A freshly-filed lawsuit claims WMG’s “non-disclosure of inter-company charge deprives artists of revenue from foreign sales.”
On June 16th, American musicians John Hall and Lance Hoppen of 1970s pop-rock band Orleans filed a lawsuit against Warner Music Group alleging financial deception and royalty-reducing trickery.
According to the filing, WMG’s royalty statements did not disclose arbitrary deductions or ‘intercompany charges’ on the digital income collected. According to the filing, the result is that artists wrongly believed they were paid 50% of digital royalties received by the label from foreign subsidiaries. The suit states, “[WMG is] taking a percentage off the top of the international revenues earned from streaming sales, and basing royalty rates on the remainder, rather than on total international revenues earned from streaming sales.”
The lawsuit is seeking class-action status, and adds that the ‘Royalty Rate Reductions’ column on royalty statements displayed em-dashes, clearly indicating that no deductions were being applied on total digital income. It further clarifies that “Plaintiffs and Class Members have no way of knowing their royalties for international streams were based on reduced figures, nor any reason to suspect the representations on their statements were false.”
“This deduction has no legitimate business purpose,” the lawsuit states.
In territories outside of the United States, certain music royalties are paid to record labels by independent collection societies that retain a commission. In this filing, the levy of a commission is not being questioned — even though the application of these deductions remains a common grievance in the music community.
Hall and Hoppen’s lawsuit is wholly directed at Warner Music’s failure to communicate the deductions, and says, “Assessing the intercompany charge without disclosure renders the royalty rates conveyed… purposefully deceptive and misleading.”
“Plaintiff received statements from WMG indicating that they were receiving 50% royalty on foreign streaming,” the lawsuit ccontinues, “but were never informed by WMG that a hidden intercompany charge was being assessed against royalties.”
Label agreements in the past have failed to outline clauses and conditions to govern the disbursement of digital income.
Today, digital streaming accounts for 83% of all recorded music consumption, easily eclipsing physical records. WMG agreed to pay royalties for the digital streaming of Hall and Hoppen’s works, but they “failed to indicate they would allow foreign affiliates to deduct any percentage of monies, let alone an arbitrary percentage, collected before remitting the balance due to Plaintiffs and Class Members.”
The filing also remarks that WMG “clandestinely reduced Plaintiffs’ royalty pools for their own financial benefit,” bringing to light that WMG’s foreign affiliates are wholly owned or controlled subsidiaries of WMG.
As WMG exercises total control over these subsidiaries, this non-disclosure of inter-company charges means that “earned royalties were being quietly slipped into [WMG’s] back pocket.”
Regarding this allegation, the filing further states that “Pursuant to the covenant of fair dealing implied in all contracts, Plaintiffs had no reason to believe their effective royalty rates were being lowered by an undisclosed, arbitrary, and self-serving deduction.”
This isn’t the first time Warner Music Group has faced litigation on misrepresentation of digital income deductions. Back In 2018, 1970s soul singer Lenny Williams filed a similar case against Warner Music. At the time, that lawsuit failed to be classified as a class-action due to certain legal technicalities.
Williams attempted to re-file in 2021, after which the case was reportedly settled out of court.