iTunes Royalties and the End of Corporate Media

Hard to be sympathetic to music label corporations – they’ve made many artists suffer through the years, and don’t have many friends in the industry.  They used to have vertical integration all sewn up: if you were a touring musician, there was no way to survive without using the clout of a music label for distribution of your music. But that era is vanishing, and quickly.Sunset 7 3680

Last year, global revenues from recorded music fell by 8.4%. A Universal Music Group insider recently told me that its owner, French media group Vivendi, has ordered the label to cut costs by $100m this year, meaning we’re likely to see more redundancies. No wonder the label is trying to downplay the implications of a recent US supreme court decision to turn down its appeal of a verdict stating that Eminem and the producers who helped him achieve success should get 50% of all revenue from iTunes downloads – around three times more than what the label has paid them so far.

The manager of FBT Productions, who first signed Eminem and continues to collect royalties on his music, told the New York Times that this means Universal owes the company $17-20m in back-payments. Considering that downloads of music Eminem (who was not party of the suit but stands to earn millions from it) keep selling, it could cost the label an extra $40-50m in the next five to 10 years. But it doesn’t look like Universal’s headache will end there. The estate of the late funkster Rick James has already filed a federal class action against the label, inviting other artists to join in, claiming that it should also have been paid 50% of all sales of digital downloads and ringtones.

At the centre of these lawsuits is the question of whether a download is a licence or a sale. A normal record deal today would usually give an artist 12-20% of revenue from sales depending on how successful they are at the point of signing (only the bigger artists get anything close to 20%). But if a song is licensed to be played in, say, a TV show or a film, they receive 50% of revenue. Buying a download on iTunes may make you feel like you own it, but the fact is that you’ve just bought the rights to play it. And so the court agreed with FBT that the Eminem downloads counted as licences.

Universal argues that it was simply the wording of Eminem’s specific contract that resulted in them losing the case, and it’s true that standard contracts have changed since the advent of iTunes and now clearly state that download sales count as sales. But thousands of artists signed their deals way before iTunes. If they did so before 1980, chances are they’re on a sales royalty rate that is lower than 10% – some artists from the 60s and 70s were on 4%, minus packaging deductions – which means they can up their digital royalty rate more than tenfold. It’s common that bigger artists, who are still signed to the same label, renegotiate their deals throughout their careers. Those artists will most likely have a clause about digital downloads in their contracts.

A series of successful claims could spell a much bigger problem for Universal than cutting $100m out of their budget: it could feasibly bankrupt every record label.

(click here to continue reading Behind the music: Why Eminem could spell major trouble for the major labels | Helienne Lindvall | Music |


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.