Sony Responds: “We Share All Advance Income With Artists”

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As the fallout intensifies over its leaked contract with Spotify, Sony Music Entertainment has issued the following, carefully-tailored statement to Billboard.

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Sony Music historically has shared digital breakage with its artists, and voluntarily credits breakage from all digital services to artist accounts.

Under the Sony Music ‘Breakage Policy,’ SME shares with its recording artists all unallocated income from advances, non-recoupable payments and minimum revenue guarantees that Sony Music receives under its digital distribution deals.

This applies to all revenue under digital catalog distribution agreements, whether or not the guarantees, advances or ‘flat’ payments can be associated with individual master transactions.

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33 Responses

  1. Vail, CO

    Sony is lying directly to the media.

    This is legally actionable

    Reply
  2. Myles

    Digital Breakage? Seriously!?!

    Why is that even in a contract in the first place

    Reply
  3. Anon

    Paul, you used to work at Sony Music. Did you leave on amicable terms?

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      I probably learned more from just two years at Sony than any other professional position. But it’s a big, big corporation, it can be stifling.

      Reply
  4. Musician Who Understands

    Paul, you’re confusing the issue of how they characterize transactions for the purposes of accounting, with the issue of whether they account for certain transactionsat all.

    The issue in the Lady Gaga article – like the one with Blue Oytster Cult and others, over iTunes royalties – has to do with how the label characterizes the transaction. They ARE accounting for it. They are just saying it was a certain type of transaction with a lower royalty, than what it was/the artist claims it was.

    Accounting for “sales” instead of “streams,” or for “sales,” instead of “licenses.” That’s different than not accounting for advances, at all.

    Sony doesn’t have an obligation to pay unallocated advances or other unallocated funds to artists, because they are not attributable to any particular artist or transaction. The fact that they do so is purely to try and avoid this type of bad PR.

    And Myles?

    “Digital Breakage? Seriously!?! Why is that even in a contract in the first place”

    That’s not what the term “breakage” means here. It’s not breakage as in “broken records” that Sony takes credit for, from the artist.

    Here, it is an accounting term meaning the delta between a) what Sony is paid for the use of their catalog and b) how much actual usage occurs. Let’s say Sony agrees to pay it’s artists $0.01 for each stream. They get a $500,000.00 non-recoupable advance for the first two years of their streaming agreement, and lets say only 25,000,000 streams of Sony recordings actually occur within that two year period (half of the 50,000,000 streams that would cover the full advance), then Sony has collected $250,000 that is now “unallocated” – and is referred to as “breakage.”

    Reply
    • Myles

      Thanks for the accounting jargon translation. Wouldn’t it make more sense to come up with a 21st century term to replace “breakage”?

      “Sony doesn’t have an obligation to pay unallocated advances or other unallocated funds to artists, because they are not attributable to any particular artist or transaction. The fact that they do so is purely to try and avoid this type of bad PR.”

      Interesting point of view. So in theory Sony or any other label with a large catalog of artists could structure a new contract every year as an advance and if they are not feeling obligated (because they haven’t lost any lawsuits lately for example) they could pay artists nothing. And if artists want to see an accounting they would sue.

      This business pattern seems oddly familiar.

      Reply
    • Anon

      “Sony doesn’t have an obligation to pay unallocated advances or other unallocated funds to artists, because they are not attributable to any particular artist or transaction. The fact that they do so is purely to try and avoid this type of bad PR.”

      This is not true. As I had mentioned in a previously, the major labels all have means to account for revenues that can’t be attributed to exploitation of their products. This can come from advances, minimum guarantees, or even suspense transactions that have been written off. In these cases, historical transactions are used as a proxy.

      Reply
      • Myles

        Just because they have the means to account for revenues not based on exploitation of product doesn’t mean they are contractually obligated to distribute to artists.

        Is there more to your argument?

