Are Majors Still Double-Dipping Overseas Digital Royalties? (Op-Ed)

The uncouth practice of record labels letting their international subsidiaries make deductions on digital royalties is a common gripe among the artist community, and for good reason.

Before the streaming revolution – back when the trusty compact disc embedded with the latest Madonna single would sell like flavoured ice to holidaymakers – a lot of work went into manufacturing and distributing these records. Only fair then, that labels got compensated.

Record company accountants would calculate the artists’ royalties based on what was actually received from its global affiliates after their cut, then deduct their own share, and finally payout the balance to the artist – effectively short-changing their prized roster along the way.

The more common practice today, widely adopted by the indies, is to calculate royalties on an ‘at source’ basis, meaning revenue directly received from DSPs before any deductions.

But the method behind the madness wasn’t always a greedy one. Once upon a time, not that long ago, it made sense for overseas markets to take a cut for their share of the elbow grease. Though times have changed, many record companies – surprise, surprise – have not.

As one music lawyer told TMN today, “There’s very few examples of altruism on behalf of the multinationals in terms of giving rights back [to artists], unless they get something in return.”

While the gripe mostly impacts legacy deals that pre-date the digital ages, TMN understands that double-dipping from rest-of-world digital income can still appear in deals today.

Unfaffectionately referred to in these agreements as a ‘packaging deduction’ or ‘container charge’, the practice was ultimately designed to lower artist royalties and increase label margins. When Steve Jobs first put 1,000 songs in our pockets, the major slapped a new sticker on their old ways and hoped for the best – despite the simplicity of uploading music for a global release.

The latest band to take offence to the ethically questionable procedure is 1970s American pop-rockers, Orleans, with two of its members, John Hall and Lance Hoppen, now suing their label.

In a lawsuit filed with the US District Court on June 16 in Nashville, Hall and Hoppen have accused the major label of intentionally miscalculating digital streaming royalties and “shorting” musicians of their proper compensation, according to the proposed class action.

The pair also claim that Warner Music Group failed the modern-day transparency test by not clearly showing the affiliate deductions on royalty statements.

Pictured: Orleans in 1976 / Source: Billboard

The legal filing said “fees to foreign affiliates are a relic of the days when the collection of revenues from foreign record sales entailed significant labour,” as opposed to the “relatively frictionless methodology by which digital service providers can compensate rightsholders for the use of their services across multiple territories.

“In such instance the costs of foreign collection are negligible, and the grossly deficient payment of foreign streaming royalties by defendants simply reflects their ability to manipulate their foreign affiliate practices with no commercial justification beyond self-enrichment”.

It’s not the first time Warner (or any major label, for that matter) has wound up in the courts over deductions to streaming revenues from overseas markets. Last year singer-songwriter Lenny Williams launched a similar lawsuit, and reportedly settled out of court. And, at least until the big three change their old ways, it likely won’t be the last time.

While the majors have made strides in the pursuit of transparency, including the wiping of unrecouped advances for qualifying legacy artists and songwriters, there are still some practices haunting the ambitions of Warner, Sony and Universal to be the progressive and artist-friendly homes for acts that are increasingly more enthusiastic to buck the system, and go it alone.