Sony Music has begun to distribute the $750 million in profit it collected from the April sale of 50% of its Spotify shares to the artists and distributed labels within the Sony system, Variety has confirmed. As previously reported, Sony, which held 5.7% of Spotify’s stock when the streaming service went public, will not count the funds against the artists’ and label’s unrecouped earnings.
Rather, the “Spotify windfall,” as SME insiders are calling the disbursement, will be apportioned according to individual artist and label contract terms and based on earnings over the last 10 years — or since Sony’s initial investment in the Swedish streaming upstart — divisible against Sony’s own revenues from the Spotify stock gain for that time period.
What does this mean to the thousands of artists, representatives and some two million titles involved? The checks are in the mail, and set to arrive by the end of August. Sony had previously stated its commitment to sharing the sum with artists and distributed labels. Music Business Worldwide caught wind of the plan back in June.
Sony’s payout contrasts with that of competitor Warner Music Group, which took its $126 million in profit and proportionally credited it to artist accounts, but against unrecouped balances and owed expenses (WMG had a 1.9% stake in Spotify and sold all of its equity earlier this month for just over $500 million). That means an artist that is operating in the red and technically still owes the company money will see that balance shrink, but may not pocket any funds: The proceeds would end up back with Warner as part of the recoupment.
The majority of major label artists, particularly developing ones, are in an unrecouped position. But those artists signed to Columbia, RCA, Epic and Legacy, the big four of Sony’s recorded music subsidiaries, will also get a check in the coming days, so long as their information is current in the Sony system. The company utilized its breakage allocation system to apportion the payments.
The formula Sony used is fairly straightforward: the company looked at the 10-year period during which it owned equity in Spotify, then looked at its revenue from Spotify and overall revenue for the time and divided it up by revenue generated by the artist or label.
So if an artist had $5 million in sales over that period, and Sony registered $30 billion in revenue, that contribution (.016%) would be allocated to its portion of the Spotify payout and paid to the artist according to the act’s contract terms for digital royalties. Not surprisingly, the biggest checks seem to align with the most successful artists on the roster — here’s looking at you, Adele — though steady catalog sellers also fare well. The company opted for what was more fair in terms of not weighting those artists who have been stronger in streaming.
“To their credit, it seems like they didn’t even think twice about recognizing that that there is value in the relationship between Sony and the creators of the music,” says Thirty Tigers’ co-founder David Macias. His RED-distributed label has been in business with Sony for 16 years and is home to such artists as Jason Isbell, Lucinda Williams and Lupe Fiasco. “There’s a reason I haven’t gone anywhere else,” he adds. “There’s a compensatory relationship there. I’ve always felt like they treated us incredibly fairly and it didn’t surprise me that they chose to take what I felt was a moral stance on this. I know the artists we work with appreciate it a lot. And I appreciate it immensely and certainly in turn we’re sharing those proceeds with our artists.”
In Thirty Tigers’ instance, the artists own their own work and it will be left up to the label to distribute the funds. The labels are under no obligation to turn over all of the proceeds, though in its letter to participants, Sony Music encouraged distributed labels to pay the windfall forward. For a label like Thirty Tigers, it does leave open the question of what the obligation is to pay acts that are no longer on the label but generated money during the 10-year period. Macias says that, in his case, they will be honoring those relationships too. “We are making the choice to pay our artist that helped contribute to that,” he says, adding that Sony’s gesture will right what many artists have been complaining about since the arrival of streaming. “A lot of artists out there were super angry, or you could say upset in advance, that this incredible amount of wealth was being conferred and not necessarily to them.
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