        Reply
        • Ash

          I think the better question is, is it ethical and in the end, fair, to the artists? The answer: no. Again, the debate over what the contract says or doesn’t say, although an important part, is missing the larger point: It is incorrect to blame Spotify alone for artists not receiving more money from streaming. Yes, the payout rate is very low, but the advance income made from said artists’ catalogs does not go to those artists, but rather to the label.

          Therefore, I find the media campaign waged against Spotify by the recording industry to be highly disingenuous. Is their model sustainable? That has yet to be seen. Should the streaming payout and royalty rate overall be increased? Yes, most definitely. But is there money right now in streaming? Absolutely. Not as much as downloads or CDs, but I’d say tens of millions of dollars is something.

          Now, Myles, I really don’t care what the specific, wordy, legal jargon that is typical of any record contract says. I’m sure it is all very legal and I’m sure Sony artists signed on the dotted line. The reality is that, to quote Billy Corgan, “The music industry is mostly run my feckless idiots who do not subscribe to the normal tenets of capitalism.” Are these contracts ethical and fair? Hell no. It’s tiring seeing the same old, tired line where the recording industry blames someone else for their own idiocy. It’s pathetic and no one cares. Music fans sure don’t, and I’m amazed that recording artists continue to think that the major labels care about their well-being. How on Earth a whole industry lost control to a bunch of kids with computers is beyond me. It’s 2015 and they’re still way behind the times and as per usual, have 0 idea of what the hell to do. Until artists wake the hell up and realize their value and understand that they actually have to educate themselves about how this confusing, creepy business works, then companies from Pandora to Spotify to Sony will continue to take advantage of them.

          Reply
          • DavidB

            “Yes, the payout rate is very low, but the advance income made from said artists’ catalogs does not go to those artists, but rather to the label”

            This is precisely what Sony are denying. To you have any evidence to disprove their statement?

  5. Mayhew

    Profiting from unrecouped catalog licensing advances has been they way of the business forever. It used to be bonus income when the main income was selling soundcarriers. The justifying argument was the value in a catalog license was driven, in part, by the aggregation performed by the label, and it was not contentious as long as the earnout was nearing the ballpark of the advance….But this situation is different. The labels are taking low per stream royalties against high advances, cooked-up with the (possibly reluctant) complicity of Spotify, knowing full well that the performance of the contract will be poor, with artist payouts only being a share of those meagre stream rates. So we should be encouraged to hear about a ‘breakage policy’ to make things right (even though the magnanimity seems out of character). Would like to know exactly what that policy is, and how it’s implemented. Interested to know how much of a Sony artist’s Spotify income is attributable to ‘breakage’. There’s still the niggle tho.. if they share all income.. then..why wouldn’t they just want higher per stream royalties, giving themselves a shot at recoupment? Wouldn’t that be better for artist and label..?

    Reply
    • DavidB

      Do the math. The advance payments stated in the Sony-Spotify contract are far below any reasonable estimate of royalties due to Sony in the contract period, so they would not be ‘unrecouped’ for Sony. They might be unrecouped for many of the artists, but that is another matter. A large proportion of advances paid by labels to artists have always been unrecouped.

      Reply
  6. Appearing Tonight

    I have reviewed SONY accounting statements for years and I am not buying their magnamous view on their handing out royalties. The ‘smoking gun’ would be e-mails that indicate SONY was offered higher per stream payments from SPOTIFY but they turned them down in order to get a larger advance and pay artist less. This surely would give the appearance of collusion in order to defraud artists out of their royalties. This could also give artists the power to sue under the R.I.C.O. Act (Racketeer Influenced and Corrupt Organizations Act) which then allows them to sue for treble the damages (3X). Should be interesting to see what is in that next batch of e-mails that get released . . . . . .

    Reply
  7. Shlomo

    What’s the debate? Just look at an artist royalty statement. Either the rev share, breakage or whatever they’re calling it is there or it isn’t. Not one person signed anywhere has showed this on a line accounting statement. Who at Sony issued this statement? I see a supena coming in the future.

    Unless this is the Chinese way of getting back at us for flying in their air space.

