There’s a new artist royalties lawsuit in town, with Sony Music Entertainment the target. The class-action lawsuit has been filed by the estate of Ricky Nelson, a rock’n’roll star who had hits from the late 1950s to the early 1970s. The lawsuit focuses on an ‘intercompany charge on international streaming revenue’ that the Nelson estate claims Sony is taking off royalties collected by its local subsidiaries before calculating artist royalties. In its filing, the estate also claims that ‘thousands’ of artists could join the class action.

Sony Music has yet to publicly comment, and as with any action of this type, it’s advisable to hold off on any hot takes until the legal arguments have been fully made by both sides. The expectation with these kinds of legal battles is that they’ll end in out-of-court settlements rather than jury decisions, but the process will determine how that spins out here.

We’d like to talk about a more general principle, however, which these kinds of cases are relevant to. It concerns streaming royalties, data as well as the moves towards direct relationships between streaming services and artists. Spotify’s recent announcement of its direct-uploads tool for artists doesn’t mean we’re about to instantly flip into an era where all artists dump their labels and distributors to go direct. However, the mere existence of that as a viable alternative option IS going to be a powerful driver for managers and artists to take an even closer look at how those middlemen calculate their royalties, and what they do for their cut.

That’s not a new trend in itself of course: managers have been auditing labels with varying levels of suspicion for decades. The dynamic now is that the management companies have more data to work with, courtesy of the streaming services. They have more people capable of making sense of that data – this has been one of the important trends in management recruitment strategies in recent times. And soon, they’ll have the option, by switching to direct Spotify uploads for at least one artist in their roster, for robust A/B testing on the economics of streaming with and without a label or distributor involved.

(This is what we think will drive the initial uptake of Spotify’s tool, incidentally: what manager *wouldn’t* want to try at least one artist on the system, to get the data that will inform their decisions over whether to switch more over in the future?)

All this data is what will send managers back to labels and distributors for some pointed discussions. Those may be legal discussions of the ‘where did my royalties go?’ ilk. They may be more ‘tell me how you’re adding value for your cut of my royalties’ discussions – and here, the good labels and distributors will have convincing responses, it should be noted: they work hard and justify their position in an artist’s business. The less-good ones… perhaps not so much.

And thirdly, these discussions may be more ‘well, I can do X and Y now but you can still do Z so let’s talk about the terms of our contract accordingly’ discussions. They won’t make the headlines that class-action lawsuits do, but they will be just as important for the evolution of our industry, especially for the larger music companies for whom a shaved margin here and there – especially from their superstar acts – should not be underestimated as a corporate challenge.

To put this another way: the Ricky Nelson lawsuit, however it is resolved, reflects a wider trend of close scrutiny by managers (and estates) of how streaming royalties flow through the system of their partners. That’s fuelled by data that the streaming services are understandably willing to provide, and now accompanied by the option of direct distribution. There will be some public battles resulting from all this in court filings, but it’s the nuts’n’bolts artist contract negotiations and renegotiations behind closed doors that will have as big an impact on the business.

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Music Ally's Head of Insight

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