How Sony's Legacy Artist Royalty Plan Is Both Generous and Savvy

Sony Music's decision to begin paying royalties to acts with balances is being applauded as a recoupment coup for artists, as well as the label.

In an industry where smart executives look for angles others don't see, Sony Music Group's June 11 announcement that it would begin to pay royalties to artists with unrecouped balances that were signed to its labels before 2000 and haven't received an advance since, was greeted with surprise, enthusiasm and also a bit of cynicism.

The move, part of Sony Music's new Artists Forward initiative, is designed "to increase the ability of those who qualify to receive more money from uses of their music," the company said in a letter to its partners obtained by Billboard. The label will not modify its contracts or even adjust the balance — just ignore them in order to prioritize "transparency with creators."

It's hard to find anyone in the industry who doesn't like Sony's idea. The cynical take is that the company isn't leaving as much money on the table as it might seem: Most acts that dominate the charts in the streaming era were signed more recently, and the more popular ones have either recouped or received another advance in the last two decades. The amount of money involved will almost certainly be dwarfed by the $4.87 billion in recorded-music revenue Sony made last year.

"If you have been unrecouped for that long, the truth is Sony probably doesn't care about your royalties," says one artist lawyer, characterizing the move as "a nice gesture, but a small one."

Many artists affected by the policy will care quite a bit, though, and the sheer number of acts involved means the money will add up: A source familiar with the program says some could receive thousands of dollars — and in some cases tens of thousands of dollars — a year. (How much this costs Sony will ultimately depend on sales and streaming activities of music by the artists involved; the company declined to say how many artists would be affected.)

While not all artists may get tens of thousands of dollars a year, from the point of view of Sony when you consider collectively all the artists that could benefit from this move, its probably a significant amount, says John Branca, partner and head of the music department at Ziffren Brittenham LLP, who works with many legacy acts and/or their estates.

"I think they did it because they thought it was a fair thing to do; they are planting the flag as being an artist friendly label," Branca says. "I don't know how this can be viewed as anything but positive for artists…they didn't have to do this so I applaud them."

And Sony isn't the only company to have done this. In 2015, Beggars Group instituted a similar policy, partly because many older artists were seeing an uptick in royalties from streaming, but, in some cases, not one that would be significant enough to pay off their unrecouped balances, and that the balances had long since been off the label's books anyway.

"What inspired it was seeing what catalogs were earning £500 or £5,000 [$700 or $7,000] every six months because of streaming," says Beggars founder/chairman Martin Mills. "That seemed significant enough to pay through to the artist, but not significant enough to worry about it making much of a dent in a half-million-pound debt."

The move also positions Sony Music, the second-largest of the three majors, as artist-friendly at a time when both a streaming-driven industry boom and increased attention on racial justice issues have put a spotlight on the unfairness of some recording contracts. "The public has become more aware of artist issues, and the current social climate might have been behind this move," says Cedar Boschan, a royalty expert and forensic accountant.

Boschan points out that decades ago, when the CD boom focused attention on older artist contracts, MCA eliminated unrecouped balances and raised royalty rates for artists on Chess and Checker, and other labels instituted various other reforms. Atlantic and Sony made similar changes around then too; and a few years later, EMI introduced its Legendary Artist Program, which instituted similar reforms for artists that hadn't recorded for its Capitol or Blue Note labels after 1972.

This could be the beginning of another such wave: BMG is reviewing contracts of labels it acquired between 2008 and 2019, a source says that Warner Music is also considering its options and Universal has said it is committed to looking into legacy contracts, too.

This move could help Sony Music forge closer relationships with legacy artists when some are looking to terminate the copyright grants to their sound recordings (which Sony hasn't allowed) and others are thinking about selling rights or royalty streams; Boschan suggests that Sony could get a "bargaining chip" in copyright termination cases by ignoring those unrecouped balances. Meanwhile, with more players than ever bidding on music assets, including an array of institutional investors, this move makes Sony stand out as a potential partner.

"The majors are losing market share to these SPACs and investors who are buying catalogs," says Allen Kovac, a veteran manager and founder/CEO of Better Noise Music. "It's an opportunity to keep the relations they have and gives Sony a pole position so if a chance to buy an artist's rights becomes available, they are cutting the SPACs and other [institutional] investors off at the knees."

Either way, Sony's move is one that reflects the changing dynamics of the music business towards fairer and more transparent treatment of artists — and every source Billboard spoke to regarding this story said the move was a positive. "I think it's all likely to foster more harmony with the artist community, which is in everyone's interests," says Mills. "We think it's a good policy and the more people who adopt it the better."