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Sony Music sues former Rdio execs for keeping Pandora talks a secret

By | Published on Wednesday 6 April 2016


So this is fun. Sony Music is suing three former executives of defunct streaming service Rdio for being damn sneaky. Well, the lawsuit alleges misrepresentations, false statements and concealment of the digital firm’s impending bankruptcy. But it’s really all about management at the failing streaming company being all kinds of sneaky. Allegedly, obviously.

The major label is suing former Rdio chief Anthony Bay and the dead company’s general counsel Elliott Peters and top licensing dude Jim Rondinelli over allegations they misled Sony while negotiating the renewal of their licensing deal. Those renegotiations included the tricky task – for Rdio – of putting off paying the $5.5 million the streaming business owed Sony in unpaid minimum guarantees.

As previously reported, Rdio announced last November that it had agreed a deal with Pandora, which basically saw the latter acquire the former. However, while personalised radio service Pandora – with plans to launch its own on-demand streaming set-up – was keen to get its hands on Rdio’s know-how and code, it was less keen on the rival firm’s liabilities, Rdio’s debts topping $220 million.

To that end, Rdio declared itself bankrupt, and sold its assets to Pandora, rather than Pandora buying Rdio as a going concern. That meant forgoing Rdio’s user of course, but Pandora was more interested in the rival company’s technology anyway, which it acquired as part of the $75 million asset buy. Pandora also then took on some ex-Rdio staffers to help build its still in development on-demand streaming platform.

In among Rdio’s approximately $30 million of unsecured debts at the time of the bankruptcy were the monies owing to Sony, which were the minimum guarantee payments labels demand from streaming services. Most of the labels’ streaming service deals are revenue share arrangements at their heart, but the record companies seek minimum guarantees from digital start-ups, because 60% of nothing is nothing.

In the lawsuit filed by Sony this week, the music major says that Rdio bosses deliberately kept their Pandora negotiations a secret – and instead implied that the company was in the process of raising new investment – so to persuade the major that it was in the streaming game for the long haul, and therefore the music firm should be flexible regarding those unpaid guarantees.

Had Sony known of Rdio’s plans, it would have demanded the upfront payment of the unpaid monies, with the threat of pulling its content if the service did not comply. That threat would probably have had an effect at the time, because a significant loss of content might have scuppered the Pandora deal at a crucial stage. Though so might Rdio writing a cheque for $5.5 million. Hence all the secrecy, says Sony.

In the words of the new lawsuit, according to The Hollywood Reporter: “Unbeknownst to Sony Music Entertainment … at the same time that Rdio was negotiating the amendment to its content agreement with SME, it was simultaneously negotiating its deal with Pandora – under which Rdio would file for bankruptcy [and] Pandora would buy Rdio’s assets out of bankruptcy”.

Sony also alleges that Rdio boss Bay himself actually stood to gain from the Pandora deal, even with the bankruptcy, because he had a stake in a company that was one of the streaming firm’s secured creditors, which would see a cut of the $75 million Pandora were going to pay to buy Rdio’s assets.

Says the lawsuit: “Defendant Bay (as part-owner, executive officer, and director of Rdio’s secured creditor) would expect to be first in line to receive proceeds of the Pandora deal; and SME (as an unsecured creditor) would receive pennies on the dollar for the amounts owed to it under the amended content agreement”.

As we said, sneaky. Or, as Sony puts it, Bay was “personally enriched” with money that “should have been paid to SME for the rights it licensed to Rdio”. Which is why, says the major’s litigation, the courts should intervene. After all, reckons Sony, “it would be against equity and good conscience to permit defendants to retain any benefits that they obtained as a result of their fraudulent [and decidedly sneaky] conduct”.