    Reply
    • Anonymous

      There wouldn’t be any additional payout to artists if the advance/guarantee was recouped, which it likely was. Spotify had well over 1 million paying subs in the US within the first year, so there’s very little chance that the royalties due on those users along with the per play fees associated with the free usage didn’t recoup the advances.

      Also, even if it wasn’t entirely recouped, it probably wouldn’t show up as a discreet line item on an artist’s statement. It would likely show up as higher revenue from the relevant service, but you wouldn’t know it was from an unrecouped advance vs. a revenue/play-based royalty. You couldn’t even do the math and compare the per play rates from previous statements because a) per play rates vary month to month and b) royalties from earlier time periods trickle in every month/quarter so there is no real benchmark to compare the latest number too.

      Finally, at the individual artist level, it would likely be so small as to go unnoticed. Even the major stars account for a low single digit share of plays on these services so their individual share of any unrecouped amount would be fairly small. Smaller artist might only see a few incremental $$ in a period where they got a windfall from an unrecouped advance.

      Reply
      • Anonymous

        And I almost forgot — most of these shortfalls are never collected anyway. If you are not on track to recoup your guarantee, you go back and negotiate terms for another deal and roll the shortfall into the next agreement. If you continue to be unsuccessful, you likely go out of business and never pay it anyway because you don’t have it.

        Also, FWIW, the labels want services to recoup the guarantees. They want these businesses to be successful. Collecting a portion of an unrecouped advance for one year is not nearly as beneficial as having a royalty producing distribution partner for multiple years.

        Reply
  8. Troglite

    My experience is that corporations rarely tell flat out lies to the press within prepared statements. Rather, they usually craft the language in a way that is factually correct but subject to multiple interpretations. For example, SME doesn’t indicate which artists share in this revenue but as a reader, I’m likely to ASSUME it means ALL of their artists. As Paul pointed out, their statement doesn’t speak to the potential that this revenue could be assigned a different classification that puts it outside of the definition of “digital breakage”.

    But… it seems to me that we’re asking the wrong question. This seems like a STRONG response to a story that has gotten fairly little coverage. I think we should be asking WHY??? What are they AFRAID will happen if they don’t get their version of the story out there? WHO is the intended audience for this statement?

    Reply
    • Anonymous

      THE ARTISTS ARE THE AUDIENCE.

      Sony Music doesn’t sell to consumers directly (maybe a tiny fraction of their revenue is direct). Their artists and distributors do. They don’t care (much) whether consumers think they are paying artists fairly.

      They want to make sure artists don’t a) leave their label, b) refuse to sign with them in the first place, c) audit them, d) require stiffer language in future contracts covering all this stuff and e) (most importantly) pull their content from all these services because they feel like they are getting ripped off by their label. Sony Music makes BILLIONS per year in royalties but artists can pull content off of individual services if they so desire. Doing that would kill these services which are a huge part of the Sony’s revenue today, and a bigger part in the future. Streaming has won the war for music listening (YouTube, Spotify, Pandora, etc.) and if artists pull their content from licensed services, then piracy (re)explodes and Sony makes a lot less money.

      Reply
  9. djg

    off topic here but since this is the headline story I thought I would ask here.

    Paul, just tried the mobile page. While I’m a fan of the DMN graphics and font style (many picky readers seem offended) and the comments format, it doesn’t seem to translate very well to the mobile page, at least on an iphone it doesn’t.

    Is someone working on figuring out how to translate the style and user interface to the mobile page?

    Reply
    • Anonymous

      The new mobile site sucks. Loads slower than the regular site and full of ads. The comments are at the bottom after a ton of links and other articles. I bet you’re proud of that stupid share bar that floats over the page and takes up screen real estate. if someone switches back to the useable normal version, you shouldn’t constantly switch them back to your crappy mobile site every time they go to a new article. Do you really think people will like it if you just force it on them and annoy them enough?

      Mobile sites are supposed to be MORE user friendly, not less.

      Reply

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