Sony Music Claims It Overpaid 'American Idol' Stars

The record giant demands at least $2 million for compilation albums, digital downloads and a royalty advance.
Kelly Clarkson, Daughtry, Carrie Underwood

On Tuesday, Sony Music filed a breach-of-contract counterclaim against 19 Recordings, the American Idol label controlled by Core Media Group which houses such stars as Kelly Clarkson, Carrie Underwood and Clay Aiken.

In new court documents, Sony asserts that it has overpaid at least $2 million in royalties for these star musicians and is demanding recovery of the money.

Sony’s contention comes more than a year after 19 Recordings filed a blockbuster lawsuit alleging the systematic robbing of Idol stars through tricky accounting. In a February 2014 lawsuit, 19 took issue with how Sony was treating income from streaming services like Spotify; how Sony was doing the math for television advertising deductions; and how Sony was interpreting bonus royalty escalators when consumers bought tracks off an album from Apple’s iTunes.

Two weeks ago, a federal judge in New York trimmed the lawsuit; most consequentially, the royalty escalation claims were rejected, as were claims that 19 should have received a share of settlements that Sony won against services facilitating piracy. But the judge wouldn’t disqualify the big claim that Sony’s licensing agreements mischaracterize the distribution of music on streaming services as "sales" rather than "broadcasts" or "transmissions." Furthermore, the foreign advertising deductions survived as well.

Because Sony failed to dismiss the lawsuit, it had to file an Answer, which it did on Tuesday with some quirkiness. For example, Sony denies that over 15 million copies of Kelly Clarkson’s album Breakaway have been sold worldwide, and that “Since U Been Gone” has been certified “multi-platinum” by the RIAA.

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Sony has its own math, and besides responding to each of 19’s allegations, it’s now using the legal tactic that can be best summed up as, “You say we underpaid you. Oh yeah? We actually overpaid you!”

There are three alleged means of overpayment. The first deals with compilation albums. Sony states that, "[the] royalty overpayment resulted from the incorrect application of the royalty rate associated with sales of Albums to these sales of Compilation Albums. ... The royalty rate associated with sales of Records other than Albums should have been applied to these sales of Compilation Albums.”

Second, Sony claims that it has handed over too much royalty on digital downloads under the agreements concerning Aiken, Clarkson and Underwood. The music giant says it applied a “rate associated with sales of Albums” rather than the “rate associated with sales of Records other than Albums.” The allegation appears to reignite examination of how to account for consumers buying individual 99-cent album tracks off of iTunes.

Finally, Sony says it overpaid 19 an advance for an album from Kellie Pickler, the country music artist who made the Top 6 during the fifth season of Idol. Sony asserts that money paid in December 2011 failed to account for applicable reserves.

Sony is represented by Jonathan Sperling and Christopher Yeung at Covington & Burling.

Richard Busch, attorney for 19, said he had no comment until he had a chance to evaluate the new claims.

Twitter: @eriqgardner