Are Digital Downloads A Sale Or A Third Party License?
Rick James poses West Hollywood, Calif., in 1987. He died in 2004, but his manor is suing his label for royalties it says he's owed for digital sales. George Rose/Getty Images hide caption
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George Rose/Getty Images
A contempo move by the Supreme Court could mean millions of dollars in additional royalty payments for older musicians who signed contracts before the digital era.
Similar Rick James. The funk musician died in 2004. Simply that hasn't stopped James' estate from suing his record label, Universal Music Group, for unpaid royalties from digital downloads.
The example boils downwardly to a very specific legal distinction: the difference between a auction and a license. If you lot're an artist, you generally get around xv% of the proceeds from the sale of a CD, while your record characterization keeps the residuum. Only if y'all license a vocal –- say to a Television receiver commercial or a movie –- you lot're entitled to a 50/50 split with your characterization.
"I believe the artists are being unfairly short-inverse," says Jeff Jampol, manager of the James manor. To empathize his lawsuit, it helps to start with a like instance filed against the same record label. The plaintiff was FBT Productions, the producers who discovered Eminem before the rapper went on to sell more than 5 meg digital downloads, the well-nigh ever.
V years ago, Eminem'southward one-time producers sued Universal for unpaid royalties. Eminem'due south producers argued that a digital download is more than similar a license than a sale. Their lawyer, Richard Busch, explains why.
"Where a label is selling a record, they take incremental costs. They have a cost for each CD, for the packaging, for the distribution," Busch says. "Those incremental costs just only are not present when they simply send a main to a third political party."
So when a third party like iTunes sells a digital download, it'due south selling a copy of the track that the tape label licensed it to make. Busch argued that FBT and Eminem should get a 50/50 split on royalties from downloads. And a federal appeals court agreed. In March, the U.S. Supreme Court denied Universal'south appeal. A spokesman for Universal declined to be interviewed for this story. Only in a statement, he says the case is merely about ane agreement with one artist, and "does not create whatever legal precedent."
Jampol calls that "balderdash" (his discussion). The manager for Rick James' estate thinks the Eminem ruling has wide implications.
"It'due south very clear to me that downloads are a license," Jampol says. "And a download calls for a payment that'southward much more than a auction."
Jampol's lawsuit is seeking class activity status for James and other artists — something Universal says in another statement it will oppose "vigorously." Recording contracts are rarely fabricated public, so information technology's hard to say exactly how many artists might accept a like instance. And many record labels inverse their contracts in the mid- to late-1990s precisely to avoid this issue. Simply that still leaves plenty of music recorded before the age of digital downloads.
"Information technology's the older artists who are at the heart of this issue," according to Glenn Peoples, an editorial annotator at Billboard. "Information technology's nearly interpreting old contracts. And I imagine there are a lot of artists who might desire to try that in the court, and see how the court interprets these contracts."
This could exist a large problem for record labels. Catalogue sales are one of the healthier parts of an ailing music business. Last year they accounted for nearly half of all digital sales. In some cases, record labels have renegotiated one-time contracts with their biggest sellers. Just others, like the Allman Brothers Band, take sued for unpaid digital royalties.
And so let's take a $0.99 iTunes transaction. Deals vary, merely let'southward just say a characterization gets half of that after iTunes, Paypal and whoever else gets a cut. Allow'southward call that $0.l to be split between an artist and the label. Using the 15/85% vs. l/l% formula, the divergence to the artist between calling the transaction a "sale" or the result of a "license" is a difference between vii.5 cents and 25 cents, per download.
Then even smaller sellers may find there's a lot of money at pale.
"That's not a couple of hundred dollars. Information technology'southward non even a couple of thousand dollars. It'south thousands of dollars. It's hands well more than chump change," says Joyce Moore, the married woman and manager of Sam Moore, of the soul duo Sam and Dave.
Today Sam Moore is 75 years old and lives in Arizona. Joyce Moore says his union pension does not pay all the bills. "For somebody that's on a fixed income, that's in his 70s, that'due south never had good royalties — it's life-changing money."
Hold on, it may exist coming. And that's exactly what Universal and the other major record labels seem to be worried nearly.
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