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Warner Music sued again over international deductions

By | Published on Monday 20 June 2022

Warner Music

Two members of American rock band Orleans have sued Warner Music over a common gripe in the artist community: record companies allowing their foreign subsidiaries to make deductions on digital income and then calculating the artist royalty based on what is received by the label in the artist’s home country after those deductions.

In a lawsuit filed with the courts in Nashville, John Hall and Lance Hoppen criticise the major both for making those international deductions in the first place and for failing to clearly communicate that was happening on their royalty statements.

As a result of the bad communication, they add, they’d previously assumed their artist royalty on streams was being calculated based on ‘at-source income’, ie what the major was paid by the streaming service, not what was received by the home label after the foreign subsidiaries had taken their cut.

The legal filing, which seeks class action status, says: “Fees to foreign affiliates are a relic of the days when the collection of revenues from foreign record sales entailed significant labour, as opposed to the relatively frictionless methodology by which digital service providers can compensate rightsholders for the use of their services across multiple territories”.

“In such instances”, it adds, “the costs of foreign collection are negligible, and the grossly deficient payment of foreign streaming royalties by defendants simply reflects their ability to manipulate their foreign affiliate practices with no commercial justification beyond self-enrichment”.

Regarding Warner’s alleged failure to communicate the international deductions, the lawsuit adds: “Defendants purposefully and knowingly withhold and fail to inform plaintiffs and the class members of the existence of their practices in WMG’s accounting statements, which represent that foreign streaming royalties are being paid based on an unqualified percentage of revenues earned by the artist’s recordings”.

“The lack of qualification is not merely implicit, but explicit”, it then claims, “as the ‘royalty rate reductions’ columns display emdashes indicating no reductions are being applied. As such, plaintiffs and class members have no way of knowing their royalties for international streams are based on reduced figures, nor any reason to suspect the representations on their statements are false”.

As noted, international deductions of this kind are a common gripe in the artist community, as is the lack of clarity regarding quite when such deductions occur. On newer record deals, digital royalties are often calculated on at-source income globally with no deductions, albeit with a slightly lower top line royalty possibly applying in some markets. However, on older deals international deductions can still be common place.

This gripe has led to litigation before. In terms of Warner Music, until recently it was fighting another lawsuit on this issue filed by musician Lenny Williams. His attempts to get his lawsuit classified as a class action failed due to various technicalities, while the wider dispute was reportedly settled out of court earlier this year.