Sony says its Spotify position is all above board

August 2015

Recorded Music, Artistes



Sony has responded to claims made by 19 Management that criticised a number of its business practices, and according to the Hollywood Reporter has said that “taking equity in Spotify, keeping advertising income and not sharing the spoils of piracy lawsuits is all proper”. This blogger feels many artistes may disagree and the stance taken by Sony, and their latest response may well reignite the argument that says the business practices of the major labels in the recorded music sector are now so artiste unfriendly, a fiduciary duty should be imposed on labels to ensure that when they are negotiating ‘on behalf’ of their artistes, they actually put the interests of their artistes first.
Initially after details of the Sony-Spotify deal were leaked, both Sony, and subsequently Universal, was quick to point out that at least with the advances they have received from Spotify and other streaming services (the so called breakage), then of course they would share breakage with artists. So, labels are nice guys ……….But back to the current case: 19’s lawyers had said in filings that the majors had “significant power to exert control over Spotify in order to not only dictate how revenue will be paid, but wrongfully and in bad faith divert money from royalties that must be shared to other forms of revenue that they can keep for themselves”. That’s not very nice is it? But is it legal?


In court papers that have now been unsealed, Sony has moved away from a conciliatory position and says it isn’t required “to structure its affairs in whatever way yields the greatest royalties for 19,” the American Idol-affiliated outfit that manages such artists as Kelly Clarkson and Carrie Underwood. Citing the judge, it says it may “act on its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract.”
As detailed by The Hollywood Reporter, the plaintiffs are looking to amend their lawsuit against Sony to include claims of breach of good faith and fair dealing as well as self-dealing. 19 notes that Sony hods a six percent stake in Spotify and says Sony and other major record labels “have significant power to exert control over Spotify in order to not only dictate how revenue will be paid, but wrongfully and in bad faith divert money from royalties that must be shared to other forms of revenue that they can keep for themselves.”
Sony has responded to these claims by saying firstly that it’s deal with 19 means that it has to account for exploitations of “specific” recordings, but that it may keep revenue not tied to any particular sound recording (“In short, the parties anticipated that SME may exploit the recordings in certain ways that would benefit SME, but that may not result in revenue for 19”. Sony notes the earlier decision from U.S. District Judge Ronnie Abrams regarding money that was collected as settlement proceeds in copyright infringement and piracy lawsuits as support for this position (another bone of contention between artistes and labels with many artistes believing they should have benefited from the settlements the labels entered into with some of the pirate websites such as Limewire – since it was their recordings being pirated) saying “Because no royalty provision required SME to share settlement revenue recovered ‘on a general or label basis,’ SME was free ‘to retain the full amount of any settlements such suits yield,” s
Second, Sony says the plaintiff has failed to allege facts giving rise to an inference it controls Spotify saying “royalty rates are only one strand of the multifaceted bundle of consideration paid by Spotify” and that when it comes to a deal with a streaming company, it “reflects a variety of judgments and considerations.” As examples, Sony says “a party might accept lower rates for one tier of service in exchange for higher rates on another” or “might be willing to accept lower rates in exchange for a larger advance or increased guaranteed minimum.”
Sony says it’s not alleged that the total consideration paid by Spotify is below-market, “only that the mix of consideration is unfavorable to 19, on the grounds that the royalty rates are below market and that this shortfall in value was shifted to ‘other forms of income’ such as the advertising provision.”
Sony,  is opposing an amended lawsuit because it will be “futile” and claims that the other side is only making new claims to access its negotiations with streaming providers.
The Featured Artists Coalition (FAC) had this to say:  “Artists sign deals with labels that are balanced between advances and royalties, which artists understandably always thought protected their long term future, given that they assign valuable rights as part of these deals. Yet the leak of Sony’s position on artists rights when deals are struck with digital service providers proves our long held fear. Artists’ royalties have clearly been rendered all but value-less by the deals the major record labels have done with digital providers including music streaming services such as Spotify”.
It goes on: “It would appear that in this instance, Sony chose to ignore artists’ interests in favour of their own corporate ones. It’s extraordinary that Sony is prepared to defend their conduct in court by saying they believe it is their legal right to do so”.



Meanwhile the FAC has welcomed a new report from the Berklee Institute for Creative Entrepreneurship’s Rethink Music initiative called ‘Fair Music: Transparency And Payment Flows In The Music Industry, which looks at how music royalties flow through the system in the digital age. And which proposes a Creators Bill Of Rights which would ensure artists and songwriters receive fair remuneration and full transparent reporting from their corporate copyright partners.
The FAC concludes: “Whatever the legal rights or wrongs in Sony’s case, the breach of moral trust that has long been felt amongst artists is now in the public domain and on the record. If the labels won’t come together with artists to fix the problem, perhaps legislators will. Without solutions, the future of the music industry hangs in the balance as artists cannot make a living out of scotch mist, lining the coffers of record labels who appear not to care about the very hand that feeds them”. and here


You can download the Berklee Report here in exchange for an email address!

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