Kanye West’s “Power” at the centre of a High Court dispute over royalties payable on the sample of King Crimson’s “21st Century Schizoid Man”
In recent years, there has been much debate and dispute on the issue of how record labels and artists should interpret old recording contracts, which pre-date the commercial exploitation of tracks by streaming, when it comes to allocating the royalty share of streaming income.
In the absence of an express provision dealing with the allocation of streaming revenue, some records labels and artists have sought to rely on existing contractual rates for revenue streams such as those applicable to revenues collected from physical CD sales (despite the fact the streamer is paying for a limited licence to play the music, not buying a physical copy of the CD). Others have sought to allocate the revenue using a licence rate (although, at least historically, this often had a lower royalty rate than that for physical sales).
This steaming royalty rate debate is now at the centre of a High Court dispute concerning a sample used in Kanye West’s 2010 recording of the song “Power” (the Track) which has over 138M views on YouTube and features on his fifth platinum selling studio album “My Beautiful Dark Twisted Fantasy”.
The Track contains a sample of a recording of the song “21st Century Schizoid Man” (the King Crimson Sample) by English progressive rock band King Crimson. Declan Colgan Music Limited (DCM) is the worldwide licensee of the King Crimson recording. In 2010, DCM entered into a licence agreement with Universal Music Group (together with Kanye West and his production company, Rock the World LLC - which was, at the time, entitled to his exclusive recording services) (Universal) authorising the commercial exploitation of the King Crimson Sample as part of the Track in exchange for Universal accounting to DCM a share of the royalties payable to Kanye West (the Licence Agreement).
Amongst other things, the Licence Agreement provides that DCM will receive a 5.33% royalty on each copy of the record incorporating the King Crimson Sample that is sold or “otherwise exploited” by Universal. However, it also says that the royalties payable to DCM are to be calculated on the same basis and in the same manner as Kanye West’s royalties under his existing agreements. The relevant existing agreement was a recording agreement entered into in 2005 (Recording Contract) and envisages that the primary distribution method for the Track will be from the sale of physical copies of CDs with a higher royalty rate on sales income than licensing income. In the absence of an express provision allocating revenue collected from streams, it is DCM’s claim that Universal has been relying on (they say) the wrong provision of the Recording Contract to calculate the royalties payable for streams and have, as a result, been underpaying DCM for its share of the royalties collected from music streaming services.
In a preliminary hearing in December 2022, DCM sought permission to call expert evidence as to the nature and status of the streaming market in 2005 (the year the Recording Contract was entered into) and its impact on the construction of the Recording Contract and the royalties payable under the Licence Agreement. However, after considering the forecasted costs involved for obtaining the expert evidence and the potential degree of assistance the expert evidence is likely to give to the court, it was deemed disproportionate and permission to call expert evidence was ultimately refused by the High Court in a judgment handed down on 5 January 2023unless and until the likely cost of the expert evidence is re-visited and reduced.
Disputes regarding the correct royalty rate to apply to streaming are becoming increasingly common. In June 2022 electronic artist Four Tet reached a settlement with his former record label, Domino Records over a dispute as to whether streaming or downloading constituted a “sale” or a “licence” under the relevant contract which was signed in the pre-streaming era in 2001. In a tweet following the settlement, Four Tet claimed that Domino Records recognised his claim that he should be paid a 50% royalty on streaming and downloading and that they should be treated as a licence rather than the same as a CD or vinyl sale. Whilst this claim was settled out of court and so unable to inform any consideration of the issue in future disputes, it illustrates the pressing concern of contractual interpretation in terms of how streaming should be categorised under contracts concluded before the advent of the streaming era.
See full judgment here: https://www.bailii.org/ew/cases/EWHC/Ch/2023/4.html