Warners agree to share any Spotify equity windfall with artistes – but how much?

March 2016

Recorded music, internet



Warner Music Group has told investors that should the major ever sell its stake in Spotify, it will pay its recording artistes a portion of the proceeds. Warner is believed to own between 2% and 3% in Spotify – an equity position which it received via licensing negotiations – in effect for ‘free’ due to its position as the owner of a large catalogue of sound recordings. Warners also hold an equity stake in Soundcould on the same basis.
Recent market analysis has given Spotify a valuation of $8bn – so the key question must be – WHAT percentage will they share with artistes – if they takethe ‘per unit’ rate from CD sales – npot very much … if they take a fair and equitable approach – upwards of half – a big difference!
WMG CEO Stephen Cooper said “”As there is an ongoing debate in the media regarding how artists should be paid for use of their music on streaming services, we wanted to take this opportunity to address the issue head on” adding “the main form of compensation we receive from streaming services is revenue based on actual streams”, but acknowledged “there are some services from which we receive additional forms of compensation” and “There are equity stakes in some streaming services for which we have not paid.
“Although none of these equity stakes have been monetized since we implemented our breakage policy, today we are confirming that in the event we do receive cash proceeds from the sale of these equity stakes, we will also share this revenue with our artists on the same basis as we share revenue from actual usage and digital breakage.” This may not be the rate their artistes think is fair of course if its just a small percentage.
The classic example of how artistes and labels disagree on what is a fair rate was set out in the 2006 and now settled law suit brought by the Allman Brothers, Cheap Trick and others against Sony. In court papers filed in the United States District Court Southern District of New York in this case, a comparison of calculations was set out based on the sale of 1,000 downloads at 0.70c per unit – giving a total income of $700: Sony BMG thought the appropriate payment would be a royalty payment on 85% of all downloads sold after deducting mechanical royalties to the songwriters, a container charge of 20% and an royalty reducer for new technology of a further 50%. This gave a total royalty payment of $45.05. The Allman brothers felt they should be paid one half of the income from 100% of all units sold, less just the mechanical royalty payable to songwriters. This gave a royalty due of by Sony BMG to the Allman Brothers of $315.50. Some difference!
In January 2014 WMG agreed to increase digital payouts to artists by 5% from whatever record sale royalty figure is in their current contract, with a floor rate of 10%, but with a 14% cap, meaning the deal will favour more the artists with older record deals on lower royalty rates (because anyone with a 14% split already would see no benefit to their royalties – whereas an artiste on 1% would see an increase to the floor rate of 10%). The proposed increase, part of a now agreed settlement, would be less on non-US download income. Assistant General Secretary of the Musicians Union Horace Trubridge, who had once been in a successful 70s pop band, recently revealed that his band got just 3% of the ‘recorded music’ share of any stream – with his label (who were originally Magnet, now owned by Warners) taking the rest – 97%.


Sony Music Entertainment also issued a  statement to MBW:
“As we have previously shared with our artists and their representatives, net proceeds realized by Sony Music from the monetization of equity interests that were provided to Sony Music as part of the consideration for a digital license will be shared with our artists on a basis consistent with our breakage policy.”
Between them, the majors – Universal Music Group, Sony Music Entertainment and Warner Music Group – are believed to own somewhere around 15% in Spotify. In an ongoing US court case, Sony – which reportedly owns 6% in Spotify – was last year legally challenged by management company 19 Entertainment on the Spotify equity issue.
http://recode.net/2016/02/04/warner-music-says-it-will-share-its-theoretical-spotify-payday-with-its-artists/ and http://the1709blog.blogspot.co.uk/2014/01/warner-music-moves-to-settle-digital.html and http://the1709blog.blogspot.co.uk/2015/11/music-tank-debate-points-out-reality-of.html


And Beggars Group boss Martin Mills has called on his fellow record labels to make some significant changes to their business practices – particularly some dubious accounting practices – for an urgent reason. Mills suggests that, if they don’t already, majors and indies should start paying catalogue artists a 15% minimum royalty on music streaming usage – as well as wiping clean artists’ unrecouped debt after they have been signed for 20 years. But why only 15%? Why not take 50% as an equitable starting point for digital revenues? Especially if labels want to overturn safe harbour laws in the EC – laws which currently help YouTube and others to host copyright-infringing material without fear of legal punishment. And Darius Van Arman, co-owner and co-founder of Secretly Group, has warned that true competition cannot exist in the world of record labels when the major companies unjustly leverage scale to their advantage.

http://www.billboard.com/biz/articles/news/legal-and-management/6128808/we-want-to-compete-says-secretlys-van-arman-ahead-of and http://www.musicbusinessworldwide.com/martin-mills-majors-must-pay-artists-fairly-if-were-to-beat-youtube/

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