South Africa

South Africa, Op-eds

An Embarrassment of Royalties (Part 2) — Access to information lawsuit reveals music industry’s underbelly

Antos Stella. (Photo: Supplied)

1 Oct 2024

An arcane dispute over a relatively small payout for a record label’s catalogue, which began in 2019, has turned into a sprawling, David and Goliath-style legal battle over access to information. It has major implications for the recording industry in South Africa, and for the rights of both local and international music makers. In their overt attempts to ignore, undermine and prevent a crucial precedent from being set, music executives with narrow interests are saying the quiet part out loud: access to information may be good for artists, but it’s very bad for business.

*An image which accompanied this article when it was first published included a photograph which had the SAMRO logo in the background. This article does not include SAMRO and the impression could have been created that SAMRO was part of this article or the issues investigated. They are not. We regret the error.

One day, for no apparent reason, the money stopped coming.

Clive Hardwick couldn’t figure it out. The music industry veteran and his business partner Harvey Roberts had concluded the successful sale of their independent record label’s considerable repertoire, but the payments they were still due had dried up.

In 2019, he set out to answer what he believed at the time were two straightforward questions: How much was he still owed, and why had the entity withholding the funds — Gallo Music Investments — stopped paying them?

Hardwick knew as well as anyone how the music industry’s system was supposed to work. The veteran producer and former Shell Road to Fame talent scout became a partner in the first majority black-owned record label in the country, Zako Music Productions, in 1987, and discovered gospel sensation Rebecca Malope. He co-founded Bula Records in the late ’90s with his partners, Harvey Roberts of The Dynamics fame, and independent music mogul Peter Tladi, during a time of optimism, growth and enthusiasm for South African music.

The Bula Music trio, later joined by Tshepo “Zuz’muzi” Nzimande, went on to discover and sign some of South Africa’s most beloved and successful artists, including Shwi no Mtekhala, Boom Shaka, Lebo Matosa, Jonathan Butler, Cream, Lundi Tyamara and the platinum-selling Gospel sensation Sechaba.

In its sterling 16-year run as the largest independent label of its time, Bula’s artists sold almost 10 million albums, many of them gold and platinum, and won a dozen South African Music Awards (Samas).

By 2014, it was time to call it a day. Hardwick and Roberts, by then the two remaining directors, were offered a tidy (although still undisclosed) sum for their considerable catalogue by the fourth-largest player in the sector: South Africa’s oldest, largest and historically controversial independent label, Gallo Record Company.

“We knew that the industry was heading for a decline — we knew that the local market was very dependent on physical (CDs, tapes and vinyl), and physical was in decline,” Hardwick told Daily Maverick. “We just saw that as the right time to exit the business.”

Bula’s repertoire was bought by Gallo, and the business itself ceased to exist. As a condition of sale, in paperwork seen by Daily Maverick, Gallo agreed to collect any outstanding royalties for Bula’s repertoire from before the date of sale, and pay Hardwick and Roberts their due.

A royal(ties) fight

In South Africa, music royalties are paid to Collective Management Organisations, member-driven entities whose sole mandate is to receive those funds — accruing to hundreds of millions of rand every year collectively (see part 1 of this story) — administer them and pay out to the relevant artists, record labels, composers and publishers registered in their databases.

The primary Collective Management Organisations are Samro, the Southern African Music Rights Organisation, which collects royalties on behalf of composers and publishers; Capasso, the Composers, Authors and Publishers Association (which focuses on digital and streaming in particular); Sampra, the South African Music Performance Rights Organisation, which collects performance or “needletime” royalties on behalf of artists and record labels; and RAV, RiSA Audio Visual Licensing, which collects music video royalties. (RiSA is the Recording Industry of South Africa, a trade association that represents the major record labels, first and foremost, along with independent labels and their artists.)

