×
You will be redirected back to your article in seconds

Check’s in the Mail: Sony Music Disburses $750 Million to Artists in ‘Spotify Windfall’ (EXCLUSIVE)

The "completely voluntary" payment will not count against unrecouped earnings.

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.

The “Herculean task” of crunching the numbers, says an insider, has been a round-the-clock operation for most of the summer and comes at the directive of Sony Music CEO Rob Stringer and his team. It applies to all Sony-affiliated artists and labels in all territories globally and also includes producers and featured guests entitled to profit-sharing.

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.

Is this “off-cycle” payment essentially a gift? “It’s a completely voluntary payment,” says Maverick’s Larry Rudolph, whose management clients include Britney Spears, Aerosmith and Pitbull. “In other words, had Sony not done this, nobody really could have complained. Theoretically, Sony got this equity on its own. But of course, they’ve recognized the fact that they couldn’t have gotten it but for the artists. And they made a wonderful decision to voluntarily share the wealth, which is rare in the music industry. So, I commend them highly on their decision.”

“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.”

So how much are we talking about? “It’s a significant amount of money,” says Rudolph, though he declines to divulge the exact number. Using Sony’s own calculations, first outlined in the company’s June letter, an act with a 16% royalty rate and .5% of overall revenues and .33% of Spotify gain revenues could see a payment of $498,000 minus outlays to producers and other royalty participants. “This is all in good faith, and having Rob Stringer there, I’m sure had a lot to do with it,” adds Rudolph. “Rob is a very stand-up guy, and a guy who does the right thing and is very earnest and he’s taking care of artists. That certainly is a huge vote of confidence to artists and managers of his good faith and a desire to work with him and his company in the future.”

For his part, Thirty Tigers’ Macias says, “They let it be known very quickly after the IPO that they were going to share this windfall and come up with a plan. It’s a lot of money. I’m just glad it wasn’t a gift set of steak knives.”

Will the world’s biggest music company, Universal Music Group, follow Sony’s lead? So far, UMG hasn’t stated its intention but it’s believed they hold $1 billion in Spotify profit from its 3.5% share. Considering parent Vivendi recently floated the idea of selling off up to 50% of UMG, hanging on to it may be the more attractive option. A spokesperson for the company confirmed only an earlier statement that “UMG’s approach to sharing with artists any proceeds of an equity sale also applies to distributed artists and labels, consistent with the terms of their agreements with UMG.”

More Biz

  • Former movie producer Harvey Weinstein (L)

    Harvey Weinstein Reneged on Payoff to HR Director, Suit Claims

    The former Human Resources director of the Weinstein Co. filed a lawsuit on Tuesday, claiming he never received a $450,000 payout he was promised in the wake of the New York Times’ expose in October 2017. Frank Gil alleges that Weinstein promised him the money on Oct. 6, the day after the Times’ story ran. [...]

  • Plume of black smoke rising from

    Attorney for Universal Music Artists Impacted by 2008 Fire Requests Inventory

    Following on its statements last week that it will be filing a lawsuit on behalf of several Universal Music recording artists impacted by a 2008 fire that destroyed a huge number of master recordings, a Los Angeles law firm has requested a “complete inventory” from the company. Addressed to UMG CEO and chairman Lucian Grainge, [...]

  • Charles Caldas To Step Down as

    Charles Caldas To Step Down as Merlin CEO

    Charles Caldas, the only CEO that the independent-label collective Merlin has ever known, announced today that he will step down from his post at the end of 2019, after more than 12 years at the helm of the global rights organization. He will continue his current duties until then and work with the Merlin board to [...]

  • Merlin Reports Record Distributions for 2019

    Merlin Reports Record Distributions for 2019

    Global indie-label collective Merlin reported record distributions in its 2019 membership report, paying $845 million to label and distributor members between April 2018 and March of this year. That figure, a 63% year-over-year increase, includes more than $130 million paid out this year from non-royalty income — and included in that figure is the estimated [...]

  • Dwyane Wade on Supporting His Son

    NBA Star Dwyane Wade on Supporting His Son's Attendance at Miami Pride

    NBA star Dwyane Wade spoke to Variety about why it was important for him to support his younger son attending a pride parade last spring. In April, Wade’s then 11-year-old son Zion posted pictures of himself at Miami Pride, with his siblings and stepmother Gabrielle Union. Wade, who was on the road with the Miami [...]

  • Songs for Screens Powered by Mac

    Songs for Screens: How Eric Church Teamed With Ram Trucks — and Five Tons of Vinyl — for ‘Solid’ Campaign

    Country star Eric Church has long used his new music to reward his loyal fans, from surprise releasing 2015’s “Mr. Misunderstood” album as a direct fan-club exclusive to impromptu meet-and-greets before his hometown show in Greensboro, North Carolina. So when Church was prepping the April vinyl release of 2018’s critically acclaimed “Desperate Man,” the singer [...]

  • Harvey Weinstein legal team

    Harvey Weinstein Loses Another Defense Lawyer

    Harvey Weinstein has lost another defense lawyer, just three months before he is set to go on trial for rape and sexual assault. Attorney Jose Baez told the judge overseeing the case that Weinstein had taken actions that made it difficult to represent him, according to a letter obtained by the New York Post. Baez [...]

More From Our Brands

Access exclusive content