Here’s Another Way That Artists Get Screwed Out of Their Streaming Royalties…

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Back in June, a leaked Lady Gaga contract exposed just how artists get screwed out of their streaming royalties by major labels.

But that was just one trick in the bag: according to a just-filed lawsuit by American Idol label 19 Entertainment, major label Sony Music Entertainment has been using a clever game of mis-categorization to dramatically reduce streaming royalty payouts.

The trick, according to the lawsuit, works like this:

(1) Sony Music agrees to pay 50% of all streaming revenues, for everything from online radio (i.e., Pandora) to on-demand (i.e., Spotify).

(2) Sony then mis-categorizes all streaming revenues as ‘distributions’ or ‘sales,’ which are typically used for one-off transactions like CDs, album download, and vinyl.

(3) Sony’s payment obligation is slashed by more than 70% (if they pay at all).

(4) The result is that all 19 artists, which include everyone from Kelly Clarkson to David Archuleta, receive a dramatically lower payout (if they’re paid at all).

Here’s the section of the complaint that describes the trickery:

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The full legal complaint is here.

Story thumbnail image by LawPrieR, licensed under Creative Commons Attribution 2.0 Generic (CC BY 2.0).

14 Responses

  1. Anon

    I want to see a royalty statement. Streams have no real price (retail or otherwise) paid by consumers, so what is the basis for the royalty calculation? It would be pretty funny to see a 15% royalty rate applied to a stream with a price of $0.005 (or perhaps an even more ridiculous amount). If Sony is applying the royalty rate to the streaming net revenues, that may be even funnier and they need to pay up immediately. I would be surprised if they even attempted that type of reporting. Sounds pretty Busch League.

    • Agee

      The streaming rates are not known to the consumer but that doesn’t mean record companies don’t know how to quantify it. Nothing a summons for evidence can’t handle.

      • Perry Mason

        “a summons for evidence”

        Called a “subpoena” or “request for production of documents” in the U.S.–depends on whether you are serving it upon a party or a non-party.

        O.K., time to loufa Della Street’s stretch marks.

    • Joel Price

      It’s changed a little. The label negotiates a percentage of the companies business. 25% of a subscription model streaming service like Spotify goes to the collective record labels. Who are to negotiate their own share of that percentage. 50% of that share goes to the label, 45% to the artist and 5% to unfeatured artists/singers. Now, how easy it is to collect from these companies and from Sound Exchange is to be debated. Both seem to be sitting on piles of money trying to collect dividends. In a per stream basis, an artist should make $.0065. It adds up to peanuts in the long run. And none of the subscription services have been profitable. Not one. All of them are losing boat loads of money. The model doesn’t work. If the streaming service can’t effectively monetize the product, there will have to be another idea. The problem is that the product has been devalued so much that is isn’t worth money to anyone anymore.

  2. Mark Ingram

    Don’t be so surprised. Success in the music industry is all about claiming all the pennies out there that you are entitled to. This is just one example of how major labels and publishers pinch pennies which add up to quite a lot of money for artists this big.

    • smg77

      What’s new is that this site is finally waking up to the fact that the greedy labels are the problem and not the streaming services.

      • Anonymous

        Well, greedy labels who want money and greedy customers who want whatever music they want, when they want it, how they want it and if they don’t get it practically free then they’ll pirate it. Thanks to Apple who really got people used to the idea of having cheap music on hand so easily with the original iTunes, both to “combat” the already growing infancy of piracy and to make money for themselves. And thanks to artists who put out shit content on such sites, burying the true artists. And thanks to the economy which makes making a living so difficult so people already don’t want to spend money on music anyways. And thanks to the amount of time and money it takes to even become a good artist in the first place. Streaming services don’t work because they are based on a flawed business model that was already there when they started. Honestly while the greedy labels started it all, everyone involved kept it going. Most artists really just don’t know what they’re doing, they just want fame and money with as little work as possible.

  3. David

    The full legal complaint is well worth reading. Especially paragraphs 37-40.

    • hippydog

      no kidding! Looks like the label really went of the rails this time!

      industry is gonna get a wake up call on this one..

  4. Willis

    Artists should be used to composing or performing while bent over.

  5. hippydog

    Well this explains why paul uses sensationalist articles all the time..

    HERE is a REAL piece of news.. almost no comments..

    bash spotify or make a top 10 list, 90 comments with 24 hours..

  6. terry wilson

    Mark Ingram, bullseye!!!!Labels have been finding ways for years to penny pinch the artist….this is exactly as you stated………….and no one should be surprised………….