Judge Rejects Class Action Over Streaming Royalties for Musicians

Some recording artists have contracts that expressly discuss streaming while others don't. The lack of conformity presents an obstacle to a group lawsuit focused on "intercompany charges" at Warner Music Group.
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A California federal judge is declining to certify a class action that contends that Warner Music Group has cheated musicians of a fair share of royalties from digital streaming platforms. In an order Friday, U.S. District Court Judge R. Gary Klausner agrees with the defendant that allegations made by the named plaintiff — Lenny Williams, a member of the 1970s funk group Tower of Power — may not be typical of other recording artists.

The suit focuses on how  Warner Bros. takes a distribution charge off of international revenue collected by foreign affiliates and then bases the artist's royalty rate on the remainder. Williams alleges that by assessing a royalty rate based on the diluted amount instead of the total source revenue, Warner Bros. is improperly applying an "intercompany charge" for international sales.

The dispute, though, raises another critical point that is significant to older musicians. When artists recorded music in the 1970s or earlier, many of them operated under contracts that were silent on money for digital streams. Given that streaming didn't exist back then, that's not surprising, but what may be is Warner Bros.' position that whatever is handed over to these musicians is basically charity.

The judge previously allowed the suit to move forward because while there may not be any express provision for digital streaming, there may still be an implied obligation for royalties on digital streaming. But that doesn't mean that Williams' situation is necessarily representative of other artists.

In the latest decision (read here), Klausner writes there's a group of musicians whose contracts do provide for digital streaming and another group of musicians whose contracts do not expressly provide for digital streaming but have a general provision for how money is shared when recordings get licensed to third parties. In contrast, Williams belongs to a third group as his contract is silent on streaming royalties and general licensing.

"The Court shares WBR's concern that Plaintiffs will have to spend considerable time litigating an issue not shared by the proposed class as a whole — whether contracts falling within this third category even require WBR to pay royalties for digital streaming," states the order. "Although Plaintiffs may not be the only class members to grapple with this defense, there is a danger that the majority of the proposed class members will suffer because Plaintiffs will be engrossed with disputing WBR's arguments regarding Plaintiffs' individual case."

Additionally, Klausner writes that Warner Bros. previously advanced money to Williams and that it owes nothing until the account is recouped. This becomes a factor because if the account remains unrecouped, then Williams can't show actual damages — which provides an additional reason why his situation might not be typical of other recording artists.

It's possible that plaintiff attorneys can find new class representatives or attempt to split the case into multiple tracks, but for now, the suit won't be moving forward on a group basis.