pay because of the sheer number of rightsholders and content creators.

Typically in the music industry, information is scattered across “proprietary databases, spreadsheets, email inboxes and long-form contracts maintained by separate organizations.” Mediachain founder Jesse Walden explained the problem the company is trying to solve in a post on Medium:

The problem is simply that no central database exists to keep track of information about music. Specifically, there are two types of information about a piece of music that are critically important: who made it and who owns the rights to it. Right now, this information is fiendishly difficult to track down, to the great detriment of artists, music services and consumers alike.

In 2015, Spotify was hit with a $150 million class action lawsuit over unpaid royalties. The lawsuit alleged that Spotify unlawfully distributed copyrighted media to 75 million users without properly identifying or locating the owners for royalty payments.

While Spotify has publicly admitted that it has struggled with royalty payments and has promised to do better, it is still the subject of much scrutiny. Especially when it comes to its free tier of service. In 2016, for instance, it was reported that Spotify was struggling to negotiate with labels because of the higher royalties being offered by Apple Music.

The latest RIAA report showed that while Apple pays between $12 and $15 per 1,000 streams, Spotify pays around $7. YouTube, however, remains the worst at around $1 per 1,000 streams.

While this acquisition will help Spotify pay artists what they deserve, it likely won’t help improve the companies royalty rate, thereby making Apple Music the more enticing option for labels and artists alike.