Universal moves to settle digital royalty dispute – but the debates continue

May 2015

Recorded music, artistes



As expected, Universal Music has followed the lead of Sony and Warners in filing proposals to settle the class action lawsuits they face in the US over the digital royalty rate that they pay to their artists for downloads under contracts which are ‘pre-digital’ and therefor silent on the issue. The major labels initially all took the position that they would treat downloads as sales, but a wide range of heritage artists argued that download income relates to ‘licensing’ deals done with the download stores, with one case, between Eminen’s producers FBT Productions and UMG resulting in a appellate court victory for the artists position
FBT argued they had a right to a 50/50 split of profits with Universal on sales of digital music and ring tones through online retailers such as iTunes and Sprint as these ‘Master Licensing’ deals attracting the higher royalty. The contract did not specifically mention income from download stores like iTunes, or what share the artist (and therefore FBT) should get from such sales but Universal have been treating download sales as being equivalent to CD sales paying a lower rate of 12-20%% as if these were physical sales. Whilst a district court refused summary judgment saying the agreement was ambiguous, The U.S. Ninth Circuit Court of Appeals in San Francisco agreed with FBT, saying that the higher royalty should apply. Universal insisted that the case dos not set a wider precedent, even as a plethora of lawsuits citing the ruling in the FBT judgement were filed, and Sony and Warner started to quietly negotiate out of court settlements with their angry heritage artists.
Having failed to get other digital royalty lawsuits filed against it dismissed, The Hollywood Reporter now reports that UMG is proposing to set aside $11.5 million to settle with artists who believe they have been underpaid on download income to date, while committing to pay slightly more on downloads moving forward. The artistes included Chuck D, Rick James, Traffic, Whitesnake, The Temptations and Motels.
As with the Sony and Warner settlements, the increase is surprisingly modest, not least when Artists were looking fr 50% of net income (eg from Apple’s iTunes, 50% of the income after iTune’s share,  any payment music publishers and sales tax. Universal will reportedly make the split paid on downloads 10% higher than what is paid on CDs, so that if an artist is on a 15% split on a CD sale, they’ll get 16.5% on a download. Universal will reform the way it deducts costs off income before any split occurs, another common complaint from artists: Artists have long complained that deductions for ‘breakages’ (which dates back to shellac and vinyl), packaging and distribution are all irrelevant in the digital age.
Of the $11.5 million, about $3 million will go to the lawyers, while artists specifically named on digital royalty lawsuits could see a one off $200,000 payment, with the rest divvied up between artists with similar contracts.
UMG accepts no wrong-doing as part of the settlement, saying in a statement: “Although we are confident we appropriately paid royalties on digital downloads and adhered to the terms of contracts, we are pleased to amicably resolve this matter and avoid continued legal costs”.


Interestingly the International Federation of The Phonographic Industry’s Digital Music Report touched on this subject, with the IFPI saying: “In order to better inform this discussion, we conducted research in 2014 to obtain an accurate picture of how royalty payments have changed as the market has shifted from physical sales to digital channels”. “Industry data compiled by IFPI from the three major companies – covering local sales for locally signed artists in eighteen major markets outside Japan and the US in the five year period to 2014 – shows that while sales revenue fell 17%, total artist payments – in the form of royalties and un-recouped advances – declined much less in real terms (down 6%) and increased significantly as a share of sales revenue, by 13%”.  The trade group concludes: “Over the five year period, the data shows that total payments by record companies to local artists totalled more than $1.5 billion across the eighteen markets”. However IFPI showed that total revenues to the recorded music sector in 2015 alone (so one year not five) were $14.97 billion. The three major labels have as estimated 70% of the recorded music market,
The boss of indie label Cooking Vinyl, Martin Goldschmidt, has already questioned measuring artist splits based on revenue rather than profit. He told reporters: “An old finance director once said that revenue is vanity and profit is sanity, so the focus on revenue risks missing the point. The margin on digital (due to decreased costs) is at least 50% better than the margin on physical. So a decrease in global physical revenues of 8.1% together with an increase in global digital revenues of 6.9% would suggest a net increase in profit. Most labels don’t pass the benefit onto artists, but Cooking Vinyl and some other independents do”.


In one last update on digital royalties, here from streaming, Portishead’s  Geoff Barrow says he earned just £1700 from 34 million streams, berating Universal Music “for selling our music so cheaply”.  The figure has been (politely) challenged Dan Le Sac who said on CMU:  “At first glance those numbers are shocking, almost vomit inducing” adding “But a few moments after reading those tweets – as I was counting to ten before reacting – my cogs got to turning and I started to think that can’t be right. 0.005 pence per stream (five thousandths of a penny) seems obscenely out of whack with the half a penny-ish I see from, say, a Spotify stream”. He continues: “I’m not disputing Mr Barrow’s numbers, and I’m certainly not challenging him to a duel or anything. That said, I would go for a close range naked paintball battle – I’m chubby so I can take the punishment. But I do think that those tweets don’t tell the truth of the situation, there’s far more to take into account than that final figure”. Tracing backwards, Ld Sac estimated that the Portishead man saw less than 7% of the money generated by his music. “For an industry that only has one product, the music that artists like Geoff Barrow create – and, to be fair, he does it better than most – does it seem right that the creators get such a tiny share?” asks Dan. “Ultimately, asking for your fair share isn’t greedy”.





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