Sony Music and The Orchard have confirmed that they will share the proceeds from the sale of shares in Spotify with their eligible distributed labels after acquisition costs, bankers and legal fees. Checks are expected to be sent as early as August.
"Given the unprecedented value realized from this equity, payments will be made without regard to advance recoupment, without deduction of distribution fees and regardless of contract requirement" Orchard chief Brad Navin said in a letter to clients obtained by Hypebot. "We hope that this is perceived as a significant gesture of goodwill to our label partners."
Artists signed directly to The Orchard are being paid based on the the royalty rate in their contracts. How the proceeds will be shared with others artists is up to each label.
Sony's largess comes despite the fact that The Orchard did not have any equity in the Sony Spotify deal, which was executed before Sony Music owned 100% of the company.
In an era where corporate profits reign supreme, Sony's calculation is smart; if not entirely altruistic.
Competitor Warner Music has said that it will share its Spotify stock sale profits only with labels and artists that have a clause in their contracts requiring it. Universal has stated that it will share Spotify stock profits, but been vague on the details. Convincing its publicly traded parent Vivendi to match Sony's generosity could prove impossible.
But Sony apparently sees things differently. After all, it and other recorded music companies and distributors are under pressure from all sides.
Spotify is now cutting direct deals with artists - circumventing labels and distributors all together. At the same time, many independent labels are questioning the cost and value of full service distributors like The Orchard, particularly in a marketplace where income from physical sales accounts for a shrinking 30% or less of revenue.
The Orchard is also likely feeling increased competition from other distributors, ranging from label services firms like AWAL to flat fee distributors like Ditto, DistroKid, CD Baby and Tunecore.
So, why is Sony being so generous? By writing checks irregardless of contracts or recoupment, Sony is positioning itself and The Orchard as powerful shepherds that truly care for their flock.