Concerns raised over labels’ pledge to share streaming asset proceeds with artists

Image: Sony Music artist Beyonce released her latest single through streaming service Tidal

Following the announcement that both Sony and Warner will share with their artists any cash windfall they receive from the stakes they hold in streaming services, concerns have been raised.

In a statementreleased by the International Music Managers Forum (IMMF) – which globally represents artist managers and self-managed artists – the labels have been called out for “vague” terminology.

“Whilst this is most welcome, the managers involved have expressed concerns over the vague use by labels of terminology such as ‘profits’, ‘surplus’, ‘net proceeds realised’, and even the variously defined buzz word ‘breakage’,” said IMMF chair Volker May on Wednesday.

‘Breakage’ refers to the difference between what services pay labels in guarantees and how much royalty revenue they actually generate. Meaning, the revenue from recording that is not contractually paid to artists but can instead be put back into the label.

Warner Music holds a reported 3% ($200 million) stake in the $8.4 billion-valued Spotify as well as in SoundCloud, Deezer and other streaming services. Sony’s stake in Spotify is estimated to be 6% ($480 million). Asreported inTMN, streaming made up 24% of total revenues for Sony Music’s Q3.

The two majors made the pledge to share ‘breakage’ with artists separately; Warner Music Group’s CEO Stephen Cooper was the first make the move on February 4, stating: “As there is an ongoing debate in the media regarding how artists should be paid for use of their music on streaming services, we wanted to take this opportunity to address the issue head-on.”

The following day Sony Music made the pledge; its statement read: “As we have previously shared with our artists and their representatives, net proceeds realized by Sony Music from the monetization of equity interests that were provided to Sony Music as part of the consideration for a digital license will be shared with our artists on a basis consistent with our breakage policy.”

The timing of the announcement was interesting as Spotify prepares for an IPO in the next 12 months.

Universal Music Group, which is yet to follow Sony and Warner’s pledge, has declined to comment. Its parent company Vivendi will reveal its full-year earnings report late next week.

The IMMF is after a more detailed explanation on exactly how the equity proceeds will be shared with artists. May’s statement reads: “Those labels who have made these generous offers should be in a position to define and calculate what they mean, not only for artists but also for their own corporate shareholders.”

The IMMF has also requested the two labels factor in individual artists’ contracts regarding royalty terms and also the prices at which shares are sold and the weighting mechanism.

“We don’t envy the labels having to consider such a complicated issue,” said May, “but we do know that the labels owners, the artists, and policy makers like the European Commission and US Copyright Office, who have expressed concern for creators’ rights, will appreciate an inclusive debate on sharing best practice before any further extraordinary value hits the labels bank accounts.”

It should be noted that last year independent labels announced they would share with their artists, money from digital advances, minimum guarantees and non-recoupable payments from streaming services. Sony and Warner’s move to follow suit follows the leaked contract between Sony and Spotify.

The contract, among other things, revealed Spotify paid Sony Music up to $42.5 million in advances, thatSony had advertising credits worth $9 million and Sony had a Most Favored Nation (MFN) clause to receive equal trade advantages as the most favouredlabel.

The issue of transparency was raised in October by the UK Music Managers Forum in its report Dissecting The Digital Dollar.