It’s been a busy week for lawsuits and regulatory challenges, David Balfour notes. We take a look at the challenges currently facing Sony, Spotify and Tidal

22 April 2016 - Press release

It’s been an especially busy week for the lawsuits and challenges. Most significantly, Sony’s planned acquisition of Michael Jackson’s stake in Sony/ATV looks set to be challenged with competition authorities by IMPALA, Warner Music and possibly BMG. Meanwhile, Spotify is facing a legal challenge relating to its recent US publishing royalties settlement with the NMPA and Tidal is facing a lawsuit over its Kanye West exclusive that turned out to be, well, not quite as exclusive as it had claimed.

Sony’s agreed acquisition of Michael Jackson’s stake in Sony/ATV was always likely to have been challenged with regulators. Sony already being in control of around 30% of the global publishing market, indies were invariably going to complain about a significant single new acquisition by the company, which would further cement Sony’s arguably market-controlling position. Perhaps more surprising was the fact that Warner Music also plans to challenge the deal with competition authorities. Furthermore, BMG is also expected to state its own objections.

What is the strategy of these companies? They can’t honestly expect regulators to block the deal completely; whilst every corporate consolidation in the last ten years has been challenged, none has been completely blocked. IMPALA’s stated objection is that the deal would reduce competition and lead to poorer choice and value for consumers, as well as leading to Sony being able to dictate market-distorting terms in its negotiations with digital services. The other parties are likely to argue similarly, though perhaps such arguments are likely to sound a touch less convincing to regulators when they originate from a major label. Nevertheless, there are real arguments underpinning such complaints.

All the complaining parties are arguably probable to have their eyes on a more specific prize: regulators demanding that Sony divests certain assets to its competitors in order to get the larger deal through. This is what regulators demanded in order to approve Universal’s acquisition of EMI and this worked out very nicely for Warner, who acquired the bulk of the Parlophone label group and for a number of larger indies, who added significant catalogues to their rosters as a result of the regulator’s demands. All will be hoping for similar windfalls from the Sony/ATV challenge. In the case or Warner and BMG, making such a challenge is pure business sense. IMPALA’s position may be more truly political, though its members would certainly be happy also if Sony was forced to sell off catalogues.

The class action lawsuit currently facing Spotify originates from the company’s long-term thorn in the side: songwriter David Lowery. Lowery has made it his business to repeatedly attack Spotify in recent years, initially in print but now in a court also. His class action lawsuit centres on the fact that Spotify did not seek mechanical licenses from songwriters for a considerable period following its launch in the US. He is now complaining that Spotify’s recent settlement with the NMPA has prejudiced his own lawsuit and sought to remove possible fellow class action plaintiffs from taking part in it.

Whether Lowery is ultimately successful or not, it could be argued that his action is a genuine case of little guys trying to ensure that their intellectual property rights are properly respected in the face of seemingly-overwhelming corporate interests. Somewhat less convincing is the class action lawsuit launched against Tidal by a Kanye West fan this week. It seeks to portray Tidal as having wilfully deceived consumers over its recent Kanye album exclusive, misleading them to think that the album would only ever appear on Tidal. It is seeking to ensure that Tidal deletes all personal data gathered as part of this supposedly all-time exclusive. We doubt that Tidal would have ever knowingly misled consumers in this way. More likely, it hoped that this was a permanent exclusive, before being forced into another plan. It all adds up to more bad PR for Tidal, which regrettably seems to turn every opportunity into a disaster since its acquisition from former Norwegian owners Aspiro. We still believe that Tidal is a fundamentally-decent platform for both artists and consumers here, if only they can learn to help themselves. 

It can seem at times like litigation and lobbying has become ‘normal corporate business’. Each legal challenge should of course be judged on its own merits. Whenever there is a case of imbalanced market forces, there is an argument for such challenges to be necessary and justified. Unfortunately however, engaging such processes has also become a business model in its own right. We’re thankful that we don’t have to try to unpick when one or the other is happening. That is for the courts and the regulators to do.