The agreement of Bula’s sale stipulated Gallo would claim the royalties of its songs and music videos — less any portions owing to the artists themselves — in this case, from RAV and Sampra primarily, deduct a 10% “collection” fee and on a quarterly basis pay Hardwick and Roberts the remainder, until they were square. All together, the payments would constitute a still unquantified sum of probably not much more than half a million rand in total, said Hardwick.

The sales clause was necessary because the persistently bankrupt South African Broadcasting Corporation is notoriously slow in paying out royalties – often taking five or more years to clear its debts. In fact, the SABC has yet to fully pay out an estimated R100-million in royalties it accrued between 2009 and 2013, a period during which Bula’s repertoire was frequently played on the public broadcaster’s airwaves.

The clause was also necessary because it would eliminate the risk of “double dipping”, a form of fraud that, as the name suggests, involves intentionally claiming royalties on the same song or music video more than once, from two or more different Collective Management Organisations. (Why there is more than one is a matter of ongoing frustration and debate among many artists and music licence holders alike.)

Importantly, Gallo was an active member of the relevant Collective Management Organisations representing the interests of the major labels and could implement this condition of sale without any trouble. By contrast, before it sold, Bula had eschewed membership of at least one of the Collective Management Organisations, RAV, in favour of helping to establish a competing organisation, in 2006. The Association of Independent Record Companies of South Africa, or Airco, was intended to represent the interests of small, independent labels and artists and eventually collect royalties on their behalf. It was spearheaded by Bula, with Roberts as a founding board member.

“Having sat on (the board of) RiSA and seen how, constantly, the independents were kept down and not given fair representation, and how the interests of the international sector were always put above the interests of the local sector,” said Roberts, “Airco was intended to be a transformative initiative.” (It was not. Roberts quit not long after its formation, and within 15 years Airco and its then-director, Nhlanhla Paul Sibisi, were mired in serious allegations of fraud and collusion. Sibisi is now the embattled CEO of RiSA.)

But Bula’s role in Airco’s formation meant it could no longer ethically be allowed to keep its membership in — or collect royalties from — RAV, to avoid double dipping. This detail would come to be important.

At first, Hardwick and Roberts’ deal with Gallo ticked along smoothly. They received the first couple of payments each for their old catalogue and enjoyed their semi-forced semi-retirement (the terms of sale to Gallo included a five-year restraint of trade).

Royalty payments inexplicably stopped

But then, in 2018, the trickle of Bula royalty payments from Gallo inexplicably stopped. In October 2019, Hardwick sent an email to Gallo’s General Manager, Rob Cowling, asking for a full accounting.

Cowling refused. He claimed Hardwick and Roberts no longer had rights to the royalties, and stopped communicating.

Hardwick knew that claiming and/or concealing rights belonging to another party constitutes fraud, which is a criminal offence. He couldn’t help feeling that a crime was in the process of being committed. He set out to find out if his hunch was correct.

“Gallo claimed those rights,” said Hardwick. “They didn’t put them in a suspense account that said ‘These are royalties that don’t belong to us, we don’t know what to do with them.’ They appropriated those royalties and added them into their own income… And they did that for years, before they were called on it,” he said.

Stonewalled

Around the time the Bula repertoire royalty payments stopped, Gallo was quietly going through a restructure. Companies and Intellectual Property Commission (CIPC) records show Gallo Record Company was deregistered, its last two directors resigning in 2017, after a 67-year run as a company that represented such beloved artists as Ladysmith Black Mambazo, Lucky Dube, Sipho Hotstix Mabuse and Mango Groove.

According to its 2019 annual report, Gallo’s owner, Tiso Blackstar (formerly Times Media), had declared Gallo a “non-core value extraction business”, despite its “vast owned music catalogue”, and sold it (along with Indigenous Film Distribution) for R75-million, cash, to Tiso’s own parent company, Lebashe Investment Group. Two years later, in June 2019, a new company called Gallo Music Investments was registered. It is unclear what happened to the former Gallo’s assets — or its liabilities — during that time (Gallo would not comment, citing confidentiality).

