It seems like streaming services are prone to controversy these days. In this weeks news, mega label Sony might be in a bit of hot water after a complaint has been filed against them about how they pay, or this case do not pay their Spotify artists. 19 Recordings, which is the American Idol affiliated record label is the one behind this inquiry.
The claims are part of an ongoing lawsuit that 19 Recordings filed against Sony back in February 2014 which argues that Sony’s entire deal with Spotify is unfair. Sony owns five percent stake in Spotify, as part of the nearly twenty percent that is owned by them, Warner and Universal. The lawsuit has been trying to force the record labels to show their deals to check if any wrongdoings are going on.
One claim is that exchange for their five percent stake in Spotify, companies likes Sony receive free advertising space, — with none of that revenue going to the artists themselves. Some of these artists are mega-stars Kelly Clarkson and Carrie Underwood.
Each of the major record labels also own an interest in Spotify. On information and belief, those other record labels have engaged in the same self-dealing as Sony with respect to the diversion of payments to them, and the below market streaming royalty rates to artists. Together, and individually, Sony and the other major record labels therefore have significant power to exert control over Spotify in order to not only dictate how revenue will be paid, but wrongfully and in bad faith divert money from royalties that must be shared to other forms of revenue that they can keep for themselves.
The original suit however claimed an even more troublesome problem with Sony’s streaming payout structure. American Idol creator Simon Fuller claims that Sony treats streams as “sales” rather than “broadcasts”, — the implication is the payout to the artist. By classifying streams this way the record label is able to splits the income, rather than take a smaller cut. Take into consideration that the original deal between Sony and Spotify which was posted by The Verge (and promptly taken down) guaranteed Sony a minimum of $0.00225 per stream royalty rate, rather than the $0.006 – $0.0084 rate that everyone else gets.
Sony is yet to comment on the matter.
Photo courtesy of Björn Olsson.