Naxos Sues Kuke Over $1.86 Million in Allegedly Missing Payments

Naxos, a prominent classical music group, has filed a lawsuit against China-based Kuke Music for allegedly failing to pay $1.86 million, as stipulated under a 2018 distribution agreement. The legal action was submitted by Naxos Digital Service US to a Tennessee federal court, intensifying a business dispute between the two companies.

Naxos, known as “the world’s leading classical music group,” had entered into an agreement with Kuke Music, a company publicly traded on the NYSE under the symbol KUKE. Kuke promotes itself as “the leading provider of classical music licensing, subscription, and smart education services in China.”

Under the terms of the 2018 agreement, Kuke was tasked with distributing Naxos’ offerings, which included a music library, a spoken-word library, and a video library, to individuals and educational institutions in mainland China. The contract was initially intended to run until 2026, with the possibility of year-to-year renewals thereafter. Central to the agreement were revenue-sharing clauses on the relevant services and a provision requiring Kuke to pay a steadily increasing “minimum license fee” each year.

The minimum license fee reached $1.34 million for the period between July 2023 and June 2024, according to the document. However, Kuke’s financial struggles, exacerbated by the pandemic, have raised concerns about the company’s ability to meet these obligations. Kuke, which organizes the Beijing Music Festival, has seen its share price plummet by over 66% in the last six months, sparking fears of a potential delisting from the NYSE.

The agreement also gave Naxos the right to terminate the contract if Kuke failed to meet its payment obligations. Following multiple allegedly missed payments, including a portion involving Naxos’ third-party distributed labels, Naxos attempted to engage in negotiations. However, after a series of back-and-forth discussions and an unsuccessful payment catch-up plan, Naxos opted to terminate the agreement and seek legal action.

In its complaint, Naxos has requested that the court order Kuke to pay the outstanding $1.86 million, which it claims remains unpaid despite the proposed catch-up plan. The lawsuit highlights the financial strains that Kuke has been facing in recent months, as well as the broader challenges affecting the classical music industry during and after the pandemic.

Complicating matters is the timing of a separate acquisition announcement made by Kuke in May 2023. According to the announcement, Kuke planned to acquire two companies, Angelina Assets and HNH International, from Naxos One Holding. The acquisition was described as contingent upon Kuke finalizing definitive agreements and completing due diligence on the Naxos Group. However, the company cautioned that there was “no guarantee the acquisition will proceed as anticipated.”

The announcement also raised eyebrows due to the close ties between the two companies. Kuke’s director is also the controlling shareholder of Naxos One, indicating a pre-existing relationship between the entities. Additionally, Kuke’s annual reports reference a “decades-old relationship with Naxos,” which includes a distinct Naxos China division. Kuke CEO and board chair He Yu is noted to hold 75% of the equity in Naxos, the company’s largest content provider, according to earlier regulatory filings.

As the case unfolds, the relationship between Naxos and Kuke will likely come under closer scrutiny, and the outcome could have significant implications for both companies moving forward.