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Artist and management community welcome Sony Music’s decision to pay royalties to artists on unrecouped pre-2000 record deals

By | Published on Monday 14 June 2021

Sony Music

The artist and management community have both welcomed a move by Sony Music to start paying through royalties to artists with record contracts that pre-date 2000 even if said artists are yet to ‘recoup’ on their original deal. The big announcement from the major comes amidst increased debate about the intricacies of record deals, partly sparked by the big conversation around the economics of streaming that has taken place during the COVID pandemic, and in no small part because of the #brokenrecord and #fixstreaming campaigns.

In a memo to artists and managers on Friday, Sony Music stated: “As part of our continuing focus on developing new financial opportunities for creators, we will no longer apply existing unrecouped balances to artist and participant earnings generated on or after 1 Jan 2021 for eligible artists and participants globally who signed to SME prior to the year 2000 and have not received an advance from the year 2000 forward. Through this programme, we are not modifying existing contracts, but choosing to pay through on existing unrecouped balances to increase the ability of those who qualify to receive more money from uses of their music”.

Under a conventional record deal, a label invests in the recording, release, distribution and marketing of new music, in return for taking ownership of any sound recording copyrights created in the process. The label then exploits those rights for profit, committing to share any income with the main artists who made the recordings. Quite what share the artist gets varies greatly from deal to deal, though under conventional record contracts the artist would receive a minority share of the most lucrative revenue streams, which today includes streaming.

Another key element of a record deal is recoupment. A label is usually allowed to recoup any upfront cash advance it pays the artist when signing a deal – and also often some of its other upfront costs – out of any monies made by exploiting the recording rights, before making any new payments to the artist. Under a classic ‘royalty deal’ those upfront costs are specifically recouped out of the artist’s minority share, meaning the label often actually goes into profit on a deal (from its majority share) before the artist has recouped and starts to receive new payments.

In the big old debate about the economics of streaming – and how streaming income is shared out between the different stakeholders in the music community – a key talking point has been how monies allocated by the streaming services to the recording rights are split between label and artist. While every deal is different – and artists who work with distributors instead of labels are likely getting a majority of that money – on a classic record deal the artist will usually receive a minority share of no more than 25%. Many artists argue that that’s not fair.

Heritage artists have generally been most vocal on this point to date, though often argue that they are speaking out on behalf of new artists rather than musicians of their own generation. Although, arguably, it’s the heritage artists who have been most screwed over by the system during the rise of streaming.

While new artists certainly face big challenges in building a business around their music, when it comes to choosing a business partner to work with on their recordings there are now many more choices available. And while major labels still drive a hard bargain, modern record deals tend to pay slightly higher royalties, and artists might be able to negotiate in terms whereby they get ownership of the recording rights after a period of time.

Meanwhile, heritage artists – whose catalogue has become more lucrative simply because streaming removes both logistical and transactional barriers when it comes to monetising old recordings – are stuck on 20th century record deals that usually pay lower royalties and provide no provision for the rights to revert to the artist.

In many cases there is also a lack of transparency over how old deals are being interpreted and whether additional deductions that made more sense in the physical era are still being applied to artist royalties. And, of course, many artists have never recouped on their original deals, so any streaming royalties are just being set against old debts.

All of this has fuelled the argument that so called performer equitable remuneration should be applied to streams, like it is when recorded music is broadcast or played in public.

Where ER applies, artists have a statutory right to payment when their recordings are utilised, and that payment comes via the collective licensing system. If applied to streams, it would mean artists getting at least a minimum cut of any streaming income directly through a collecting society, oblivious of whatever royalty rate their label is paying, and even if they never recouped on their record deal.

Organisers of the #brokenrecord and #fixsteaming campaigns in the UK have called for a rewrite of copyright law – so that ER would apply to the so called making available element of the copyright and therefore to streams. So far more than 220 artists – including may big name heritage acts – have signed a letter calling for such a change.

