UN Airlifts Calculators, Clues to The Verge: $25 Million is Tiny Advance and @Verge Missed Real Story

Evstafiev-bosnia-sarajevo-un-holds-head

 

Norwegian UN Peacekeeper reacts to news that The Verge thinks $25 million dollar advance for streaming rights to 25% of music market is a lot of money. Photo by Русский: Фото: Михаил Евстафьев English: Photo: Mikhail Evstafiev (Mikhail Evstafiev).

 

The UN announced today that it is airlifting calculators, music industry textbooks and clues to Silicon Valley tabloid tech blog The Verge.   This was prompted by an article published by The Verge that seemed to completely misunderstand the scale of revenues generated by the recorded music business (even with widespread piracy). As a result The Verge missed the real story contained in the leaked Spotify-Sony contract: Sony gave away streaming rights to our music for (pardon the pun) a song!

Sony represents about 25% of worldwide recorded music revenue. In 2011 (the date of contract) recorded music revenue was around 16 billion dollars.   Sony’s share was actually higher then but we can safely assume they were responsible for approximately $4 billion dollars.   So the $25 million over 2 years (or $43 million if you optimistically interpret the contract like The Verge) is a pittance for these rights.   The Verge then made a big fuss about whether this advance was likely to be properly credited to artist accounts.   But that’s missing the point because everyone knows the real payout was probably in the Spotify stock that Sony, key managers, artists and executives received. Now, that’s the story. How is the equity to be credited to artists? Not the $25 million. That’s chump change.

Now I understand how The Verge may have missed this.   They consulted the MySpace of music industry experts, Rich Bengloff for comment.  Bengloff who is highly unlikely to look kindly on his former employer Sony Music,  piled on saying that Sony artists were unlikely to receive any of this advance. What Bengloff didn’t note was that the “indie” labels that he represents are also unlikely to share these advances with artists either.

Pot,kettle,black.

Finally here is another clue for The Verge: Does Sony Entertainment CEO Michael Lynton (not Sony Music chief Doug Morris) have some sort of special (investor?) relationship with Spotify’s Daniel Ek? Might this have something to do with what looks like a remarkably good Sony catalogue deal for Spotify?

I mean I’m just guessing here but has anyone bothered to search the Wikileaks archive for some keywords?  I dunno… different combinations of  “Spotify, Lynton, Daniel, wife, manuscript?”

5 thoughts on “UN Airlifts Calculators, Clues to The Verge: $25 Million is Tiny Advance and @Verge Missed Real Story

  1. To your comment about independent labels not sharing equity with artists, last year WIN (Worldwide Independent Network) announced an unattributable revenue sharing manifesto, signed by over 700 independent labels including many of the largest labels (Domino, Cooking Vinyl, Epitaph, Because Music, Glassnote, Mushroom Group, Nettwerk, Ninja Tune, Secretly Canadian, Saddle Creek, Sub Pop, Tommy Boy, XL Recordings and the Beggars Group, representing 4AD, Matador and Rough Trade,). While there may be individual exceptions, non-distribution of equity proceeds would be the exception, not the rule. http://www.billboard.com/biz/articles/news/indies/6157651/global-indie-sector-unites-to-launch-fair-digital-deals-declaration”

    • Sure we saw this. Does anyone know if any of the indies have come through on this? and shared equity with artists? My understanding is that the indies got very little equity in Spotify.

      • Given that Spotify shares were likely a private placement under Rule 144/Reg D, it’s unclear how any of the labels would be able to transfer the shares they hold before the shares are registered in a public offering and be in compliance with U.S. securities laws. Presumably that transfer would be under Sections 4(1) and 4(2) (the so-called Section 4 (1-1/2) from what I remember about securities law), which would still result in legended shares being transferred to artists during applicable holding periods required by law before the shares are permitted to be transferred. Such a transfer, even if otherwise permitted by securities law, might well violate restricted stock agreements between the label holder and the issuer (Spotify in this case). The purported transfer of shares in a 4(1-1/2) transaction to an unaccredited investor may likely complicate matters.

        What then might happen is that new certificates would need to be issued in the names of each artist-transferee that would likely be legended. Artists would then need to have the legends removed by Spotify with a new certificate issued, then and have their broker be willing to transact in private company shares.

        This might also result in Spotify having an excessive number of holders of shares of its common stock that could result in Spotify becoming a public reporting company without publicly traded shares.

        It is far more likely that any consideration flowing from equity will be in the form of cash realized from a sale of the shares held by the label after the shares are registered or in the case of a sale of the company. Of course, if the Spotify exit is in the form of a sale that is a stock for stock deal, this further complicates things, indeed in any sale that is not all cash.

        If there is a cash distribution, then there would need to be some determination of how that cash is allocated and I’ve so far seen nothing that recognizes these complications or specifies how any of it will be addressed. It is also well to remember that in the compulsory licenses for streaming there is a reference (poorly defined in my view) to “applicable consideration” (aka “total content cost”) that includes shares of stock being taken into account for purposes of calculating the songwriter royalty (“Applicable consideration means anything of value given for the identified rights to undertake the
        licensed activity, including, without limitation, ownership equity…” (37 CFR 385.11)

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