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Sony Sells Half Its Spotify Stock, Signaling Payday for Label's Acts & Indies

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A sign advertises a Sony store in Manhattan on Nov. 1, 2016 in New York City.

The company's take should be somewhere around $761.354 million, based on an average share price of Spotify stock.

Sony Corp. has sold half of its 5.707 percent stake in Spotify, Sony Corp. CFO Hiroki Totoki told Wall Street analysts on a webcast.

Sony expects to record an approximate 100 billion yen gain from the sale, which he said will be booked in 2019 as "other income" and includes "both an unrealized valuation gain and realized gain, net of related expenses."

While the exact prices at which Sony sold its shares was not revealed -- Spotify stock prices have ranged from a low of $146.02 to a high of $161.51 through last week -- Sony's take based on the average share price during that period amounts to $761.354 million.

That means a payday for Sony's artists, their managers and Sony's distributed indie labels. So far Sony is the only major label that has said it will share that money with both its acts and indie labels, regardless of whether its contracts with artists and indies mandate it. 

Subtracting the 105 billion yen, or $989.129 million, that Sony said in an April 4 SEC filing that it expects to record as realized (the stock sold already) and unrealized (the stock not yet sold) gains from the revenue of 160.78 billion yen, or $1.514 billion, total that could be generated by all of Sony's Spotify holdings leaves a payout pool of 55.783 billion yen, or $525.49 million, for Sony artists and indie labels. Looking at that another way, Sony will realize $97.31 a share while Sony artists and indie labels' potential payout pool could be $51.70 a share.

But how much of the $525.5 million will go to Sony artists and Sony distributed indie labels is a matter of speculation. A report from Barclay's suggests that in addition to gaining shares through licensing deals, Sony also bought some Spotify stock in the early rounds of the services fundraising, and Barclay's excluded the expense related to buying Spotify shares from the pool to be paid out to Sony artists and indie labels, calculating a $418 million payout pool.  

Dividing it among the artists and indies will be no simple task. Some sources suggest figuring out how much market market share the Sony-distributed indie labels comprise and then extracting that percentage from the overall $1.514 billion total value for all of Sony's Spotify shares from the $525.5 million pool designated for payout, leaving the rest for the Sony artist pool. But while that percentage of Sony-distributed indie labels can be figured out for some countries, it would be hard to come up with a total percentage for Sony-distributed indie labels on a global basis.

Another way to do it would be to come up with a blended artist royalty -- the amount of royalties paid out to all artists on a label against total revenue -- of, say, 18 percent of the $1.514 billion; and then subtract that amount from the $525.5 million pool, which would leave the indie label share of the pool. But royalty payments for streaming are higher than typical artist royalties of 14-16 percent for developing artists and 18-22 percent for established, star and superstar artists, so a one-size-fits-all royalty could be tricky.  

UMG, meanwhile, has said its "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." In other words, if UMG artists and UMG distributed indie labels contracts call for payouts from advances paid by digital services or funds gained from equity in the services, then they will be getting paid a slice of the funds raised by the sale of its shares. At last check, on April 3, WMG still hadn't decided on what approach it would take for its indie labels, but has said it will share Spotify stock money with its artists. UMG's parent company Vivendi hasn't reported Spotify equity sales to date; its next earnings report for the first quarter is likely sometime next week, if the May 11, 2017, earnings report date is any indication. Warner Music Group hasn't reported stock sales either; its next financial report is likewise due out any day now as the company has until 40 days after the close of its March 31 quarter.  

Sony said that it had sold 17.2 percent of its total shares of 10,164,560 it owned on April 3, the day Spotify stock began trading, and has sold 5,082,280 shares in total so far. Spotify's shares have averaged at $149.81, close to its $149.01 first-day close of trading.

At $149.01 a share price, Sony would reap a total of about $1.514 billion in realized and unrealized gains -- or 160.783 billion yen -- when all shares are sold. Sony says it expects to record the funds received from selling Spotify shares in its consolidated year-end income statement for March 31, 2019. That means that the revenue gained from the stock sale will not be counted as operating revenue for the Sony music operations at the year's end.