A court in Amsterdam has ruled in favour of Universal Music in three separate but similar lawsuits filed by artists who argued that they should be getting a 50% royalty on streaming income – significantly higher than what they are currently receiving – on the basis streaming should be classified as licensing income.
Record contracts signed in the CD era, which usually paid a royalty on CD sales of under 20%, also often included a higher 50% royalty rate for ‘licensing deals’, which would apply on things like compilations or deals where a label partnered with another label on a release in another market.
The music industry’s deals with the streaming services are clearly licensing deals, so many artists have argued that the 50% licensing rate should also apply to streaming income. That is basically what Dutch artists Arriën Molema, Henk Westbroek and Marinus de Goederen argued in their respective lawsuits against Universal. They variously signed with the major in the mid-1990s and the mid-2000s.
They all argued that Universal had incorrectly interpreted their old record deals and applied a lower royalty rate to streaming. And although that had been amended to 20% of at-source streaming income in more recent years, that was still significantly lower than the 50% the artists believe they should be receiving.
But a summary from the Amsterdam District Court, which ruled on the three disputes this week, states that the artists failed to “establish that Universal misapplied old record contracts” and in doing so “paid excessively low royalties”. Therefore, the major is not obliged to “pay higher royalties for streams and downloads” to those artists.
However, the court also stressed that it was not “issuing a ruling in principle on how record labels generally should handle compensation for artists from streaming revenue”, but instead was “limiting itself” to ruling on how specific contracts signed by the three artists involved in these lawsuits should be applied.
There have been many disputes over the years over how record labels have applied old records contracts in the context of new digital revenue streams. Which is to say, how does a label know what percentage of digital income it should pay to the artist if a record contract doesn’t provide clear and specific royalty rates for downloads and streams?
Some indie labels have embraced a modern minimum digital royalty rate across their entire catalogues, meaning the old contracts are basically irrelevant. But other labels have mainly applied a CD royalty rate – or sometimes a tweaked CD royalty rate – to downloads and streams. This is often less than the average streaming rate agreed on new record deals, sometimes significantly less.
Many artists argue that it is unfair for labels to be applying royalty rates that were agreed in relation to physical product to streaming income, which is an entirely different business model. Especially on deals that were negotiated before anyone foresaw the streaming boom and the value of catalogue recordings in the streaming market.
One argument for why that approach is unlawful as well as unfair is that the more favorable contract terms for licensing income should be applied to streams. As was argued in these three Dutch lawsuits.
Although all three artists made that core claim, the court dealt with each dispute separately, because their old record contracts all said different things. There were also some additional disputes over whether or not Universal was even the copyright owner in some of the artists’ recordings – the court ruled that it was.
On the streaming royalty point, in most cases there were clauses in the old contracts that alluded to some sort of digital income, variously referring to electronic, internet or online exploitation.
Therefore, the court concluded, the royalty rates due were governed by those clauses, rather than any terms relating to licensing income or “other exploitation” that provided for a 50/50 split. Plus one of the 1990s contracts didn’t actually have a clause providing a rate for licensing or “other exploitation”.
The artists also claimed that treating streaming as licensing income – and paying a 50% royalty – was common industry practice, in some cases citing foreign legal cases. Universal denied that was so, and the court generally rejected that argument in the context of the artist’s actual contracts, which it deemed provided specific enough rules for streaming royalties.
Unsurprisingly, Universal has welcomed the rulings. Though – unlike in the US, where the major has been very forthright in recent artist disputes, hootering and hollering when things go its way in court – the majors’ Dutch reps seemed less gleeful. Instead they told Dutch broadcaster NOS, “the door was and remains open for the artists to further discuss the relationship, the contracts and their performances”.
