Are Universal being shady on digital royalties?

April 2009

Artists, record labels

By Cassandra Williams, postgraduate student at the College of Law

There is currently a battle being fought over the rate of royalties an artist should receive for online sales.    A Los Angeles jury said the record company doesn’t have to pay producers more for songs sold online, upholding the music industry’s business model.  This decision prevents an upheaval of the music industry that would have greatly changed the financial relationship between labels and artists. Mark and Jeff Bass, brothers who own F.B.T. Productions, involved in the rapper’s early works, including his 1999 Grammy-winning album, “The Slim Shady LP,” sued Universal Music Group’s Interscope Records, accusing the music label of underpaying them on royalty payments for music downloads and mobile ring tones. The FBT v Universal case centres on the level of digital royalties that are due to artists and their collaborators. Record companies treat digital sales like physical sales, and pay artists a cut of revenue as a royalty – 12% in this case. FBT argued that digital sales are more similar to licensing deals where record companies licence the use of their recordings rather than selling actual copies. The Bass brothers, said their contract entitled them to 50% of the proceeds for songs sold through online stores including iTunes or by Mobile operators such as Sprint.  They argued that the songs Universal provided to online and mobile services amounted to music “masters”.  This is because infinite digital copies could be produced from one song. They argued that they were entitled to the higher licensing royalty rate of 50% rather than the 12% standard they would receive on the sale of a CD. Universal argued that there was no difference between a song purchased online and one bought in a store.  This argument ignores the obvious cost difference to produce a CD (breakages, packaging) in respect to producing a digital download. Fred Davis, founder of law firm Davis, Shapiro, Lewit, Montone & Hayes in New York commented “It’s saying that the digital download is the modern version of a record sale and the economics to the artist are the same for a digital download as they were for the sale of a single, back in the glory years.” Federal district court rulings do not establish a legal precedent, but they can influence judges weighing similar disputes, which will act as a warning to the AllmanBrothers Band and Cheap Trick, who have an ongoing legal dispute with Sony Music on the same issue. Richard S. Busch, an attorney representing the Basses, said his clients were considering their legal options. “We are very surprised by the jury’s verdict,” Busch said. “We don’t understand it, and the fight’s not over.”  A Universal Music spokesman hailed the decision, saying, “We are pleased with the jury’s verdict”. The jury however did award the Bass brothers $159,000 owed from underpaid royalties. The Allman Brothers case has just been given the green light to go ahead by the court despite the Bass Brothers decision.

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