In June 2022 Rock band Orleans has filed a class action lawsuit in Nashville court against Warner Music Group and Warner Records over foreign streaming royalties. Orléans had its greatest success in the mid-1970s with the hits “Dance with Me” and “Still the One”.
The dispute centers on the claim that Warner deducted royalties through international “intercompany fees”. This is where foreign companies affiliated with Warner take a percentage of what the label pays to the recording artist.
Two Orleans members (John Hall and Lance Hoppen) claim they were uninformed and unaware of these deductions and believed they had a 50/50 royalty with Warner.
Plaintiff’s claim that Warner “sought to minimize revenue paid to Plaintiffs and Class Members for Digital Streams by engaging in improper accounting practices for revenue generated outside of the United States.” This type of claim reminds me of the history in the film industry of “creative accounting” litigation.
These days we have digital distribution, which obviously doesn’t involve shipping and selling physical products, so there’s less expense. The plaintiffs claim that Warner failed to disclose this foreign royalty deduction and that the fee is “a relic of the days when collecting revenue from foreign record sales was labor intensive as opposed to methodology.” relatively smooth way in which digital service providers can compensate rightsholders for the use of their services in multiple territories. In such cases, the cost of collection abroad is negligible, and the grossly insufficient payment of foreign royalties by defendants merely reflects their ability to manipulate their foreign affiliate practices without business justification beyond self-enrichment.
The plaintiffs argue that they should have (and believed they were) received streaming revenue based on “revenue à la source”, i.e. what the label was paid by a service streaming, not what was received by Warner in the United States after the foreign affiliates took a percentage of the revenue.
Of course, when Orléans made their record deal, streaming didn’t exist. The recording contracts of the majors 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 should ensure they have an experienced, independent music attorney to represent their best interests. The artist must ensure that he understands 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 revenue. This is something that should be discussed with an artist’s representatives.
This case has not yet been certified as a class action. If so, I suspect it will settle because very large sums of money could be involved and Warner won’t want to risk the court setting a bad precedent.
