That Tiny Sum? It’s Your Digital Download Royalties After Packaging and Breakage Costs.
by John Paczkowski
Posted on March 9, 2009 at 5:10 AM PT
A song purchased from Apple’s (AAPL) iTunes or Amazon (AMZN) is no different from one bought from a brick-and-mortar retail outlet, despite the vast differences in the economies of distribution between the two. That, in a nutshell, was the jury verdict handed down in a case brought by rapper Eminem’s former production company, FBT Productions, against Universal Music Group.
At issue here was whether the sale of digital music downloads falls under the “distribution” agreements that cover physical releases like CDs. FBT argued they do not, claiming that the label incurs none of the costs typically associated with them–things like CD jewel cases and inserts, breakage fees and in-store displays. Instead, the production company said that downloads should be covered by “licensing” agreements that don’t include such expenses. And the difference between the two is significant: Under distribution deals, artists typically take a 30 percent split of royalties earned. Under licensing deals, they take 50 percent.
But the jury didn’t quite see things FBT’s way and instead bought Universal’s argument that the economics for digital downloads should be viewed as similar to those of the single. A nasty blow to FBT and other artists hoping to see their royalty rates adjusted to account for the new economies of distribution provided by digital music storefronts. Seems that much as technology has changed the relationship between musicians and their fans, it’s done little to change the one between musicians and their labels.
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Comments
By focusing on the percentages you miss the bigger picture, which is that digital music brings in just a fraction of the revenues CDs do.
This fraction needs to cover all of the fixed costs a label incurs to find, develop, and market talent. Only a small number of bands go on to make money for the label and effectively subsidize the whole operation.
While successful bands may resent having to subsidize an operation that brings new music to the marketplace, they also implicitly signed into this system when they themselves were unknown.
I certainly hope a new digital model emerges that not only supports famous existing acts but also breaks new ones. As much as I love Eminem, I hope there’s newer music to listen to when I’m 80.
Posted by alan miles at March 9th, 2009 at 9:04 amHaven’t they dismissed the OJ Simpson jury yet?
Posted by Mac Beach at March 9th, 2009 at 10:17 amFirst of all, much as the labels may need the gratuitous profit, I’m with Eminem on this.
But if I may digress then work my way back to my point: It amazes me how a mass of journalists reporters and editors — can fail to determine probably the most important (possible) fact after the verdict: Whether Team Eminem will be making a post-trial motion to toss the verdict (really, it has to be insensible) and/or appeal it. It’s one of these findings, I would think, a jury, not a judge, had to make in the first instance, which doesn’t mean the verdict “has” to be “right”. This shouldn’t be the end of the issues, so to speak, but the beginning of the end. The first battle’s been lost, not the war.
John, you care to provide an update as per the above maybe??
Posted by Mitchell F. Senft at March 10th, 2009 at 12:49 amNot to suggest that the labels treat artists reasonably, but…. isn’t a distribution by any other name still a distribution? I haven’t seen Eminem’s contract, but I suspect that his royalty deal was the same for any format his music was sold in — vinyl, CD, cassette, whatever. Digital is just another format. AFAIK, the licensing terms in record contracts were meant for a different scenario: deals in which the label sold the distribution (or performance) rights to another entity. Stuff like compilation records, TV commercials and streaming services. The relationship between Universal and Apple, by contrast, strikes me as a standard wholesaler-retailer relationship, similar to the one Universal would have with a Wal-Mart or Best Buy.
Yes, I know — the costs are different. Artists shouldn’t have breakage charges taken out of their digital royalties. But many of those charges were outdated in the CD era, yet they lingered in the contracts like pieces of gum that you couldn’t scrape off your shoes. Like I said at the beginning, I’m not arguing that the labels are reasonable. I’m just saying that downloadable music sales are much closer conceptually to CD sales than they are to a label’s deals with car manufacturers or movie producers.
Posted by Jon Healey at March 10th, 2009 at 1:38 pm