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Spotify Acquires Blockchain-Based Startup to Tackle Fair Royalty Issues

Spotify, the $8 billion music streaming service provider, which is projected to reach 100 million users and a $53 billion valuation by 2020, acquired Mediachain, a startup backed by leading venture capital firm Andreessen Horowitz, to simplify royalties utilizing bitcoin’s underpinning technology.

In March, Spotify found itself amidst legal troubles with its partnered musicians, record labels and producers over unpaid royalties. According to the announcement of the National Music Publishers’ Association (NMPA), Spotify settled a $25 million deal and a $5 million penalty over unpaid and unmatched songs.

Upon the settlement of the $30 million deal, Spotify’s Global Head of Communications and Public Policy Jonathan Prince admitted that while the company has been committed in compensating its musicians and publishers since its launch in October of 2008, tracking all of its registered songs streamed by tens of millions of users and distributing royalties accurately and proportionally has been difficult.

“As we have said many times, we have always been committed to paying songwriters and publishers every penny. We appreciate the hard work of everyone at the NMPA to secure this agreement and we look forward to further collaboration with them as we build a comprehensive publishing administration system,” Prince stated.

At the time, NMPA President and CEO David Israelite emphasized that through the multimillion-dollar deal, music streaming service providers including Spotify will allocate more resources into compensating musicians and publishers transparently and properly. He further noted that NMPA and Spotify found the appropriate method of distributing royalties to music creators.

“I am thrilled that through this agreement both independent and major publishers and songwriters will be able to get what is owed to them. We must continue to push digital services to properly pay for the musical works that fuel their businesses and after much work together, we have found a way for Spotify to quickly get royalties to the right people. I look forward to all NMPA members being paid what they are owed, and I am excited about the creation of a better process moving forward,” Israelite said.

Spotify’s recent acquisition of Mediachain represents a large part of the vision established with NMPA. By utilizing blockchain technology, which is transparent, immutable and irrefutable, Spotify aims to develop and integrate a more fair platform for musicians and publishers. For this reason, Spotify acquired media-and-information-sharing-focused blockchain infrastructure provider Mediachain.

The Spotify development team explained that the engineers and developers of Mediachain will join Spotify in its New York offices to help co-build an efficient royalty-tracking platform specialized for Spotify.

In an official statement, Spotify announced:

“Brooklyn-based Mediachain Labs has been the driving force behind the Mediachain project, a world-class blockchain research agenda and open source protocol to better manage data that is critical to the health of the music industry. The Mediachain team will join our New York City offices and help further Spotify’s journey towards a more fair, transparent and rewarding music industry for creators and rights owners.”

Next year, in 2018, Spotify will officially launch an initial public offering (IPO) and take the company public. The acquisition of Mediachain and the Spotify team’s dedication to solve issues in regard to royalties and creator compensation, which could potentially emerge as a major financial setback in the future, demonstrate the company’s eagerness to justify its valuation to its investors and its presence in the music industry.

Joseph Young

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