Sony Music files suit against Rdio execs over Pandora deal
Image: Anthony Bay
Sony Music is suing senior executives of defunct streaming service Rdio in an attempt to gain back millions owed to the major label.
The lawsuit filed in New York federal court claims that senior Rdio executives defrauded the record label of millions of dollars in licensing fees, according to a report by the Hollywood Reporter.
The lawsuit targets ex-chief executive officer Anthony Bay, ex-general counsel Elliott Peters and ex-senior v in charge of content licensing Kim Rondinelli; all of whom would have been expected to be “personally enriched” from the selling of the company.
It is reported that Rdio falsified their plans for the struggling streaming service in negotiations with Sony Music, cementing an extension on licensing payments owed to Sony while concealing the fact that they were in the process of selling the company to Pandora.
The case has been dubbed as the ‘first big bust in the era of streamed music’ and follows Pandora’s acquisition of the entirety of Rdio’s assets for US$75 million on November 17. When Rdio announced it declared for Chapter 11 bankruptcy that same day, the company had more than US$190 million in secured debt and US$30 million of unsecured debt with a calculated loss of US$2 million a month.
The secured debt was mainly owed to Pulse Media, which had been one of Rdio’s biggest investors since 2008. However it is the unsecured debt that will hurt the business the most, with an alleged US$5.5 million owed to Sony in a content licensing deal.
According to the complaint, Rdio agreed to pay Sony the US$5.5 million as a minimum revenue guarantee after Sony gave Rdio access to music from artists such as Bob Dylan, Michael Jackson, Bruce Springsteen and Beyoncé. However due to Rdio’s financial state they were unable to make the payment and convinced Sony of an extension, leading Sony to believe that they were in the process of new funding.
Rdio failed to mention that they were simultaneously in negotiations with Pandora in a deal that would buy Rdio’s assets and in the process give a generous payout to chief executives. The complaint states “SME (as an unsecured editor) would receive pennies on the dollar for the amounts owed to it under the amended Content Agreement”.
Sony Music is now in the process of claiming all the money owed to them from Rdio including the reported US$5.5 million from their 2010 deal as well as the US$2 million not received under the renewal agreement. The label is upset with bonuses and payouts received by Bay and Peters, claiming that the funds used for their compensations “should have been paid to SME for the rights it licensed to Rdio. The fact that Rdio’s former CEO could benefit from the deal is against “equity and good conscience”.
According to Music Business Worldwide, other recognisable businesses and artists that are owed cash from Rdio include Amazon, Arcade Fire, Cee Lo Green, Shazam and Apple.