Classical music company Naxos has sued Kuke Music, which operates a classical subscription service and licensing business in China, over allegations it has breached a digital distribution agreement, missed numerous payments and now owes nearly $2 million.
The legal dispute is presumably problematic for the Beijing-based New York-listed Kuke, which has struggled to comply with New York Stock Exchange rules of late due to its slumping share price. Although it also has education and event divisions, its subscription service and licensing business seems very dependent on its partnership with Naxos.
The ‘about’ section in its own corporate press releases says, “by collaborating with its strategic global business partner Naxos, the largest independent classical music content provider in the world, the foundation of Kuke’s extensive classical music content library is its unparalleled access to more than 900 top-tier labels and record companies”.
That said, despite the legal bust up, back in May, Kuke announced it was in talks to buy a majority stake in the companies that control Naxos, adding that “a director of Kuke is the controlling shareholder” of parent company Naxos One. It’s not clear how the litigation relates to those talks, given the lawsuit makes it clear that issues over missing payments have been rumbling on since the end of 2021.
In a lawsuit filed with the courts in Tennessee, Naxos explains that it entered into an eight year digital distribution agreement with Kuke in 2018, which gave the Chinese company “access to certain Naxos digital music services and content”, and allowed it make available and distribute within China recordings released and distributed by the Naxos group. Kuke would then share revenue generated by its activities in China with Naxos.
Things went well at the start, with Kuke making the monthly payments required by the digital distribution agreement through to November 2021. But then Kuke started to fall behind on the payments that were due under the deal.
The lawsuit sets out the back and forth that began between the two companies, beginning with a ‘notice of material breach’ issued in May last year, by which point Naxos was owed just over a million dollars. It says Kuke acknowledged that it was in breach of its payment obligations and the two companies agreed a payments plan through to the end of 2023 to clear the debt, with interest also being paid.
However, Kuke didn’t stick to that payment plan, plus more monthly payments were missed meaning the debt continued to grow. In April this year, with the debt approaching $1.5 million, Naxos requested that the outstanding sum be repaid in full and that, in the meantime, Kuke should remove music distributed by Naxos from its platform, although it could continue to utilise content directly owned by Naxos’s labels.
Kuke offered to make a payment of $30,000, which Naxos rejected. At that point it also demanded that Kuke takedown all of its music and content, and said it would terminate the digital distribution agreement if all the money wasn’t paid within 21 days. Kuke allegedly admitted that it was in breach of its deal with Naxos and said that it would share another payment plan to clear the debt.
However, says the lawsuit, as of last week “Kuke has not paid the vast majority of the amounts owed to Naxos under the digital distribution agreement and/or the payment plan agreement incurred since 1 Dec 2021”. The current debt is $1,855,493.89.25.