Warner Music Group has taken the unprecedented step of promising its artists that, should the major ever sell its stake in Spotify, it will pay them a portion of the proceeds.

Warner is believed to own between 2% and 3% in Spotify – an equity position which it received not through buying shares, but via licensing negotiations.

Recent market analysis has given Spotify an approximate valuation of $8bn, meaning Warner’s stake is currently worth somewhere in the region of $200m.

Speaking to investors today, WMG CEO Stephen Cooper made the surprise announcement that, where this situation applies (ie. where Warner hasn’t paid its own cash for equity stakes in a digital service) artists will be paid a chunk of the income from any subsequent sale.

“In the event we receive cash proceeds from the sale of these equity stakes, we will share this revenue with artists.” Stephen Cooper, WMG

“As there is an ongoing debate in the media regarding how artists should be paid for use of their music on streaming services, we wanted to take this opportunity to address the issue head on,” said Cooper (pictured inset).

The exec explicitly pointed out that “the main form of compensation we receive from streaming services is revenue based on actual streams”, but acknowledged “there are some services from which we receive additional forms of compensation”.

Here’s the crucial bit.

Cooper added: “There are equity stakes in some streaming services for which we have not paid.

“Although none of these equity stakes have been monetized since we implemented our breakage policy, today we are confirming that in the event we do receive cash proceeds from the sale of these equity stakes, we will also share this revenue with our artists on the same basis as we share revenue from actual usage and digital breakage.”

In other words, Warner artists will be paid a proportion of the proceeds when WMG sells its Spotify shares, in accordance with the royalty rate they currently receive from streaming services.

The same should also be true of SoundCloud, in which Warner is understood to own a 5% equity stake – although it is unclear how much of this holding was paid for, and how much was granted during 2014 licensing negotiations.

Last year, MBW revealed that Warner had shared digital advances, minimum guarantees and non-recoupable payments with artists since 2009 as part of its internal ‘breakage policy’ – something which Cooper today said he was “proud” to confirm.

Cooper’s comments on the Spotify equity point are very, possibly deliberately, timely.

Last week, it was revealed that Spotify is now in the process of raising $500m of investment, using incentives based on the expectation that the company will float in the next 12 months.

Should Spotify IPO within a year, these investors will be able to switch their notes for shares in the company at a 17.5% price discount.

If an IPO execution takes longer than 12 months, Spotify will be punished – with investors getting a heftier discount.

“The main form of compensation we receive from streaming services is revenue from actual streams.” Stephen Cooper, WMG

There is a realistic fear in the artist community, as expressed by MBW on Friday (Jan 29), that when Spotify floats, the major music companies will cash in their own shares, but that performers will not benefit from these transactions.

Between them, the majors – Universal Music Group, Warner Music Group and Sony Music Entertainment – are believed to own somewhere around 15% in Spotify.

Cooper’s comments today rather lay down the gauntlet to Warner’s rivals.

In an ongoing US court case, Sony – which reportedly owns 6% in Spotify – was last year legally challenged by management company 19 Entertainment on the Spotify equity issue.

19 criticized the notion that profits from a Sony-owned equity stake in a streaming service – gained during licensing negotiations for artists’ music – shouldn’t financially benefit its acts.

In a court submission revealed by The Hollywood Reporter, the major replied that there was no stipulation in its 19 Entertainment contracts to stop it acting “[in] its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract”.

Speaking today, Stephen Cooper said that Warner’s equity policy “stems from our desire to continue building deep and lasting partnerships with our artists”.

“We strongly believe that aligning our interests with those of our artists is not only good for our artists, but also good for us and for the health of the music industry,” he added.

These comments chime with a note addressing the WMG workforce which Cooper sent out at the end of 2015, in which he called Warner ‘the independent major’ – a deliberate reference both to the attitude of the company, but also the fact it is 100% owned by Len Blavatnik’s Access Industries.

“This move stems from our desire to continue building lasting partnerships with artists.” Stephen Cooper, WMG

In that memo, Cooper noted: “We became the first major music company where streaming is the primary source of digital revenue; proof that we are leading our industry into the future.

“The demand for our art is undeniable, but we need to make sure that demand translates into real reward.

“We’ll never toe the industry line if we believe it does a disservice to our talent. We are the independent major, and we will forge our own path.”

Warner Music Group today reported revenues for the three months to the end of December 2015 (WMG’s Q1).

Total revenue grew 2.4% (11.1% on a constant currency basis) to $849m.

Digital revenue was up 18% (25.2% on a constant currency basis) to $348m.

The business posted a quarterly net profit of $28m, versus a net loss of $41m in the same three months of 2014.Music Business Worldwide