Here’s Exactly How Sony Music Is Sharing Its $750,000,000 Spotify Windfall

A UK Music study reveals value gap between YouTube and content creators

Image by Thomas Galvez (CC by 2.0)

Sony Music Entertainment promised to pay its artists a portion of its recent Spotify stock liquidation. Now, they’re over-delivering on that promise — and sending this detailed letter to signed artists, sub-labels, and other partners.

Sony is now splitting its considerable Spotify pie with artists and sub-labels.  The major label offered detailed payout information in a letter issued Thursday (June 14th), with generous terms laid out.

Multiple copies of that letter were sent to Digital Music News, for various geographic regions (see the US version below).

The letter doesn’t answer every question and resolve every scenario, though it does clear up a huge amount of the confusion.  At a top level, Sony Music is offering to split its Spotify windfall based on how much revenue a particular artist generated during the time the company retained an equity position.

That period is considerable, given that Sony has held a stake in Spotify since its early days.

In early April, Sony cashed out approximately half of its 5.707% equity stake in Spotify (that’s 5.082% on a fully diluted basis, according to Sony).  We’ve heard some different estimates of how much cash that generated, though Sony itself offered a rough, $750 million estimate in its letter.

Back to the payout: more specifically, the calculation will include two parts:

(1) the percentage of revenue the artist generated for the label overall during the equity period, and

(2) the amount of revenue the artist generated on Spotify itself.

Those percentages are then combined with the artist’s royalty payout percentage to determine a final payment.

Here’s an easy example: let’s pretend the artist generated 1% of Spotify revenues during the equity period, and 1% of all Sony Music revenues.

Let’s also pretend that the artist is also receiving a 10% royalty payout (based on the label contract).  The payout would be as follows:

Spotify portion: 0.5 x 0.01 x $750 mm = $3.75 million

Sony portion: 0.5 x 0.01 x $750 mm = $3.75 million

Spotify + Sony = $7.5 million x 10% royalty rate = $750,000.

It looks like recording artists, songwriters, and sub-labels are part of this, though Sony only specified “eligible artists and participants” as part of the payout.  We’re guessing that any artist not actively signed to Sony won’t be getting a cut (though please let us know if this isn’t the case).

The label has also decided to make a clean payment, without requiring recoupments.  It’s also paying regardless of what the specific contract states.

Typically, a signed artist only starts receiving royalties and revenues after the major label pays itself back (i.e., recoups) its upfront costs.  In a typical example, those costs include marketing, promotional, and distribution costs, which can be considerable.  In this situation, however, the payment will be made without considering recoupments.

Another perk is that Sony is offering to pay the total amounts, regardless of the specific language (or lack thereof) in contracts.  So, for example, if a contract specifies payouts from a limited list of revenue-generators, this Spotify bonus would be paid anyway.

Of course, there are lots of little details to be ironed out, and endless deal variations.  But overall, that’s far more generous than the method Warner Music is reported to be utilizing.  Universal Music Group has not cashed out its shares.

Here’s the complete letter, which spells out all the details.

This one’s for the U.S., though there doesn’t seem to be much difference between the various territories — at least from what we’ve seen.

Beyond this, sources have noted that separate versions may be going to sub-labels and and artists/labels in various distribution agreements.  We’ll publish those if/when we receive them!

Also worth noting: more ‘exotic’ or limited-scale arrangements with Sony Music, especially those dealing with specific releases or services, will probably receive unique treatment.

One Response

  1. Skeptical

    This actually isn’t as generous as it looks — lots of exclusions, non payments for anyone not ‘active’… etc.

    Reply

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