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Illustration: Sam Jayne / Axios

On Tuesday, news broke that Wixen Music Publishing is suing Spotify for $1.6 billion for failing to obtain proper royalty licensing. The complaint centers around "mechanical" royalties, an on-going debate in music streaming.

Why it matters: Spotify (and others in the digital streaming industry) has long been criticized for not paying record labels and artists their fair share of the profits. But licensing rules may be due for some updating as online streaming continues to grow in popularity over physical records and musical downloads. Spotify is also in the midst of preparing to go public, as Axios reported.

What are mechanical rights?

  • This refers to the copyright of a song's composition, typically owned by the songwriter or a music publisher. The other type of music copyright is for a song's sound recording, usually owned by the record label.
  • This is also how the copyrighter controls the reproduction of the song: every time a record company makes a CD, tape, or other record of the song, it has to pay this royalty.
  • Anyone can obtain what's called a "compulsory license" without permission to pay out mechanical royalties. This means a person or company can send the copyrights holder a notice of intent, go ahead and play the song and start sending royalty checks without negotiating a deal ahead of time. The first compulsory license was created by Congress in 1909 after the emergence of the player piano to make it easier to play songs. Since then it's been extended to any format of mechanical recording including CDs, tapes, etc.

So what happened?

  • Spotify has been inking licensing deals with the record labels and outsourcing the job of managing mechanical rights licenses to the Harry Fox Agency.
  • However, there have been disputes over whether HFA and Spotify have properly accounted for all royalties the music streaming company owes, which has resulted in several lawsuits over the last few years. In its lawsuit, Wixen claims that Spotify shouldn't have left the whole responsibility to HFA, and is responsible for the gaps in licensing.
  • In May, Spotify proposed a settlement in a similar lawsuit for $43 million, although Wixen says that it's not enough to adequately compensate its songwriters.

What's next: In December, a bill was introduced in the House aimed at simplifying licensing for digital music and increasing royalty payments to rights holders. The bill includes a provision to create a new entity that will handle mechanical rights, collecting royalties from streaming services like Spotify, and paying them out to rights holders, though companies are free to strike their own deals. Those who use the agency will be protected from liability for statutory damages.

Go deeper

53 mins ago - World

In photos: Students evacuated as wildfire burns historic Cape Town buildings

Firefighters try, in vain, to extinguish a fire in the Jagger Library, at the University of Cape Town, after a forest fire came down the foothills of Table Mountain in Cape Town, South Africa, on Sunday. Photo: Rodger Bosch/AFP via Getty Images

A massive wildfire spread from the foothills of Table Mountain to the University of Cape Town Sunday, burning historic South African buildings and forcing the evacuation of 4,000 students, per Times Live.

The big picture: Visitors to the Table Mountain National Park and other nearby attractions were also evacuated and several roads including a major highway, were closed. South Africa's oldest working windmill and the university's Jagger Library, which houses SA antiquities, are among the buildings damaged.

Updated 2 hours ago - Politics & Policy

3 killed, 2 wounded overnight in Kenosha bar shooting

Three people died and two others were hospitalized with serious injuries after a gunman entered bar in Kenosha County, Wisconsin, the police department said in a statement on Sunday.

The latest: Officers arrested a "person of interest" Sunday afternoon in connection with the 12:42 a.m. shooting and there's "no threat to the community at this time," per a later police statement.

Updated 3 hours ago - Sports

Big European soccer teams announce breakaway league

Liverpool's Mohamed Salah (L) after striking the ball during the UEFA Champions League Quarter Final Second Leg match between Liverpool F.C. and Real Madrid at Anfield in Liverpool, England, last Wednesday. Photo: John Powell/Liverpool FC via Getty Images

12 of world soccer's biggest and richest clubs announced Sunday they've formed a breakaway European "Super League" — with clubs Manchester United, Liverpool, Barcelona Real Madrid, Juventus and A.C. Milan among those to sign up.

Why it matters: The prime ministers of the U.K. and Italy are among those to express concern at the move — which marks a massive overhaul of the sport's structure and finances, and it effectively ends the decades-old UEFA Champions League's run as the top tournament for European soccer.