At the end of August, classic-rock band Santana received a rare and unexpected gift from Sony Music, the group's longtime label: a $150,000 check.
"It's welcome money, that's for sure -- now I'll have to figure out how to allocate that," says Tim Jorstad, the band's accountant, who has spent the past few weeks sorting out similar payments to his other clients like The Doobie Brothers and Journey.
Santana's check was modest compared with what Peter Paterno, attorney for Metallica, Dr. Dre, Pharrell Williams and others, says some of his clients have found in their mailboxes. One of his artists received "a shocking amount of money" in early September -- almost seven figures -- "and it's not anybody you would go, 'Oh, my God, I get it.' It wasn't Barbra Streisand or something like that," says Paterno, joking that luckily, the artist "hasn't been able to spend it on hookers and blow yet."
Paterno recently informed another of his Sony clients by email of a check for $350,000, which the artist proclaimed "awesome news," while he says a third client plans to spend hers on "making recordings, because she's always broke."
The checks are part of the money that Sony and Warner Music Group promised they would share with their artists as they sold their stock in Spotify following its public listing in April, even though they didn't have to. WMG sold its entire stake, earning $500 million, of which it will pay out $128 million to artists, according to executive vp/general counsel Paul Robinson. Sony recently sent letters to its roster of artists past and present declaring that it cashed in roughly $750 million, or half of its stock. To determine how much to disperse, Sony devised a formula based on each artist's percentage of the label's revenue over the past 10 years, taking into account CD sales and -downloads in addition to streams. Then, the label used an artist's contractual royalty rate to calculate the final payment. So, for example, a Sony artist who accounted for 0.5 percent of overall revenue and 0.33 percent of the label's Spotify revenue and had a 16 percent royalty rate received a check for $498,000.
"If you are an artist that has a really high-streaming catalog, you're going to make plenty of dough," says Cliff Burnstein, manager of Metallica, Red Hot Chili Peppers and others. "If you're a Sony catalog artist, maybe that's going to be a very significant check for you, because it'll look like something you used to get five or 10 years ago."
The payouts could help buy the labels goodwill from their artists as they brace for intensifying competition for talent in the streaming era and as their long-term contracts with some big-name acts expire. Spotify is signing direct licensing deals with artists and managers, while a new crop of independent distribution companies is also vying for acts.
"Sony has made a statement about the music business that should be applauded," says Allen Kovac, a hard-rock manager and founder of the Sony-distributed Eleven Seven Music label, home to Mötley Crüe and Five Finger Death Punch. "They're trying to do things in a different way -- in a less autocratic way."
Some executives, on the other hand, think the hefty checks could turn more acts into streaming supporters following years of complaints from artists like David Crosby and Radiohead's Thom Yorke about minuscule streaming royalties.
"It's a pretty nice little surprise -- there were some small indie bands that were in that system that got $10,000 here, $15,000 there," says Jamie Cheek, a business manager for several top artists.
But not everyone is happy about Sony and WMG's decisions to divvy up the pie. "I don't think you should get any money," says a music--business executive. "The labels paid for this stock. It wasn't like it was just handed to them. If it had gone to shit and they got nothing, they wouldn't ask artists for a rebate."
Universal, the world's biggest label, has not announced plans to cash in any Spotify equity, nor has it disclosed any profit-sharing plans. Spotify's stock has jumped roughly 8.5 percent to nearly $180 per share since April public listing, meaning that Vivendi could potentially collect even more than its competitors if the upward trend continues. Sony artists, meanwhile, will get another round of checks if and when Sony sells the remaining half of its stock.
Sony's roster has been receiving larger payments than WMG's because WMG is making its artists recoup -- or pay back debt they owe under their original contracts -- before they get checks for their remaining share of equity earnings. Sony, by contrast, is sharing the windfall with artists regardless of recoupment or debt.
For Santana, sharing the check is complicated, given the band's numerous members since the 1960s. But at least, says Jorstad, "it's nice not to have to fight over this payment with Sony when we audit them."