CONTRACT / COPYRIGHT
Enrique Iglesias has taken legal action against Universal Music Group in the US to claw back an alleged “shortfall of millions of dollars” in streaming royalties. The lawsuit, filed in Miami relies on the accusation that Universal failed to assign a royalty rate for streaming in two contracts with Iglesias: one signed in May 1999 with Interscope in tandem with Universal’s global company, plus an additional contract signed in May 2010.
Recording contracts usually provide artists with a percentage share of any money their recordings generate. However, the percentage paid to the artist often varies according to how the money is generated. A traditional distinction was between sales income (eg selling CDs and downloads) and licence income (eg synch deals). A common royalty on the former was 15%, while on the latter it would be 50% of net income (although the definition of net income in itself can be a battle.
Iglesias’s legal team say that Universal should be paying 50% of net receipts from services such as Spotify, YouTube, Apple Music and Pandora. UMG have (predictably) been paying a rate based on specified rate agreed for (sometimes) downloads and physical album sales – a significantly lower rate than 50% saying “Specifically, Universal has been systematically underpaying Iglesias’ streaming royalties by calculating those royalties at a small fraction of the contractually-required fifty percent (50%) royalty rate.”
There has been previous cases on this matter and related to download sales and other digital income: FBT Productions brought a case against Universal in relation to Eminem’s recordings, with FBT winning the case but then settling their dispute with Universal over the rate at which royalties should be paid on digital product, having successfully argued on appeal in the US courts (Ninth Circuit) that a bigger share of revenues applied to digital sales – a share of licensing revenues rather than the ‘per unit’ royalty applied to physical sales. The Supreme Court refused to hear UMG’s appeal.
But a number of class actions were settled and most artists saw their download royalties increase but only by only a few percent, a long way off the 50% rate that was commonly assigned to ‘licence’ income. What about streams though? The lawsuit filed by Iglesias in Miami is focused on streaming monies and how streams are defined by a label when such income is not specifically mentioned in a record contract. Neither of Iglesias’s two deals with Universal Music specifically mentions streaming income: in particular, the ‘any other income’ clause in the original 1999 contract provides that monies generated by “any type of use not specifically covered” elsewhere in the contract would result in a royalty payment [to Iglesias] of 50%. The lawsuit also reveals that Universal’s Interscope label, which released Iglesias’s English language albums, did initially pay the higher 50% rate on streams. It seems the other Universal subsidiaries which released his Spanish language albums and later records did not.
Iglesias’s legal representative James Sammataro said “Despite [his] record-breaking success, Universal has wrongly insisted that artists like Enrique be paid for streams in the same manner as they are paid for physical records despite the fact that none of the attendant costs – production, distribution, inventory, losses – actually exist in the digital world. This is not what Enrique’s contract, or the contracts of many other artists, call for” adding “Artists, producers and songwriters should benefit from the reduced costs of streaming, not have their musical works spin unwarranted profits”, Sammataro continued. “Universal has long ignored, and is now attempting to distort, the clear terms of its artist agreements so that it alone reaps the savings from digital streams. After lengthy efforts to have Universal honour its contractual obligations, Enrique’s team regrettably concluded that he had no choice but to file this lawsuit”.
FBT Productions LLC et al v Aftermath Records (2010)
http://www.musiclawupdates.com/?p=6589 A fair share: should we take a lead from France on fair digital payments to artistes?