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You’ve Inherited a Song Catalogue, Now What? (What Heirs Need to Know)

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Categories: Articles, Copyright, Music Contracts, Music Industry, Music Publishing, Royalties, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By: Erin M. Jacobson, Esq.


I see many spouses or children that inherit a song catalogue from a songwriter relative, and are not familiar with the music business or how to administer intellectual property rights of music.

Here is the first thing to do: Hire a music attorney experienced with managing catalogues and music publishing.

When I work with heirs on how to manage a catalogue they’ve inherited:

  • I assess the catalogue. I work with my client to know exactly what they have in the catalogue. I find out whether the heir owns the copyrights to the songs – either because the original writer never granted them away or recaptured them at a certain point before inheritance. If the heir doesn’t own the songs, I determine who does have ownership and the terms of the deals with those owners.
  • I review the old contracts and assess whether the current publisher or administrator is doing the best job for the catalogue or if the catalogue might be better at a new home.
  • I assist with inventory of all the titles, copyright years, and registration numbers (if possible); and determine all sources from which the heir receives statements and royalties. Keeping everything organized is essential to either managing or selling the catalogue.
  • I assess whether certain provisions of the copyright law apply so that an heir who doesn’t own the catalogue may be able to reclaim ownership of those copyrights, after which I can negotiate a new deal with the best publisher to manage the catalogue.
  • I coordinate a valuation appraisal of the catalogue for potential sale.

Selling the catalogue is a personal decision, it depends on whether one would rather receive royalty checks or instead receive a lump sum upfront in exchange for the catalogue. This depends the circumstances of each individual situation, both from a financial standpoint and whether the heir wants to have a continuing relationship to the catalogue.

Inherited catalogues are special for family legacy reasons, but also because they come with their own set of decisions. Many heirs have not had previous experience with the music publishing business, and either miss important milestones that would put the catalogue in a better position, or they rely on existing deals with companies that are no longer looking out for the best interests of the catalogue. Banks and other trustees often complicate matters, as well as representatives not experienced in music publishing and copyright management. Many of these personnel only look at the numbers. I personally love older music and understand the sentimental value of a catalogue beyond the income it brings in each year, as well as whether and how it can be profitable in today’s market.

Again, the first step in dealing with a catalogue you have inherited is hiring a music attorney experienced with music catalogues and who can make the right plan for your catalogue.

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Will Computers Soon Control the Music Industry?

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Categories: Articles, Copyright, Legal Issues, Music Industry, Music Publishing, Royalties, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By: Erin M. Jacobson, Esq.


This article was originally published on Forbes.com.

Today’s hot topics in the music industry are more about data and payments than sex, drugs, and rock ‘n’ roll. As previously discussed, payments to musicians, songwriters, and the companies that represent them are unfairly low. Aside from the rates, the other problem with getting paid fairly relies on the accuracy of the data relating to music.

Digital uses of music require various types of data embedded in and tied to digital music files – called metadata. Metadata includes data like the copyright owners of the compositions and master recordings, ISRC codes (unique identifying codes for master recordings), ISWC codes (unique identifying codes for compositions), performance rights organization affiliations, and other information. One large problem with current metadata within the industry is a problem of matching. Music publishers and record labels often need to match data so certain sound recordings are matched to the composition embodied within them, or that certain uses can be matched to the exact sound recording and composition used. However, there is not yet a good system in place for totally accurate matching, which means a lot of extra work for rights’ holders to identify uses of their works in order to collect the payments associated with those uses.

The other problem is the lack of correct metadata. Oftentimes, identifying correct metadata is like identifying the correct message in a game of telephone. Between the publishers, labels, distributors, and other involved entities, metadata that may have been correct at the beginning of the chain is often incorrect by the time it reaches a stage of usage, resulting in incorrectly identified (or unidentified) owners who don’t receive payments because it is unclear who to pay.

