Naxos has filed a lawsuit against Kuke Music over allegedly missing payments. Photo Credit: Manuel Nägeli

Naxos Digital Service US, a division of the self-described “world’s leading classical music group” of the same name, submitted the action against Beijing Kuke Music to a Tennessee federal court. Kuke (NYSE: KUKE), for its part, bills itself as “the leading provider of classical music licensing, subscription and smart education services in China.”

Running with the points, under the mentioned 2018 tie-up, Kuke was expected to sell various Naxos services (music library, spoken-word library, and video library among them) to individuals and educational institutions in mainland China, the actual agreement shows.

Initially poised to run into 2026 with possible year-to-year renewals thereafter, the straightforward contract outlines revenue splits on the appropriate services and, in an ill-advised clause for Kuke, calls for an increasing “minimum license fee” for each year. Said minimum fee hit $1.34 million between July of 2023 and June of 2024’s end, per the document.

Meanwhile, the pandemic undoubtedly disrupted the operations of Kuke, which organizes the Beijing Music Festival and has seen its shares part with over 66% of their value during the past six months. This pricing falloff has evidently resulted in NYSE delisting concerns, per related press releases.

Of course, the deal further allows Naxos to terminate the union should Kuke fail to cough up compensation due under the contract. Multiple allegedly missed payments (a portion involving Naxos’ third-party distributed labels) and some back-and-forth discussions later, that’s exactly what the plaintiff moved to do.

Now, the court should also order Kuke to forward the owed payments (which a catch-up plan of sorts allegedly failed to deliver), totaling the noted $1.86 million, the complaint maintains.

While the case’s core components are clear enough, questions remain given the timing of a seemingly separate acquisition announcement put out by Kuke back in May.

In short, the play was (and possibly is) to see Kuke buy from Naxos One Holding two companies: Angelina Assets and HNH International.

“The transaction is contingent on Kuke finalizing definitive agreements and completing satisfactory due diligence of the Naxos Group,” the release reads in part. “The company emphasized that there is no guarantee the acquisition will proceed as anticipated.”

“The director of Kuke is also the controlling shareholder of Naxos One, indicating an existing relationship between the entities,” the document proceeds.

Without diving too far into the convoluted specifics at hand, Kuke annual reports reference a “decades-old relationship with Naxos,” apparently including a distinct Naxos China unit. Moreover, Kuke CEO and board chair He Yu “holds 75% of the equity interests in Naxos…our largest content provider,” another, older regulatory filing states.