In June of 2022 rock group Orleans filed a class action lawsuit with the court in Nashville against Warner Music Group and Warner Records over foreign streaming royalties. Orleans achieved its biggest success in the mid 1970’s with the hits “Dance with Me” and “Still the One.”
The dispute involves the contention that Warner has been deducting royalties through international “intercompany charges.” This is where Warner’s foreign affiliated companies take a percentage of what the label pays the recording artist.
Two members of Orleans (John Hall and Lance Hoppen) allege that they were not advised and did not know about these deductions and believed they had a 50/50 royalty split with Warner.
Plaintiff’s claim that Warner “sought to minimize the revenues paid to plaintiffs and Class Members for digital streams by engaging in improper accounting practices for earnings generated outside of the United States.” This type of claim reminds me of the history in the film industry of “creative accounting” litigation.
Nowadays, we have digital distribution, which obviously does not involve shipping and selling physical product, so there are fewer expenses. Plaintiffs assert that Warner failed to disclose this foreign royalty deduction and the fee is “a relic of the days when the collection of revenues from foreign record sales entailed significant labor as opposed to the relatively frictionless methodology by which digital service providers can compensate rightsholders for the use of their services across multiple territories. In such instances, the cost of foreign collection are negligible, and the grossly deficient payment of foreign royalties by defendants simply reflects their ability to manipulate their foreign affiliate practices with no commercial justification beyond self-enrichment.”
Plaintiffs contend they should have (and thought they were) being paid streaming income based on “at-source income,” meaning what the label was paid by a streaming service, and not what was received by Warner in the U.S. after foreign subsidiaries had taken a percentage of the income.
Of course, when Orleans entered into their recording contract, streaming did not exist. Major label recording contracts are quite long and complex. And they invariably have a number of options that the label can exercise to extend the contract for many years. Artists must make sure they have an experienced and independent music attorney to represent their best interests. The artist should make sure they understand all the provisions of the contract. If an artist is under an old recording contract, it may be advisable to contact the label and try to revise the agreement to provide for things like streaming income. This is something that should be discussed with an artist’s representatives.
This case has not been certified yet as a class action. If it is, my guess is it will settle as very substantial amounts of money could be at issue and Warner will not want to risk the court establishing a bad precedent.