The Cranberries have sued Universal Music’s Island Records for more than $5 million accusing the major of underpaying digital royalties.
There are two main complaints. The first, relating to deductions Universal makes as streaming income flows through its international subsidiaries, is a common complaint. The second alleges that the major uses its control over Vevo to reduce payments and obscure financial reporting when music videos are played on YouTube.
According to the band’s lawsuit, filed with a court in New York, before Universal and Sony Music formed Vevo together to manage their respective videos on YouTube, the two majors would “provide their artists with transparent accountings of YouTube income separated by work title and, in the case of audits, provide back-up documentation”, basically statements from YouTube.
When the major labels created Vevo, though, they changed the “fundamental structure” of how YouTube revenue is managed and collected, and the “subsequent accounting and payments of such revenues to artists”, a change which was “to the detriment of artists and the advantage of each of the labels”.
Basically, alleges the lawsuit, by inserting Vevo into the supply chain, artists are earning less, because Vevo charges a commission on YouTube income. Also, unlike YouTube itself, Vevo doesn’t provide “detailed accounting” that is “separated by artist or work title”, making it much harder for artists to audit this income.
The international deductions complaint relates to all streaming money.
In the physical era, when CDs were sold in countries other than the one where the artist was actually signed, it was common for a major label’s local partner or subsidiary to charge a commission before passing the remaining revenue on to the artist’s home label. The artist’s royalty rate was then applied to what the home label received.
This means that - for an artist on a 20% royalty rate - for every $1000 of revenue generated in their home market they would receive $200. However, for revenue generated abroad, the local subsidiary would charge its commission first. If, as with The Cranberries deal, that was 40%, then for every $1000 of revenue the artist would get 20% of $600, generating a royalty of just $120.
Some labels - including Island Records in the case of The Cranberries - have applied this approach to streaming income too. This practice has been widely criticised by artists and their teams, because the majors’ foreign subsidiaries do a lot less work when it comes to streams, especially when catalogue recordings rather than new releases are being streamed.
In their lawsuit, The Cranberries say that the fees charged by the local subsidiaries “are intended to cover the costs of marketing, promotion and distribution of master recordings in foreign territories”. But, “in the modern era of digital streaming, the tasks of marketing, promotion and distribution of master recordings are not undertaken by record companies, but rather are assumed by digital service providers like Spotify”.
As a result, they continue, when it comes to the “streaming and digital income” that Island earns outside of the United States, the label’s “foreign affiliates/licensees render virtually no services” and incur “few, if any, costs” and “simply serve as the collection agent or conduit for the receipt of passive income”.
To that end, the lawsuit argues, “Island Records’ 40% deduction to distribute the masters in foreign territories is excessive and not commensurate with the amount of work undertaken by” the local subsidiaries.
Not only that, but the contract terms that allow the local subsidiaries to charge a 40% commission “related to the physical - not digital - distribution of products embodying master recordings around the world”. And there is “no express provision in the recording agreements authorising Island Records or its foreign affiliates to take a 40% fee for passively collecting income from digital service providers around the world”.
With all this in mind, the band accuse Island Records of breach of contract, and breach of an implied covenant of good faith and fair dealing.
The lawsuit has been filed by Curtain Call Limited, an Irish company set up in 1989 by all four members of The Cranberries, including the late Dolores O’Riordan. It entered into three deals with Island Records during the 1990s. The current issues around the alleged underpayment of royalties came to light following an audit undertaken by accountancy firm Prager Metis that was completed in 2021.