In November of 2019, Tiso Blackstar was rebranded as Arena Holdings, and it became Gallo’s “new” owner, even though it was still the same company, just with a different name. A significant stake was acquired by DJ Nkosinathi Maphumulo, known by his stage name, Black Coffee, in 2020. On the face of it, Gallo did not stop publicly operating at any point during this multi-year transition.

With Gallo embroiled in this process and no further payments forthcoming, Hardwick turned to the Collective Management Organisations directly, seeking information about how much was still outstanding for Bula repertoire royalties.

Initially, Hardwick said that Sampra provided some proof Gallo had received payments for the royalties, but hadn’t reported all of them. It then abruptly stopped providing him with any more information. But what Hardwick had already learned was enough to file an application in 2020 to have Gallo liquidated, for failure to pay royalties.

In a sworn affidavit in the subsequent liquidation papers filed by both parties, Hardwick alleges that Cowling, Gallo’s general manager, perjured himself by providing inaccurate financial information and denying that the newly reconstituted Gallo had received payments from Airco and RAV for Bula’s repertoire.

Hardwick laid a charge of perjury against Cowling in the Hillbrow Magistrate’s Court in 2021, a matter which is now pending with the National Prosecuting Authority.

Stonewalled by Gallo, Hardwick approached RAV directly, in 2021. The CEO of RAV and its parent company, RiSA, Nhlanhla Sibisi, also refused to provide Hardwick with any information.

After he pushed back, Hardwick says he received an email from the then chairperson of RAV, the erstwhile managing director of Warner Music Group, Tracy Fraser, stating that RAV had “thoroughly checked” its accounts and could “assure (Hardwick) that no distributions relating to Bula masters were paid to Gallo Music Group”. Fraser wrote that the information had been checked by Sibisi, RiSA’s Financial Director, Nishal Lalla, as well as Clive van der Mescht, the managing director of a third party royalty management service called Rights Software.

Unsettling

Given that he and Roberts had received two payments each for their repertoire before 2018, Hardwick found this emphatic statement from Fraser more than a little unsettling.

“Tracy Fraser’s denial that payments had been made was emailed on the same day that Cowling deposed to his affidavit,” Hardwick told Daily Maverick.

“All three parties checked their records at the same time and all three somehow missed all eight payments. The chances of these errors occurring without collusion (seems) close to impossible.” (In written responses to Daily Maverick, Fraser maintained her recollection that no distributions had been found after she requested that RAV’s records be reviewed, and denied that she was aware of any collusion.)

With plenty of time on his hands, a thick skin and a signature doggedness, Hardwick got to work. He dusted off some tricks he remembered from his commercial law and accounting courses at university (“those are the skills you actually need if you’re going into the music industry”, he quipped) and let it be known that he wasn’t going to back down. First, he filed a Protection of Access to Information Act application against RAV.

The eventual response was baffling. After having been told by all senior RAV staff that no Bula payments had ever been made, suddenly their tune changed.

“I was told, ‘well, maybe some payments had been made’,” Hardwick said, but RAV was suddenly claiming that he and Roberts didn’t actually have the rights to the catalogue they had sold to Gallo, despite all contractual evidence to the contrary — and the compensation they’d already received.

Bizarrely, Gallo was suddenly whistling from the same song sheet, too.

In emailed responses to questions from Daily Maverick on 27 August, Cowling said the initial payments to Hardwick and Roberts were made “on the mistaken belief that Mr Hardwick was entitled to (them)” — something Gallo’s lawyer, Robin Wheatley, says the company’s owner, Tiso Blackstar, decided at least four years after the deal with Bula had been concluded. This despite the fact that Cowling admitted in the same emailed responses that he was “aware of the collection agreement that was entered into (with) Bula Records on November 4, 2014”.

