Sony Music Entertainment to Start Paying Indie Artists & Labels Spotify Sale Proceeds as Early as August

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Spotify

"We hope that this is perceived as a gesture of goodwill to our music creators," said a company email.

Following Sony Corp.’s April sale of half of its stake in Spotify, Sony Music Entertainment (SME) sent an email to indie labels on Thursday (June 14) declaring its intent to share a portion of the profits with “eligible artists and participants as soon as possible,” with a target of August.

The payment from Spotify net proceeds will be made without recovery of outstanding advances and any other recoupable sums. “We hope that this is perceived as a gesture of goodwill to our music creators,” SME said in the email, which was obtained by Billboard, from SME Canada.

Sony’s sale of half of its 5.707 percent stake in Spotify was expected to earn the company around $761 million. Ahead of the sale, the company announced it would share the money with its acts and indie labels. Thursday's email gives some detail as to how Sony will derive payments to “nearly 100,000 eligible artists and participants across almost 2 million unique titles.”

The label will use an allocation method to calculate the payouts decided by weighing its overall revenue and its Spotify revenue during the period the company held the equity. 

"SME obtained Spotify equity by, in part, balancing the strength of over one hundred years of SME’s history and success, both the past and the present," the email states. "We believe this allocation methodology gives proper recognition to those artists currently on roster and in our catalog that were the foundation of SME when the Spotify equity was obtained."

A spokesperson for Sony Music Entertainment did not respond to an immediate request for comment.

In May, Warner Music Group sold 75 percent of its Spotify holdings for $400 million and also said it would share proceeds with artists and distributed labels, if their contracts called for it. Universal Music Group has not sold any of its Spotify shares.

Below is the email in full: 

Re: Spotify Equity/Sharing with Eligible Artist and Participants

Dear Participant:

On April 3, 2018 Spotify Technology S.A. was publicly listed for trading on the New York Stock Exchange. Sony Music Entertainment (“SME”) owned 5.707% of Spotify equity (5.082% on a fully diluted basis) at the time of the public listing.  Since April 3rd, SME has sold a portion of the Spotify equity we owned. Therefore we will share and pay such proceeds (“Spotify Net Proceeds”) with eligible artists and participants as soon as possible, targeting to make payments before the end of August. Sharing will be equally based upon each eligible artist’s or participant’s percentage of SME’s overall revenue and each eligible artist’s and participant’s SME Spotify revenue during the period when the equity was held by SME. Given the unprecedented value realized from this equity, payments will be made without recovery of outstanding advances and recording costs, or other recoupable sums (i.e., without regard to recoupment) and regardless of whether specifically required by contract. We hope that this is perceived as a gesture of goodwill to our music creators.

Spotify Net Proceeds include all sums received by SME from the sale of its equity in Spotify less SME’s actual costs related to the acquisition and sale of such equity, including acquisition costs and the cost of disposition (e.g., advisor fees and legal fees). 

SME obtained Spotify equity by, in part, balancing the strength of over one hundred years of SME’s history and success, both the past and the present. Therefore we are going to use an allocation methodology which equally weighs both SME’s overall revenue and SME’s Spotify revenue during the period SME held the equity (“The Calculation Period”) to share Spotify Net Proceeds with eligible artists and participants.  We believe this allocation methodology gives proper recognition to those artists currently on roster and in our catalog that were the foundation of SME when the Spotify equity was obtained. This results in an allocation to nearly 100,000 eligible artists and participants across almost 2 million unique titles. (Please see Attachment A)

As SME has decided to make all payments regardless of recoupment and regardless of whether specifically required by contract, each SME eligible artist and participant will receive a payment directly from SME as soon as practicable following any future sales by SME of a portion of SME’s shares.  The first of such payments is targeted to be going out to you before the end of August.

The benefit of the Spotify investment presented SME with a unique opportunity to pay additional compensation to all of our eligible artists and participants.  As we liquidate this holding in a disciplined manner over time, we will continue to make payments to all of our eligible artists and participants in the same way.

For questions on the above, you can reach out to your Business Affairs representative.

Best,