Artist Managers Call Out Sony Following Spotify Contract Leak, Sony Responds That It Pays

The major label responded to the letter, saying it pays out 'breakage' to artists.

The leaked contract between Sony and Spotify, obtained and published (and since removed) by The Verge this past Tuesday (May 19) has, besides getting worldwide attention since its publication, drawn the interest of the International Music Managers Forum, the organization representing those music businesspersons who are most closely aligned with artists. The leak itself was an unprecedented look behind the scenes of the recording industry's fastest-growing source of income; these contracts are well-guarded secrets. That they have been so guarded has meant many questions from artists about what many see as low royalty rates from the streaming services -- the contract's leak seemed to refocus that ire towards the labels themselves.

In its opening question, the IMMF wonders (citing the deals Sony secured in the contract including a $42.5 million advance payable over three years and advertising credits worth $9 million, which Sony was cleared to sell to third parties or use for its artists): If labels are making money with artists' recordings without honoring the crux of their agreements with artists -- that they will promote and push those recordings in the marketplace -- then what are artists paying them for? It's a fair question. The labels would likely argue that, without their bargaining power the licensing rates Spotify would offer would be even more onerous. More pragmatically, the labels are companies which own things and seek to profit from those things, of which these deals are a clear example.

Sony Music responded to a request by Billboard with a statement on the company's policy on breakage, the term given to revenue from the recording business that is not designated for artists and is able to be "grabbed" by labels. "Sony Music historically has shared digital breakage with its artists, and voluntarily credits breakage from all digital services to artist accounts. Under the Sony Music 'Breakage Policy,' SME shares with its recording artists all unallocated income from advances, non-recoupable payments and minimum revenue guarantees that Sony Music receives under its digital distribution deals. This applies to all revenue under digital catalog distribution agreements, whether or not the guarantees, advances or 'flat' payments can be associated with individual master transactions."

The IMMF also calls for access to streaming services' substantial real-time data on listening, something that is harder for labels to argue against Spotify providing artists and their representatives. The request isn't unheard of, and many companies have recently bolstered their own data sharing options, including Pandora and Kobalt's (now) well-known data offerings, which provide real-time sales and listening data from various services (for the latter). As well, digital distributor InGrooves is said to be at work on its own back-end overhaul. This access helps artists identify key markets for touring purposes, as well as invaluable demographic information that could help them better orient themselves in the market.

Thirdly, the organization asks for "broad strokes transparency" around rates and exploitation of their work with third parties like streaming services. "Any contract where a label or publisher waives the artist's right to receive such information should be considered void," the IMMF writes. While morally legit, this argument unfortunately depends on the deals that artists have signed with their labels.

The organization spends the last third calling for a general update of the "standard practices" of the labels, "developed incrementally over a long period of time as a series of responses to a series of changes in how music was sold before the digital market arrived." They are presumably referencing things like the consent decrees, which have their genesis in a lawsuit brought by the U.S. government against the public rights organizations which limited their licensing discretion (these are currently under review), as well as the amorphous nature of recording agreements in general in the digital era.

That the IMMF chose to write about the leaked contract in itself speaks to a dramatic rift between creators and the companies that distribute and market them -- a rift that doesn't show any signs of healing, at least any time soon.