Without explaining how it was or could be a new discovery, Wheatley told Daily Maverick “it was later discovered (in 2018) that Bula was liquidated and therefore Tiso took the view that the payments were due to the Bula liquidator”. He “strongly suggested” that Daily Maverick confirm this view with the “Bula liquidator”, Sumaiya Khammissa of Khammissa Attorneys. But Hardwick, the co-owner of Bula and the person responsible for filing for liquidation, says the accountants who handled the process used an entirely different company.

Despite agreeing to speak to Daily Maverick, Khammissa initially dodged the question, before eventually admitting that she was not the liquidator. However, it was discovered that she is the attorney of Lesley Sedibe, who in turn is legal counsel to RiSA, RAV and its CEO, Nhlanhla Sibisi.

“Why were they working so hard to conceal what should be basic information, that they couldn’t keep their story straight?” said Hardwick.

Gobsmacked, Hardwick took the next logical step: he opened a case with the Information Regulator, a constitutionally appointed watchdog that oversees the Protection of Access to Information Act process as a quasi-judicial body, with powers similar to those of the high court (its enforcement notices are akin to court orders). But Hardwick wasn’t holding his breath anything would come of the case.

So when the regulator announced in July 2022 it would investigate the matter, beginning with a two-day public hearing — the first of its kind in the organisation’s history — Hardwick knew his case went beyond mere score settling over a few hundred thousand rand. The regulator clearly felt the same, writing in its announcement: “The regulator has determined that the issue does not only affect the complainant, but also affects most musicians and other key role players in the music industry, which in most instances is due to denied access to information.”

Protecting Access to Information

The public hearing was held over two days in early August 2022, and a number of industry veterans were called to testify.

“Sibisi (as CEO of RAV) has an obligation to ensure that… money should not be paid to anybody that is not entitled to it,” Hardwick said in his deposition at the hearing. “As soon as payments are made to people to whom they don’t belong, every single rights holder, globally, is compromised. And I think this is a very serious matter.”

On May 10, 2022, Sibisi had been asked to come into the office of the Information Regulator and submit an affidavit as part of its initial Protection of Access to Information Act inquiry, before it decided to investigate the matter more comprehensively. There, Sibisi had sworn again, this time under oath, that RAV had made no payments to Gallo for Bula repertoire royalties.

Unfortunately for Sibisi, less than three months later RAV appears to have made a grave error. Forced to respond to Hardwick’s approved Protection of Access to Information Act request, which allowed him to pay for limited documents from RAV, the organisation’s attorney, Leslie Sedibe, sent Hardwick what he thought was a playlist from the SABC – a data dense document that would show only when Bula’s repertoire had been played across various stations over a number of years. Instead, Sedibe appears to have accidentally sent a payment schedule, which disclosed at least eight payments from the SABC, made by RAV to Gallo for Bula’s repertoire. It was the information Hardwick had been asking for, and been denied, all along. (Without a hint of irony, Sedibe wrote in an emailed response to Daily Maverick that, if an error occurred, it was “inadvertent and not indicative of any intent to conceal information”.)

Only the day before this revelation, during the second day of public hearings, Sibisi had testified under oath to the Information Regulator about the reasons he had denied Hardwick access to the information, insisting the businessman did not have the rights to claim Bula’s royalties.

Ntsumbedzeni Nemasisi of the Information Regulator. (Photo: Supplied)

“You cannot transfer more rights than you actually have,” he told the evidence leader, the Information regulator’s Executive for Protection of Access to Information Act, Ntsumbedzeni Nemasisi. Then he took a dig at both Hardwick and the regulator, in the process saying the quiet part out loud: “Everyone would be very worried about having declined an (access to information request) because they are looking for my bank statement, (then) suddenly I am in a public inquiry,” he said.

“(That was) the nervousness that as an entity we felt… Let’s ensure that we don’t find ourselves having to publish royalty statements of our members, which will create a huge problem for our industry.”

The very next day, he and his lawyer inadvertently did exactly that.

