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Ricky Nelson estate sues Sony over international deductions on streaming money

By Chris Cooke | Published on Thursday 27 September 2018

The estate of 1950s pop star Ricky Nelson has sued Sony Music over a common royalties gripe. Namely, the way global music companies often make deductions to income as it moves its way around their various regional subsidiaries, before calculating what the artist is due under the terms of their record contract in their home country.

Such deductions have traditionally been common in the record industry. Partly because, when it comes to physical product, releasing a record in each new territory requires additional work and extra risk for the label. And partly because in the early days of the record industry, when there were few truly global music companies, third party labels and distributors might be involved in a record’s release in other countries.

With the shift to digital, some artists and managers argue that deductions of this kind are harder to justify. Especially on catalogue, which can start earning money from the streaming platforms in other countries with no real effort on the part of the label.

As a result, some labels don’t charge international deductions on streaming income, although there remains quite a lot of confusion about label deductions in general. Sometimes a label says it no longer applies any deductions to an artist’s streaming monies, but then it might turn out there are some exceptions to that general rule.

Either way, the Nelson estate accuses Sony of applying a hefty “intercompany charge” on international streaming revenue before calculating the royalties it is due. The estate has no problem with such deductions if there is a third party company involved which is making the additional charges, but it argues that international deductions are not allowed under Nelson’s record contract where another Sony Music label is in control of his recordings abroad.

According to Law360, the Nelson estate’s lawsuit says that, because of the international deductions, Sony “impermissibly takes up to 68% off the top of the international revenue earned from streaming sales, and bases the artist’s royalty rate on the remainder”. Because it is usually other Sony subsidiaries making the deduction, they add, Sony “does not have a contractual or equitable right” to deduct money in this way.

The estate is pushing for class action status for its lawsuit, which it says could mean that “hundreds, if not thousands” of artists who are beneficiaries of Sony Music released recordings could be involved in the case and, if it was successful, see their streaming royalty payments increase.

This is by no means the first lawsuit involving this particular royalty gripe, and Sony itself has been involved in such cases in the past. The Nelson estate also sued Capital Records, then still part of EMI, back in 2011, again over allegedly underpaid royalties. That dispute was seemingly subsequently settled.