Metadata is often incorrect for several reasons: (1) human error of employees incorrectly inputting data, and (2) lack of communication stemming from either rights’ owners not being clear on their shares of ownership or co-owners not sharing ownership information, (3) companies that have been sold or gone out of business with no clear successor, and (4) people who claim ownership of shares to which they do not actually have rights. In addition, many rights owners (often songwriters) do not want their ownership shares made public because they feel the ease of third parties figuring out what they earn will decrease their bargaining power.

There has been a longstanding argument within the music industry for the need for a centralized database containing all relevant ownership information for all songs. There was an initiative to create the Global Repertoire Database (GRD) to solve this problem, however, the initiative failed reportedly due to companies not providing their data, side initiatives focused on mini-GRD projects, and lack of funding. Although the GRD failed, there are other possible alternatives. CISAC, which is a worldwide collective society of author organizations, supports CIS-NET, a global network of ownership information powered by Fastrack. CIS-NET will be available to CISAC member societies, but not the general public or digital service providers.

Significant attention has been focused on using Blockchain technology to create an open database that is not governed by any one body and can be contributed to by multiple sources. This is a similar principle to the Wikipedia model. The advantages of using Blockchain technology for a centralized music rights database include: the data on the platform is encrypted and run across multiple computers making it difficult to hack; its Bitcoin protocol supports micropayment amounts, making it easier for rights owners to receive that $0.0007 payment and receive it directly; and its decentralized nature allow for rights’ owners to correct information on the rights they own.

However, in my opinion, there needs to be a centralized body to oversee the database to protect against bogus claims and try to discern correct data when inconsistencies are present. Further, while it is great that Blockchain technology can pay artists and writers directly, the technology needs to be implemented in such a way that representatives of rights’ owners like performance rights organizations, music publishers, record labels, attorneys, etc. are not circumvented, as those representatives are essential to handling important business functions for artists and rights’ owners who need to spend their time creating instead of drowning in the minutiae of administration.

The music industry needs a central database with correct information, splits, metadata, etc., both for cohesiveness within the industry and for information transparency to increase the efficiency and reliability of receiving payments. While Blockchain puts forth some real advantages, there is one element that Blockchain or any other database will never have – the human element. The music business is a business of relationships, a business run by people who manage and guard the rights of the music. Therefore, we can only achieve a winning proposition if the business can implement the technology in a way that supports the structure of and the people within the music business.

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New Video: This Trial Will Determine Songwriters’ Income Over the Next 5 Years

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Categories: Copyright, Legal Issues, Music Industry, Music Publishing, Royalties, Videos, Tags: , , , , , , , , , , , , , , , , , , , , ,

Read the article here.

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Erin M. Jacobson, Esq. on TAXI TV

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Categories: Copyright, Law, Legal Issues, Music Contracts, Music Industry, Music Libraries, Music Publishing, Performance, Royalties, Streaming, Videos, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

I appeared on TAXI TV yesterday discussing YouTube payments, royalty free music, cover records, and more!

Here’s the replay of the show:

 

Thanks to Michael Laskow of TAXI Music for having me on the show!

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This Trial Will Determine Songwriters’ Income Over the Next 5 Years

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Categories: Copyright, Music, Music Industry, Music Publishing, Royalties, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By:  Erin M. Jacobson, Esq.

This article was originally posted on Forbes.com.

When a song has millions of streams on Spotify and views on YouTube, most people think “Wow, that artist must be making a ton of money!” It’s easy to make that assumption when music superstars are seen on television wearing designer clothing and leaving the hottest nightclubs in town, only to drive away in their Bentley to charter a private plane to their yacht.

What most people don’t realize is that the above is 1) often an image, 2) accessible to only a small number of music creators within the music business, and 3) there are songwriters who wrote those hit songs and the music publishers that represent those songwriters who are earning a mere $10 per 1 million Pandora streams.

Here’s how the structure works. A songwriter writes a composition, which is usually owned or co-owned by a music publisher, a company that handles the management, exploitation and royalty collection for that composition. The music publisher and songwriter split the income from that composition. The main royalties paid for a composition are mechanical royalties for the reproduction of that composition on CDs and via digital means on iTunes and streaming services, and performance royalties paid when a composition is performed in public. Synchronization fees come into play when a composition is used in television or film, but that is a negotiated contract fee separate from a royalty.

