Orleans case sheds light on fees, fees, and more fees

There’s the old joke of three people interviewing for head of royalties. They’re all given the same complicated accounting problem. The first whipped out a calculator and started running numbers at the interview. After a couple hours, the work produced a result. The second asked if he could take it home and came back the next day with a result.

The third said what do you want the result to be? Guess who got the job?

Which leads us to the lawsuit by members of Orleans against Warner Music Group. The band claims that Warner was taking fees off the top for streaming sales outside the US on what was otherwise a 50/50 income split on streaming (interesting in and of itself, but a topic for another day).

Remember, streaming is saving us all, right? We’re just so lucky that Daniel Ek came into our lives that some have created pagan iconography featuring his danielness soon to be in his very own crèche along side the Blessed Virgin and the Baby Jesus. Barcelona may even be able to get a papal indulgence allowing them to wear the Ek saintly icon around the time of the renaming of the Altar of Daniel the Great.

But the people who streaming is really saving are the labels who can declare a feast day for fees. And let’s not forget that fees off the top are a major source of revenue for these multinationals because they just can’t help themselves. In the dark recesses of the counting rooms the cognoscenti answer the question, what do you want it to be? And the way they do it is by lopping off “intracompany fees” from streaming revenue before the revenue hits the US. As Orleans alleges in their Complaint:

In the Orleans case, that charge was 25% which is in the nature of a packaging deduction. I would imagine that knowing the blowback that would descend if they were caught taking a 25% packaging charge when there was no packaging, it wasn’t called “packaging” but instead the even more amorphous “intracompany charge.”

The Orleans class representatives also raise and argue the proposition that the underlying term recording artist agreements do not contemplate exploitation by means of streaming. This reminds us of the scramble for CD rate amendments following the introduction of the compact disc configuration which was as pronounced as the streaming configuration which also just happened to result in a 75% reduction over black vinyl (or the “same pennies as black vinyl” royalty rates). The same scramble happened with the introduction of the “DCC” rate in the 1990s with one big exception: Managers said you’re not going to fuck me again like you did on CDs.

So the probability that artists would sign up for a 25% “intracompany charge” on streaming–if they were ever asked–is in the limit. Just guessing.

Another phenomenon from the CD era was catalog artists taking a close look at their contracts and realizing that they didn’t say anything about CDs. That made for some interesting renegotiations and it sounds like the Orleans defendants may be making a similar argument in their case which also alleges fraud and a number of other items (potentially including proceeds from shares of stock in Spotify).

Keep an eye on this one.