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Record labels’ ties to Spotify draw fire in American Idol lawsuit

American Idol Finale: Results ShowAmerican Idol Finale: Results Show
Singer Carrie Underwood performs after being named the next American Idol during the American Idol Finale: Results Show held at the Kodak Theatre on May 25, 2005 in Hollywood, California. Photograph by Kevin Winter — Getty Images

As if the fight over music royalties wasn’t bitter enough, a label for American Idol singers has just poured more fuel on the fire. The label, 19 Recordings, which represents stars like Kelly Clarkson and Clay Aiken, claims Sony and other big music companies are stiffing the singers on Spotify payments – and the reason they’re doing so is because they own part of Spotify.

“Each of the major record labels also own an interest in Spotify,” states an amended legal complaint. “[T]hose other record labels have engaged in the same self-dealing as Sony with respect to the diversion of payments to them, and the below market streaming royalty rates to artists.

The new allegations of self-dealing were discovered by Eriq Gardner of the Hollywood Reporter. While the original legal complaint is from 2014, the new allegations are significant because Spotify is already at the center of a controversy over how much streaming services should pay artists. As Gardner puts it:

“The lawsuit now means even more because it’s the first case to test whether the record industry establishment and tech industry vanguard are in cahoots at the expense of the creatives.”

The lawsuit’s underlying allegations is that Sony Music is robbing singers by mischaracterizing song streams on Spotify as downloads (which pay less), failing to disclose other payments, and refusing to conduct proper audits. All told, the American Idol singers say Sony has shortchanged them by around $10 million. Sony declined comment on the original complaint and has not provided a statement on the newer allegations.

The suit doesn’t say whether Sony’s alleged misdeeds were for Spotify’s benefit – or whether they just represent garden variety greed. As the lawsuit itself points out, Sony’s ownership stake in Spotify is estimated at 5%. This raises the question of whether Sony would conspire to fleece artists for the benefit of an outside investment in which it owned only a small piece. Of course, these are only allegations and have not been proven.

The case is more complicated still because of further allegations that Sony agreed to accept advertisements on Spotify instead of charging market rates for the American Idol music. References to these ad arrangements surfaced via a Sony contract leaked to the Verge last month.

The appearance of both documents – the contract and the amended lawsuit – suggest someone may be leaking them strategically to embarrass or pressure Sony.

If you’re still with me, the bottom line is this: the major record labels’ ownership interest in Spotify may create an incentive for self-dealing, which could add fuel to legal complaints, and further complicate a debate over how much artists should get paid. But for now, it’s not clear what exactly is going on beyond the scenes – or when this will get resolved.

This story was updated to note Sony has not commented on the allegations.