While performance royalties have recently been in dispute, this article focuses on mechanical royalties. Mechanical rates are set by the United States government, specifically by a panel of judges called the Copyright Royalty Board (CRB). The CRB determines the royalty rates paid to songwriters and music publishers for every sale of a composition via CD or digital service like iTunes, as well as every time that composition is streamed on services like Spotify, Pandora, etc. The current mechanical rates are 9.1¢ for a sale (split by the music publisher and the songwriter), and streaming mechanicals are fractions of a cent per play.

This month, the CRB has opened hearings to set new mechanical royalty rates, which will be in effect from 2018 through 2022. The CRB will hear testimony from both music creators and music users and will make its decision in December 2017.

While this trial may not be hot news for anyone outside of the music industry, it will determine the amount of money music creators can earn for the next five years.

The music users’ side includes representatives from digital giants like Google, Spotify, Pandora, Amazon and Apple. These companies are lobbying to further decrease the royalties paid to music creators. For example, Apple wants to pay a flat fee of 9.1¢ per every 100 streams on Apple Music. Companies like Google, Amazon and Apple make billions of dollars per year, and Spotify and Pandora are not profitable but have billions invested in them, yet not one of these companies is willing to allocate more money towards the people that create the music on which they have built their businesses. It is also worth noting that not only have these companies built their business models on music but also are using music to promote their services, such as Amazon using free music streaming to sell Prime subscriptions.

The National Music Publisher’s Association (NMPA) and Nashville Songwriter’s Association (NSAI) are representing music publishers and songwriters at the CRB hearings. “[Tech companies are] creating new ways to distribute music [and] they are also fighting in this trial to pay as little to songwriters for the songs that drive their businesses,” wrote David Israelite, president and CEO of NMPA in a letter to songwriters. “[A] rate structure that allows global tech companies to build their empires on the backs of songwriters, without providing those songwriters with fair compensation, is unsustainable.”

The NMPA has issued an open letter to the digital giant companies, urging them to work with songwriters and music publishers instead of fighting against them. The letter is accompanied by a petition, which has already received over 7,800 signatures.

As I have previously written, the music industry will continue to wither without fair compensation to its creators and those that represent them. Creators of music are not all rich superstars. They are regular people with amazing talents to create music that impacts lives around the world. They are people with families and mortgages and bills to pay. They may not work a 9-5 office job, but that doesn’t make them different than the average American, who earns money from a job, and why shouldn’t songwriters and their representatives earn as well?

*This article does not constitute legal advice.

Erin M. Jacobson is a music attorney whose clients include Grammy and Emmy Award winners, legacy clients and catalogs, songwriters, music publishers, record labels, and independent artists and companies. She is based in Los Angeles where she handles a wide variety of music agreements and negotiations, in addition to owning and overseeing all operations for Indie Artist Resource, the independent musician’s resource for legal and business protection.

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How Influential Are You?: How Music Creators and Companies Can Leverage Branding and Online Influencing

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Categories: Articles, Business, Music Contracts, Music Industry, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By: Erin M. Jacobson, Esq.

Today’s music industry is no longer about income from sales. Artists, writers, and the companies that represent them need to find innovative ways to generate additional income streams. In addition to sales, many on the music side have discovered the value of getting synchronization (sync) placements in TV and film. However, this discovery has led to the sync market being oversaturated, and in many cases, reduced fees for sync placements.

Another avenue for artists and rights’ owners involves the branding and influencing space.  Sponsorships and endorsements, as well as social media influencing, have become different strategies brands can use to market their products via influence from traditional celebrities or “ordinary” people with a substantial online following. Celebrity endorsements tend to focus on the celebrity status boosting the brand or using the celebrity’s image to make the brand relevant to a target demographic.   However, the celebrity’s career does not have to have anything to do with the type of product(s) they are endorsing. Influencers are more specialized—they will promote products within certain circles and related to their expertise. For example, a fashion blogger and influencer would promote fashion-related products.

