Last June, protests broke out across the music industry as record executives questioned the business’ long history of racial inequity. Ron Sweeney, a veteran music attorney, offered one proposal that he believed could help labels begin to atone for their past injustices: “With respect to Black artists signed to you prior to 2000,” he wrote, “…zero out their unrecouped royalty balances and let their royalties flow to them so they can support themselves.”
Sony Music Entertainment appeared to take a step in this direction for all its legacy artists on Thursday. In a letter sent to the company’s partners obtained by Rolling Stone, Sony said it “will no longer apply existing unrecouped balances to artists and participant earnings generated on or after January 1, 2021 for eligible artists and participants.”
While the word “unrecouped” may cause some eyes to glaze over, the term can be of crucial importance for artists. Traditionally, when an artist signs a deal with a record label, that company gives the artist an advance payment. The label may also promise other forms of financial support, from covering recording costs to marketing budgets to funding a radio campaign.
However, artists will only receive royalties from their album after the release earns the label back its initial investment, or recoups. (Though in some cases, not all costs incurred by the label are recoupable, depending on an artist’s leverage when negotiating a deal.)
Acts may be focused on maximizing the size of their advance payment — both because it’s immediate cash in hand, and also potentially because it gives them bragging rights in an industry where hype is currency — rather than their long-term earning potential. That’s where recoupment starts to cause headaches.
To recoup a record contract at a standard music industry royalty rate — in recent years, managers say that’s probably between 15 and 20 percent — an artist has to have a significant amount of commercial success. According to a Record Deal Simulator put together by the company CreateSafe, if a label signs an artist for a 20 percent royalty and doles out $1,000,000 in the modern streaming economy, the artist has to generate 1.3 billion streams — no easy feat — before any royalties can be generated. If acts fail to exceed that threshold, streams will not earn them any new income. (The Record Deal Simulator focuses on streaming income since streams are the primary driver of music consumption today, though legacy artists would have relied primarily on old-fashioned sales to recoup.)
Sony did not say it would “zero out” unrecouped balances, as Sweeney suggested, and the company made clear that it is not “modifying existing contracts.” However, in an effort to “creat[e] more payment opportunities for our long-standing artists… around the world,” Sony promised to clear the way for royalties to flow to some artists still in debt to the label, “pay[ing] through on existing unrecouped balances to increase the ability of those who qualify to receive more money from the uses of their music.”
“I’m actually smiling. Something really good finally happened for the people who need it most,” Sweeney tells Rolling Stone when asked about Sony’s latest announcement. “There are a tremendous amount of artists who will now benefit and see money that they would never otherwise receive.”
For artists to qualify to start receiving royalties even if they’re unrecouped, the acts must have signed to a Sony company before 2000. In addition, artists must not have received any advance payments from the company since 2000. The letter did not say how many artists would be impacted or how much money would start being paid out to artists under the new plan.
“With unrecouped balances, a lot of times artists don’t see additional funds for years to come,” says Stephanie K. Hay, an entertainment attorney. “I think this is, in general, a good faith effort [by Sony] and a good step forward.”
There is some music industry precedent for passing royalties or other forms of income to artists even if they are still in debt to their labels. Beggars Group, which comprises a prominent group of indie labels, told Rolling Stone last year that it zeroes out unrecouped balances 15 years after the company ends its active relationship with an artist, which allows royalties to start flowing to that act.
In addition, both Sony and Universal Music Group said that when they sold off their shares in Spotify, some of the proceeds would be distributed to artists regardless of their recoupment status. Sony sold off roughly half its shares in the streaming giant in 2018.
Additional reporting by Jonathan Bernstein