A fair share: should we take a lead from France on fair digital payments to artistes?

November 2015

Recorded music, internet, music publishing, artistes



The new digital music Code Of Conduct ushered in by the French government and signed up to by the major and independent labels, publishers, digital services and artist representatives has laudable aims (even more laudable if you are French)  and seeks to ensure the following:
– The development and vitality of the music industry;
– The preservation of cultural diversity and growth in innovation;
– The creation of greater transparency in interactions between participants;
– A fair distribution of value created by musical recordings.
The provisions relating the the share of the ‘digital pie’ allocated to the service itself, songwriters and their publishers, record labels, recording artistes and the services themselves have long been a bone of contention between artistes and their labels, between labels/artistes and songwriters/publishers, and between the content owners and the actual digital services. In the absence of a fiduciary duty being imposted on record labels to treat their recording artistes fairly, ongoing confusion about how equity stakes gained by the majors in services such as Spotify, and a general lack of transparency in who gets what from the digital pie, are these French reforms something the EU and US legislators should be looking at?
“the artist community is expressing increasing concern about the effect of [streaming payment methods] on its revenues” reads the Code. The complexity of the financial circuits involved in the new music economy is creating, among artists, a great deal of misunderstanding about how value is really distributed, difficulties in tracking their entitlement to revenues, and growing scepticism about how they are being treated.
“The stakeholders are aware of these developments and believe that it is vital, in the interests of the whole industry, to restore confidence by ensuring the most transparent and fair distribution possible of all revenues generated by the digital usage of musical works.”
To that end the Code comes up with the following:
– Labels agree to share with artists ‘all revenues and remuneration they receive from digital music broadcasting and distribution services when monetising their recordings’. (‘Revenues and remuneration’ means monetary and non-monetary benefits directly linked to recordings, including where those benefits cannot be specifically attributed to a rights-holder. This must include all the unrecouped advances/minimum revenue guarantees obtained from online music service providers – aka “breakage).
– When it comes to label equity holdings in digital businesses, it’s an ongoing discussion. The Code notes that ‘labels agree that questions raised by [equity stakes] should be addressed within an appropriate international framework, to be defined by the relevant parties”;
– Contractual reduction. This will comply with the following principles: (i) discounts set at a reasonable level and based on justifiable reasons connected with digital operations, through the implementation of specific actions; (ii) no structural discounts (not justified by a specific action) related to digital usage; (iii) account being taken, when calculating discounts, of all net expenditure actually made by labels (e.g. advertising campaigns).
– One big development is that labels appear to have agreed to give artists a mininum revenue guarantee “in consideration for the digital usage of their recordings”: “That guarantee may take various forms, such as proportional minimum revenue or a minimum advance. The arrangements and level of the minimum revenue guarantee will be set by collective agreement, which must take into account the diverse circumstances facing companies in the sector.”
– With royalty statements, the labels have agreed to report royalties to artists in a form that is ‘transparent, understandable and can easily be used by artists and their managers’. This format of statements will be examined by a working party featuring representatives of artists, managers and rights collection and distribution societies.
– Show an overall summary of reductions, explicitly showing their cumulative effect on the artist’s revenue as a value and/or percentage;
– Make statements available to view in electronic form;
– Show royalties by main distributor, type of sale and territory; and
–  Designate, for companies with more than ten employees, a representative to handle all questions relating to these statements.
– Artists and performers will also have a contractual right to audit accounts relating to their recordings.
It’s a start but only a start.  In the US a number of class actions have been brought against the majors to increase digital payments to artistes.Most of the major labels were paying artistes under the old system designed to remunerate artistes for the sale of physical product – so a ‘per unit’ royalty. As the digital age developed (not least with the rise of iTunes, albeit that revenue stream has now peaked) artistes began to look at their often tiny share of digital royalties and quite rightly object, with many arguing that their proper share was one half of all digital licensing income, less only publishing royalties.
Most of these class actions are now settled – with this writer lamenting these settlements which do little to increase the artistes share of royalties, or promote the idea that both the recording artistes and the labels should fairly share in revenues. Sony BMG settled a case brought by Cheap Trick and the Allman Brothers amongst others:  In court papers filed in the United States District Court Southern District of New York in this case, a comparison of calculations was set out based on the sale of 1,000 downloads at 0.70c per unit – giving a total income of $700: Sony BMG thought the appropriate payment would be a royalty payment on 85% of all downloads sold after deducting mechanical royalties to the songwriters, a container charge of 20% and an royalty reducer for new technology of a further 50%. This gave a total royalty payment of $45.05. The Allman brothers felt they should be paid one half of the income from 100% of all units sold, less just the mechanical royalty payable to songwriters. This gave a royalty due of by Sony BMG to the Allman Brothers of $315.50. Some difference!
The settlement, proposed by the plaintiffs in a court filing, proposed that Sony would pay its recording artists a total of $7.95 million to resolve outstanding claims in the case. Lawyers’ fees alone will account for $2.5 million of this (the case had been running since 2006). The deal also provides for a 3 percent “bump” in artists’ royalty rates with respect to digital income – seemingly acknowledging that digital royalties should be higher than those for physical product. Itwas rumoured Cleapo Trick and the Allman Brothers actually secured a separate and better settlment,
And these settlements took place despite a landmark case brought the producers of a number of early Eminen recordings, FBT Productions: In a claim against Universal Music, FBT succeeded in achieving the higher royalty rate: 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 as these were ‘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 had been treating download sales as being equivalent to CD sales paying a lower rate of 12-20%% as if these were physical sales. The  District Court refused summary judgment saying the agreement was ambiguous, but The U.S. Ninth Circuit Court of Appeals in San Francisco agreed with FBT saying that the higher royalty should apply – not least as a digital ‘sale’ is not actually a sale – its a licence to consumers. Universal even belatedly tried to apply royalty reducers to digital income – something that Judge Philip Gutierrez was having none of. The Supreme Court refused UMG’s request for a further appeal so the appellate court’s decision set an important precedent i the USA – although UMG have publicly disputed this.


Despite this important decision, Warner Music Group (WMG) then submitted a proposed settlement to its digital royalty disputes (another class action), proposing a two-part compromise to artists with record deals that pre-date 2002 – plaintiffs in the settlement agreement are named Kathy Sledge-Lightfoot, Gary Wright and Ronee Blakely. Moving forward, WMG would increase digital payouts to artists by 5% from whatever record sale royalty figure is in their current contract, with a floor rate of 10%, but with a 14% cap, meaning the deal will favour more the artists with older record deals on lower royalty rates (because anyone with a 14% split already will see no benefit to their royalties – whereas an artiste on 1% will see an increase to the floor rate of 10%). The increase will be less on non-US download income. Billboard explain that the rate increase would be 2.5%. But since contracts typically call for artist to receive, in some countries, 90% of the U.S. rate, that means foreign downloads for an artist receiving a 10% rate in the U.S. would receive 90% of 12.5%, which equals 11.25% of wholesale. In addition to the increased royalties, WMG will also set aside a one-off pool of $11.5 million, to be split between any artists who agree to the deal pro-rate based on their download sales between 2009 and 2012, though Billboard say that at least $3 million of that pot of cash will go to lawyers who have worked on this case. Any artiste accepting this deal will be barred for pursuing further action on the digital royalties point, their contracts being amended to explicitly define digital income.


And in May 2015 the Hollywood Reporter noted that UMG was 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.
The Future of Music Coalition estimated that the major labels may have to hand over $2 billion in extra royalties to heritage acts if they lost the cases. The Dixie Chicks put it more simply in their claim against Sony– calling the royalties and accounting process “systematic thievery”.

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