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Sony Music settles dispute over deductions on foreign streaming royalties

By Chris Cooke | Published on Thursday 10 September 2020

The estate of 1950s pop star Ricky Nelson has reached a settlement deal with Sony Music in a class action lawsuit over deductions made on foreign royalties. Although Sony denies any wrong-doing, it will set aside $12.7 million to provide class members a royalty boost for past streams while committing to increase future royalties on foreign streams by 36%.

This legal battle centred on a common royalties gripe for artists: ie the way global music companies often make deductions to income as it moves its way around their various regional subsidiaries, before calculating what the artist is due under the terms of their record contract in their home country.

Such deductions have traditionally been common in the record industry. Partly because, when it comes to physical product, releasing a record in each new territory requires additional work and extra risk for the label. And partly because in the early days of the record industry, when there were few truly global music companies, third party labels and distributors might be involved in a record’s release in other countries.

With the shift to digital, some artists and managers argue that deductions of this kind are harder to justify. Especially on catalogue, which can start earning money from the streaming platforms in other countries with no real effort on the part of the label. As a result, some labels don’t charge international deductions on streaming income, although there remains quite a lot of confusion about label deductions in general.

When it sued on this issue in 2018, the Nelson estate accused Sony of applying a hefty “intercompany charge” on international streaming revenue before calculating the royalties it is due.

The estate said that it had no problem with international deductions if a third party company was genuinely involved in distributing Nelson’s music in any one market. However, it argued, international deductions were not allowed under Nelson’s record contract where another Sony Music label is in control of his recordings abroad.

Although neither side in the argument could agree on what Sony’s obligations were regarding foreign streaming royalties under old record contracts like that signed by Nelson back in the day, both the estate and the major agreed that reaching some sort of out-of-court settlement would be preferable to pursuing the dispute through the courts.

When they struggled to agree a deal, a mediator was brought in to lead the negotiations. Which has resulted in the preliminary agreement filed with the court last week which provides benefits for both the estate and other artists or estates in a similar position who qualify for membership of the ‘class’ in the original litigation.

Last week’s filing states that the mediation process “has resulted in a class action settlement which provides substantial relief to class members and satisfies the standard for preliminary approval. The settlement calls for the creation of a $12.7 million common fund which will be paid or credited on a pro rata basis to the royalty accounts of class members who file claims, which amount is a substantial portion of the royalties at issue in the case”.

“Additionally”, the legal filing goes on, “the settlement also requires Sony to increase by 36% the amount of royalties calculated on foreign streaming revenues in the future for all class members’ qualifying recordings without the need to file claims or any temporal limitations”.

That commitment on future income will, the plaintiffs say, be worth “many millions of dollars and in excess of the common fund, since streaming is now the most dominant form of music distribution available. Thus, the settlement provides substantial and significant relief to class members, while eliminating the risk, expense, and uncertainty associated with protracted, contested litigation through trial and appeals”.

It remains to be seen if the court approves the settlement and, if so, how many heritage artists then come forward to seek to benefit from it.