Is Sony's Stake In Spotify Legal?

One of the things that most people don't know about Spotify is that it's partially owned by the three major labels. That was a required part of the licensing deal that Spotify had to acquiesce to  in order for the streaming music service to launch in the United States.

The major labels are obviously hoping for a windfall profit should Spotify ever be purchased by a larger entity (its valuation is north of $10 billion), and the worst part is that most of it would go to the company's bottom lines instead of to the artists that helped make it happen.

But one of the major labels, Sony Music, might be up against a legal foe that could change everything in its equity position with Spotify.

19 Recordings, the record label tied to the American Idol television show), has filed suit against Sony demanding fair-market royalty rates from the label regarding its position with Spotify.

Basically Sony received a block of advertising on Spotify's free tier that it could sell on the side, with the label pocketing the money. 19 Recordings, who's artists include Kelly Clarkson and Carrie Underwood, claims it wasn't receiving its rightful cut of that money.

While this might shock some in the business (especially artists), it's just some of the same shenanigans that record labels have been playing almost forever. Whether it's morally right or wrong, labels do their best to make the most money possible and will do whatever it takes to feed the bottom line. The artists are usually left with less than they deserve, but have little power to change things (unless of course you're name is Taylor Swift).

Should 19 Recordings win this lawsuit, however, it will start a chain reaction that could end up forcing the major labels out of the streaming business, and maybe even pay at least a slightly higher royalty to its artists for digital distribution. At least, that's the dream.

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