Sony Music Reaches $12.7M Settlement in Challenge to Decades-Old Contracts, Royalty Methods

Rick Nelson Ricky Nelson
Hulton Archive/Getty Images

American singer and actor Ricky Nelson, circa 1960.

Sony Music has agreed to pay $12.7 million to settle a class action lawsuit brought against it by the estate of 1950s and '60s pop star Rick Nelson over deductions on foreign streaming royalties, according to a new settlement agreement filed on Sept. 4.

The case is notable because it challenges the historically common practice of "intercompany charges," whereby a global music company imposes an extra charge on revenue collected by subsidiaries overseas, in part to justify the extra work (and risk) of releasing physical products in new territories. However, those charges are harder to defend in the streaming age, in which case the cost of distribution is drastically reduced -- and decades-old contracts like Nelson's, of course, don't take that shift to digital into account.

In the original suit filed in 2018, the Rick Nelson Estate took issue with Sony adding such a charge to all streaming revenue collected overseas, through region-specific subsidiaries like Sony Music UK and Sony Music Australia. Because Sony has total control over its regional affiliates (rather than collecting those royalties through a third party), the estate argued, Sony shouldn't be taking a deduction off the top.

Sony still vehemently denies any wrong-doing, writing in the new agreement that it "believes that this Action lacks merit." However, it entered the settlement "for the purpose of avoiding prolonged and expensive litigation," and the terms of the agreement have the added effect of helping dozens of artists bring in revenue closer to what they might earn if their recording contracts accounted for the digital age. Sony agrees to pay $12.7 million to affected Sony artists who opt-in to the class action on a pro-rata basis, and also commits to increase royalties on international streams for those artists' eligible recordings by 36% from July 1, 2019 onwards.

In a motion for preliminary approval of the settlement, also filed on Sept. 4, the plaintiff writes that the 36% commitment will be worth “many millions of dollars and in excess of the common fund, since streaming is now the most dominant form of music distribution available. Thus, the settlement provides substantial and significant relief to class members, while eliminating the risk, expense, and uncertainty associated with protracted, contested litigation through trial and appeals."

It remains to be seen whether the court will approve the settlement.

Nelson -- a teen idol who charted numerous Hot 100 top 10 hits including "Poor Little Fool," "Lonesome Town" and "Travelin' Man" -- signed to CBS Records in 1976, four years after his last big hit, "Garden Party." He died in a plane crash in De Kalb, Texas, in 1985; CBS was acquired by Sony in 1987.

Sony Music declined to comment, and Billboard has reached out to the attorneys for the Rick Nelson Estate for comment.

In a strikingly similar case in 2018, 1970s funk singer Leonard Williams attempted to bring a class-action lawsuit on behalf of thousands of artists against Warner Music Group, arguing that the label breached its contracts with those artists by diverting portions of their payments on foreign streams to international subsidiaries. However, a California federal judge in February 2020 rejected the suit, holding that Williams' claims were not typical of all proposed class members.

Read the Nelson v. Sony settlement agreement and motion for approval below.

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