A terrible error of judgement

Gallo was subpoenaed to appear at the public hearing, along with the three majors, Universal, Sony and Warner, but all challenged the subpoenas and refused to attend, instead threatening to interdict the hearing, according to Nemasisi. This despite the fact that all four are represented on the boards of both RAV and Sampra; and that the matters to be discussed in the hearing had clear, consequential, industry-wide implications in the public interest. RAV itself also threatened to interdict the event.

“They went and they appointed top lawyers, and we had to defend the right of access to information (in court),” Nemasisi told Daily Maverick. “In the court application they made the allegation that the public hearing was not intended to benefit the public. (That) it was just a publicity stunt that the regulator is pulling.

“The big companies sit on the board (of RAV and Sampra),” he said. Those are the issues of conflict of interest… You’re representing your own interests. You’re not interested in presenting the interests of others.”

In defence of RAV’s attempt to interdict the hearing, Sedibe wrote that the regulator made a “terrible error of judgement” in excluding RAV’s member, Gallo, from the process, undermining its “fairness and procedural integrity”. He failed to mention that Gallo was not excluded.

Cowling and his colleagues refused to attend, stating that the process was “unlawful”. But this is also untrue – the regulator “has the power to subpoena any person whom the regulator believes will assist in its investigation”, and the power “to determine the manner in which it will receive evidence”, according to Nemasisi.

After Gallo refused to appear, The Information Regulator told Daily Maverick it withdrew the subpoenas in the interests of time, but invited Cowling to make submissions to the regulator.

He declined to do so.

An investigation followed the public hearing, and in December it was handed to the regulator’s enforcement committee for consideration.

In April 2023, the committee issued an Enforcement Notice to RAV. It provided prima facie evidence that both RAV and Airco had paid Gallo the Bula repertoire royalties, proving that Cowling had lied in his earlier affidavit, and showing that fraudulent “double dipping” had also taken place.

It instructed RAV to provide Hardwick with full access to information within 30 days. RAV refused to comply, instead filing an application in the Gauteng Division of the High Court in Pretoria to appeal against the enforcement notice. But, crucially, in the process the ruling set the precedent — awaiting the results of RAV’s appeal — that anyone seeking information regarding their rights and royalties could no longer be barred from doing so on the grounds of commercial confidentiality reasons.

The Information Regulator had earlier also found that both Sampra and Gallo had contravened the Protection of Access to Information Act, in the process undermining the constitutional rights of copyright holders. Now, RAV was willfully doing so, too – and taking it to extremes.

Both RAV and Sampra exist solely by the mandate of their members, presumably to do what is in their best interests when it comes to information about their royalties. In appealing against the enforcement notice, RAV — and by extension its industry-owning board members – conveyed that it would go to any lengths to undermine transparency.

Lawfare for the sake of lawfare

By the middle of 2023, no fewer than six separate but related lawsuits had been filed in courts around Gauteng, including four defamation suits against Hardwick, brought by RiSA, Sibisi, Gallo and Cowling; an intimidation order against him brought by Sibisi and RAV’s attempt to have the Information Regulator’s Enforcement Order set aside in the high court. (More than sixteen months later, it has become apparent the Collective Management Organisation is employing a Stalingrad legal defence to delay the enforcement of access to information.)

Legal bills were stacking up.

“Why would you spend millions of rand of your members’ royalties in legal fees, contesting a claim of a few hundred thousand rand?” asked Hardwick.

The case had clearly touched a nerve.

“I think the public hearing didn’t just assist Mr Hardwick, it assisted a whole lot of people,” said Nemasisi. “I received calls… saying: ‘We want to share information about what actually happens; the challenges that we have.’ They said, ‘You’re touching the industry that no one really cares about.’”

Music Arena CEO Antos Stella. (Photo: Supplied)

Stunningly, in February 2024, Antos Stella, the CEO of Gallo’s holding company Music Arena, confirmed to Hardwick in documents seen by Daily Maverick that an internal investigation had accounted for the missing Bula royalties. This included the eight payments made beginning in 2015, from RAV to Gallo. After all the denials and obfuscation, Gallo admitted they’d lied, and abruptly paid Hardwick and Roberts out, with interest.