Most labels – major and indie – oppose ER being applied to streams, and some in the artist and management community have also expressed concern about the potential unintended consequences of such an approach. Once the costs of administrating ER on streams is taken into account – alongside the inefficiencies with the collective licensing system, certainly on a global basis – newer artists who have negotiated more favourable deals with labels or distributors might actually be worse off.

Some argue that, because it’s really heritage artists who are losing out under the current system, a better approach would be for labels to address issues with old record deals in terms of royalties and recoupment. During the parliamentary inquiry into the economics of streaming, it was noted that the Beggars Group applies a modern streaming royalty rate of 25% to every recording in its catalogue, oblivious of what any old record contract says about royalties. And it also writes off unrecouped balances after fifteen years.

Beggars boss Martin Mills has previously called on the majors to follow his company’s lead on royalty rates and recoupment, something Beggars Group General Counsel Rupert Skellett highlighted when giving evidence to the Parliamentary inquiry.

Sony, of course, hasn’t gone that far, only shifting on unrecouped balances, and technically speaking choosing to pay royalties on unrecouped accounts rather than actually writing off those unrecouped balances entirely. Nevertheless, it’s a significant move that will put pressure on both Warner Music and Universal Music to follow suit. It also potentially weakens the argument that there is a need to apply ER to streams (from a heritage artist perspective, for session musicians ER is the only way they would get a cut of the digital pie).

Sony’s announcement was welcomed by the UK’s Music Managers Forum and Featured Artist Coalition, both of which have been campaigning for the years for the labels, and especially the majors, to address inequities in old record contracts. Indeed, both groups called for the writing off of unrecouped balances after a set time in their joint submission to the parliamentary review, endorsing the approach taken by the Beggars Group, and also recent moves at BMG to address unfair contact terms relating to older recordings in the catalogues it has acquired over the years.

MMF boss Annabella Coldrick said on Friday: “This is a very important, timely and welcome initiative from Sony Music. The MMF have been calling for a more progressive approach to tackling outdated contractual terms for some time, including a write-off of historic unrecouped balances. It is imperative that artists signed in an analogue era can also benefit from the boom in online streaming. We hope forward-thinking moves by companies like Sony, BMG and Beggars will help accelerate the pace of reform across the entire industry. The momentum for change really feels like it’s picking up pace”.

Meanwhile the FAC board stated: “We applaud Sony Music Entertainment’s announcement and look forward to the rest of the recorded music industry following suit. We have long campaigned for unrecouped balances on advances to be written off after a fixed time period. It is therefore welcome that Sony has taken steps to do this today. We welcome this move towards a more artist-friendly model, and expect that Sony will apply this adjustment on a rolling basis”.

“Tackling the problem of outdated and heinous contractural terms, such as decades old balances and regressive royalty rates, is at the forefront of the FAC’s agenda. These old-era contractural terms are completely unfit for the modern age, and we passionately believe that challenging these contracts holds the key to a fairer future for artists”.

The Association Of Independent Music also welcomed Sony’s announcement, stating on Twitter: “We welcome this positive move from Sony Music, writing off unrecouped balances for heritage artists, a practice which is widespread in the independent sector. We hope this news will encourage others to follow, towards making fair digital dealing a global standard”.

Sony says that artists who qualify for what it calls the Legacy Unrecouped Balance Program will be notified in the weeks ahead. The devil will be in the detail, of course, regarding how many artists benefit and quite how the new royalty payments work.

Although Sony’s memo on Friday said eligible artists will also be able to utilise existing royalty payment tools available in the US and UK – and due to be rolled out elsewhere – whereby they can fast-track payments or get advances on projected earnings.

The memo concluded: “We’re driven by our mission to provide artists with the best levels of service. The programme we are announcing today is part of that continuing work and further builds on our initiatives and investments in modernised contracts, flexible deal options, advanced data and analytics insights for creators and more”.

This story is discussed on this episode of our Setlist podcast