Sony Music has agreed to pay $12.7 million to artists in a class action lawsuit brought by the estate of 1950s pop star Rick Nelson, according to a settlement agreement filed in the US on Friday (September 4).
Nelson’s lawsuit challenged the legality of Sony Music Entertainment [SME] applying an “intercompany charge” on international streaming revenue before calculating an artist’s royalty payment.
In addition to that one-off $12.7m payment, Sony has agreed to increase the future royalty payments calculated on ex-US streaming revenues by 36% for the “qualifying recordings” of all affected artists who opt-in to the class action.
A motion for preliminary approval of the settlement, also filed Friday, suggests that this 36% increase will see class members paid “many millions of dollars” in addition to the initial $12.7m settlement amount.
The 36% royalty uplift will be applied retrospectively to eligible foreign streams from July 1, 2019 onwards.
The $12.7m, meanwhile, will be shared on a pro rata basis between class members (i.e. eligible Sony artists who opt in to the class action, including Nelson’s estate) via a “common fund”.
Nelson’s legal team suggests that, due to the vast size of Sony’s recordings catalog, the settlement could affect “hundreds, if not thousands, of class members”.
Traditionally, “intercompany” charges have arisen when a record sale (or related revenue collection) has taken place abroad, after which that money has worked its way back to an artist’s home country by being paid between international subsidiaries of a music company.
Nelson’s estate, controlled by Nashville-based Nelson LLC, claimed that Sony “improperly reduced the foreign streaming royalties” for Nelson’s recorded music by applying an “intercompany charge” on revenues collected outside the US.
Friday’s motional for preliminary approval – which you can read here – states that Sony’s initial $12.7m payment into a “common fund” is equivalent to an approximate 36% uplift on foreign streaming royalties for class members between July 1, 2015 and June 30, 2019.
Nelson’s estate alleged in its suit, originally filed in September 2018 and which you can read here, that “by assessing an intercompany charge for international sales, [Sony] impermissibly takes up to 68% off the top of the international revenue earned from streaming sales”.
The suit further claimed that SME “bases the artist’s royalty rate on the remainder, which methodology directly violates the terms of the [artist] Compensation Agreements”.
Nelson, who released over 30 albums and also had several Top 10 hits such as Poor Little Fool, Lonesome Town, and Travelin’ Man, signed a deal with CBS Records in August 1976. CBS was acquired by Sony in 1987.
“By assessing an intercompany charge for international sales, [Sony] impermissibly takes up to 68% off the top of the international revenue earned from streaming.”
Rick Nelson estate’s lawsuit, filed in 2018
The 2018 suit argued that Sony “is contractually required to pay artists a portion of the international revenue it receives from the exploitation of [Nelson’s] and Class members’ artistic works from digital streaming abroad”.
Nelson LLC’s suit said that the artist’s contract with Sony did not allow the record company to assess an “intercompany charge” for international sales that were reported through its wholly-owned subsidiaries.
It claimed: “Despite this fact, [SME] did, and continues to, assess an intercompany charge for international sales”.
Sony Music declined to comment, but according to the settlement agreement filed on Friday, SME “denies all allegations of wrongdoing, fault, or liability, or that it has acted improperly in any way”.
“Sony Music] denies all allegations of wrongdoing, fault, or liability, or that it has acted improperly in any way.”
Sony and Nelson Estate settlement agreement
It adds: “[Sony] believes that this Action lacks merit; would have continued to resist vigorously Plaintiff’s claims and contentions and would have continued to assert its defenses thereto had this Stipulation not been reached; and has entered into this Stipulation to put the Released Plaintiff Claims to rest finally and forever solely for the purpose of avoiding prolonged and expensive litigation, without acknowledging in any way any fault, wrongdoing or liability whatsoever.”Music Business Worldwide