The about-turn from Stella left Hardwick stunned. Just a few months earlier, she and other members of Gallo’s board signed a resolution to interdict Hardwick to sue the company within 20 days, or have “perpetual silence” imposed on him. This they claimed was for “harassing” and defaming the company.

“They asserted in their court papers that ‘I must put my money where my mouth is’ or ‘forever hold my peace’,” Hardwick later said, adding that the matter was “nothing more than a Strategic Litigation Against Public Participation suit”.

“These are abuses of court processes where a powerful litigant uses expensive court processes to silence those who oppose their narrow interests,” he said.

Stella denied that she was on the board when the resolution was tabled, but Daily Maverick has a copy of the document authorising Cowling to “institute the high court application on behalf of the company”, signed by Stella and her colleagues on 14 September 2023.

Stella and her company Music Arena also recently signed a partnership agreement with the media entity gamma and its Africa chief, Sipho Dlamini, who was accused along with others of “unjustified enrichment, fruitless and wasteful expenditure” in setting up a Collective Management Organisation in the United Arab Emirates that failed, costing Samro members more than R47-million. (read part 1 of this series.)

Left under a cloud

Dlamini abruptly left his subsequent job as CEO for Africa of Universal Music Group in March 2023 amid similar allegations, according to several sources with knowledge of the situation at the time, who asked to remain anonymous for fear of reprisals. Universal’s local lawyers declined to comment on the resignation.

Gallo has still not withdrawn the interdict against Hardwick, which he views as nothing more than an intimidation tactic. In the interim, subpoenas have been issued to Cowling, Lalla and Van der Mescht to appear in court to testify in the Sibisi perjury matter. Cowling’s own perjury matter is also still pending – he has to date not yet issued his statement to the investigating officer, but told Daily Maverick the complaint is “an abuse of process by Mr Hardwick, which we believe is without merit”.

In rebuttals to the Information Regulator’s investigation, Leslie Sedibe testified under oath that his lawyer, Sumaiya Khammissa, was the liquidator hired to wrap up Bula following the sale of its repertoire. Given Khammissa’s admission to Daily Maverick, he is now also liable for perjury.

Despite Stella admitting off the back of Gallo’s internal investigation and the Information Regulator’s finding that her colleagues lied and colluded with the Collective Management Organisations to withhold information from Hardwick for years – in other words, committed fraud – and despite paying Hardwick his royalties, Gallo still steadfastly maintains that “the Information Regulator failed to properly establish whether Mr Hardwick was in fact the legitimate rights holder”.

“To this end (the Information Regulator’s) finding is flawed both in law and in facts,” it wrote to Daily Maverick in August.

In response, the Information Regulator pointed out the obvious: “In any event, Gallo has already accepted the findings of the regulator and duly disclosed the records to Hardwick.”

While it waits for RAV to drag its feet in filing documents in the appeal against its enforcement order, the Information Regulator says it is “closely monitoring” the criminal investigation against Sibisi.

“If the allegations are found to be true, this will send a strong message to any person who intends to undermine the process of the regulator,” Nemasisi told Daily Maverick.

The organisation is also preparing to publish an “observation report”, with recommendations on what should be done to ensure transparency and the protection of rights within the music industry.

“All the rights that you have in the Bill of Rights can only be accessed when you’ve got access to information,” Nemasisi told Daily Maverick. “Delays in (providing) the right of access to information is a delay in exercising any other rights. And so they will definitely drag this matter (out),” he said.

“There’s a lesson that has been learned here, and (the Collective Management Organisations) are learning that information that you have does not belong to you. It’s not your information. You’re just a collecting society, and you’re collecting on behalf of people, and therefore that information belongs to them.” DM

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