Major music companies to share 'breakage' profits with their artists

Sony Entertainment has joined the with others to include artists when considering selling their stakes in Spotify and the like. This is good news for Sony artists who already share in the profits of streaming revenue collected by their music company. It has been a concern that artists would be left out in the cold in such an event but recent reports seem to show otherwise.

Music Business Worldwide Reports:

SONY: WE WILL ALSO PAY ARTISTS PROFITS FROM THE SALE OF OUR SPOTIFY STAKE

Warner Music Group delivered a huge announcement earlier today: it will pay artists a slice of any profit it makes selling equity stakes in digital music services that it acquired as part of licensing deals.

But it’s not alone.

Sony Music Entertainment has now told MBW on the record that it will do the same.

A spokesperson from the world’s second biggest major music company just told us:

“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 these statements is very telling.

Spotify is expected to IPO in the next 12 months, at which point the majors will likely cash in their equity stakes.

With a reported 6% holding of equity in Spotify – estimated to be valued at $8bn – Sony owns a stake worth around $480m.

MBW contacted Universal Music Group on this issue earlier today and received a ‘no comment’.

It will be interesting to see if this changes in light of Sony’s statement.

Both Sony and Warner have cited their ‘breakage policy’ – a set of internal rules governing what happens to cash made from streaming services outside of standard royalty revenues.

Last year, all three majors told MBW on the record that they would share with artists any money received from digital advances, minimum guarantees and non-recoupable payments from platforms such as Spotify and Deezer.

Those policies were not thought to include profits accrued from the sale of shares in these digital businesses – until now.

Warner CEO Stephen Cooper said on an earnings call earlier today: “There are equity stakes in some streaming services for which we have not paid.

“Although none of these equity stakes have been monetized since we implemented our breakage policy, today we are confirming that in the event we do receive cash proceeds from the sale of these equity stakes, we will also share this revenue with our artists on the same basis as we share revenue from actual usage and digital breakage.”

Last week, it was revealed that Spotify is now in the process of raising $500m of investment, using incentives based on the expectation that the company will float in the next 12 months.

Should Spotify IPO within a year, these investors will be able to switch their notes for shares in the company at a 17.5% price discount.

If an IPO execution takes longer than 12 months, Spotify will be punished – with investors getting a heftier discount.

There is a realistic fear in the artist community, as expressed by MBW on Friday (Jan 29), that when Spotify floats, the major music companies will cash in their own shares, but that performers will not benefit from these transactions.

Between them, the majors – Universal Music Group, Warner Music Group and Sony Music Entertainment – are believed to own somewhere around 15% in Spotify.

In an ongoing US court case, Sony – which reportedly owns 6% in Spotify – was last year legally challenged by management company 19 Entertainment on the Spotify equity issue.

19 criticized the notion that profits from a Sony-owned equity stake in a streaming service – gained during licensing negotiations for artists’ music – shouldn’t financially benefit its acts.

In a court submission revealed by The Hollywood Reporter, the major replied that there was no stipulation in its 19 Entertainment contracts to stop it acting “[in] its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract”.Music Business Worldwid