19 adds the ‘Spotify shareholding’ to its battle with Sony Music

August 2015

Recorded music, artistes



the lawsuits filed by 19 Management against Sony on behalf of former Pop Idols winners cover many of the usual areas where artists and labels fall out: the fees Sony charges as money moves around the company:  what happened to the cash Sony received from its LimeWire settlement, and the big ‘post-iTunes’ debate on sharing the digital pie’ : whether digital income should be treated as a ‘sale’ or a ‘licence’ (as artists usually gain a far larger share of the latter than the former which is still treated as a physical sale)
In the latest development, 19 has amended its lawsuit to cover another contentious issue, the equity stakes Sony – and other labels – have in various streaming music start-ups, in particular Spotify – which could be worth hundreds of millions of dollars if and when the streaming firm floats. According to The Hollywood Reporter, the revised 19 lawsuit expresses the concern of many in the artist and management community that Sony took the equity stake, which it (arguably) doesn’t have to share with its artists, in return for accepting less favourable terms on royalty payments, a cut of which does go to talent. So it uses its artistes as leverage to gain a shareholding – to the disadvantage of those very artists with 19 saying:
“Each of the major record labels also own an interest in Spotify. On information and belief, those other record labels have engaged in the same self-dealing as Sony with respect to the diversion of payments to them, and the below market streaming royalty rates to artists. Together, and individually, Sony and the other major record labels therefore 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”.
19 have also argued that the process doesn’t stop – and as shareholders Sony (and the other majors who have shareholdings) have a clear conflict of interests – with a clear interest in continuing to give the streaming companies more favourable royalty rates, so to further boost the streaming firm’s growth, in order to maximise valuation at the point of sale – and that the reason the majors have not been as resistant as some artistes to ‘freemium’ models is they do drive growth – and hence the value of the company.
As yet record labels have not been held to owe their artistes a ‘fiduciary duty’ despite arguments from artistes that this should apply to prevent obvious conflict of interests and ensure honest accounting, transparency and good faith negotiations.
After its last round of fundraising where is raised $400 million, Spotify was given a net value of $8.4 billion, more than double that of its nearest competitor Pandora, which sits at around $3.5 billion.

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