19 Recordings has filed an amended complaint against Sony, charging that the label’s equity in streaming company Spotify, has resulted in the label self-dealing profits at the expense of artists.
On June 15, American Idol-affiliated 19 Recordings sought permission to file an amended complaint under seal in an ongoing lawsuit with Sony Music. A redacted copy, obtained by The Hollywood Reporter after the parties discussed what was to remain private, details allegations that many insiders have long anticipated ever since word of Sony’s equity stake in Spotify (more than five percent) began circulating five years ago.
Sony is now being sued for self-dealing on the allegation that its equity position is harming 19 artists like Kelly Clarkson and Carrie Underwood. The lawsuit asserts that Sony negotiated the stake, and is also taking advertising income from Spotify, in lieu of demanding fair-market royalty rates from the streaming company. An additional claim for breach of good faith and fair dealing essentially frames what’s happened in the recording business as a diversion of money that would otherwise be going to artists.
And the legal examination could spread.
“Each of the major record labels also own an interest in Spotify,” states the amended complaint. “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.”
THR speculates that the majors including Sony, Warner and Universal, reportedly own as much as a 20 percent stake in Spotify.
“Each of the major record labels also own an interest in Spotify,” states the amended complaint. “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.”
You can read the rest of THR’s report at Billboard. THR notes that the 19 Recordings case is the first to “test whether the record industry establishment and tech industry vanguard are in cahoots at the expense of the creatives.”
Read More: American Idol Bombshell: 19 Recordings is Suing RCA Records
