Universal’s royalty reducers in the spotlight

July 2012

Artistes, record labels

Attempts by Universal Music Group’s lawyers to hide their royalty reducing practices from court scrutiny in the FBT (‘Eminen’) case have failed and indeed have provoked fairly forthright comment from the judge, Philip Gutierrez. UMG had argued that any royalty that had to be paid to FBT would be paid on a “net receipts” basis – but this was latterly challenged by FBT who had discovered that only about 29% of international revenue (here from the sale of Eminen recordings) actually returns to the major’s Aftermath division, with the other 71% being kept by the local Universal companies that actually sell the music: and 50% of 29% is a lot less than 50% of 100%.

UMG felt that the Judge had accepted the “net receipts” basis but Judge  Gutierrez has made it clear he has not, saying in a written judgement that [a] he did not mean to make a ruling on this matter when asked for clarification on “our net receipts” last year, and [b] he doesn’t believe that FBT were aware that Universal intended for the international royalties issue to be resolved via that clarification either, because there would be no logic in them choosing to ignore the matter until later. On the latter point, the judge wrote: “The court is deeply troubled by defendants’ argument. While it is hard to see what FBT could gain by feigning ignorance, it is now quite apparent what defendants could hope to gain by bamboozling the court and plaintiffs on this issue. Defendants’ current stance makes it appear as though defendants carefully inserted the issue into the motion for summary judgment before they had notified FBT or the Court of what percentage of the revenues from foreign sales of permanent downloads would be paid to FBT. An attempt to dupe the court into a premature ruling will not serve as the basis to deny FBT an opportunity to challenge defendants’ accounting practices”.

UMG will no doubt be horrified if royalty reducers are in the spotlight as they attempt to convince US, EU and other regulators that they are a safe haven for EMI’s recorded music division and artistes.


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