Consumers today want transparency in advertising and recommendations to come from personalities they trust. However, much of the advertising they see appears more transparent than it really is. The Federal Trade Commission (FTC) has issued guidelines for social media and other advertising. In endorsement deals I have done for my clients, there are often provisions stipulating that social media posts promoting the brand are accompanied by certain hashtags to clarify that there is an agreement between the brand and the artist to promote that brand. However, as these guidelines are just that, they don’t seem to be heavily enforced and a lot of product promotions are posted without such notification leading the consumer to believe the recommendations are organic and without any connection to or financial backing from the company.

In addition to transparency in advertising, consumers and fans want personal connections to personalities they admire. They want to share in the commonalities, hobbies, and lifestyle as it makes them feel emotionally closer to the personality and feel like they are able to live a similar lifestyle to the personality. Lifestyle brands often stem from a specific image and way of life stemming from a certain individual and material they are creating, but as society moves toward touching the inner need of individuals to express themselves, artists like Lady Gaga are combining the traditional model of selling the lifestyle of the celebrity and using the celebrity’s values to promote the fan’s expression of individuality.

While artists can tap into commonalities in the lifestyles of fans, doing so for rights’ holders like music publishers and record labels is slightly more difficult. Rights’ holders can seek these opportunities for their artists or writers to involve them as the “face” of a campaign, but in the case of a writer, this plan doesn’t work if the writer is not also a performer. However, in these situations, rights’ holders can seek to use the music as the “soundtrack” of a particular brand by using the sound, feel, and what the music represents to showcase a brand or lifestyle that appeals to consumers. This can be a symbiotic relationship where a more established brand can help break or boost a newer musical talent, but also where more established music can help to break or boost an up-and-coming brand. In most cases, sync rights will be involved in these campaigns, but the relationship can be extended for more than just a single placement. Taking it a step further, having the music or artists involved in events, stores, and activities in which the demographic participates and then having product to monetize at these venues can help to bring the campaign full circle. Both artists and companies like labels may be able to leverage online influencers by having them attend and post about the artist’s concerts or other events.

Opportunities on the Internet continue to expand, as social media now incorporates music and short videos and audio clips in addition to photographs. While some of the monetization of the use of the music in these posts can be questionable, short clips of audio and video can be the gateway to monetizing other avenues with more substantial revenue like concert tickets, merchandise, sales, and other participation that leads to larger opportunities.

In summation, today’s means of reaching consumers extends beyond traditional demographic analyses. Today’s marketing and ancillary income relies on finding ways to emotionally connect artists and music with consumers in an authentic way and enabling consumers to feel like they are able to express themselves and their ideal lifestyle through their association with the artists and music they consume.

Click here to contact Erin to review and negotiate one of these agreements on your behalf, or counsel you on your specific situation.

 

 

Disclaimer: This article is for educational and informational purposes only and not for the purpose of providing legal advice. The content contained in this article is not legal advice or a legal opinion on any specific matter or matters. This article does not constitute or create an attorney-client relationship between Erin M. Jacobson, Esq. and you or any other user. The law may vary based on the facts or particular circumstances or the law in your state. You should not rely on, act, or fail to act, upon this information without seeking the professional counsel of an attorney licensed in your state. 

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The Most Common Music Publishing Agreements Explained!

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Categories: Articles, Music Contracts, Music Industry, Music Publishing, Royalties, Videos, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

All music starts with a composition, which is one of the reasons why I love the area of music publishing. Despite the low streaming rates, there is still a lot of activity and money to be made on the publishing side of music. Whether you are a writer signing with a music publisher, or you self-publish your own music, here are the some typical music publishing contracts:

Songwriter Agreement

A Songwriter Agreement usually involves a writer transferring 100% of the copyrights to the song(s) in your catalogue and/or written during the term to a music publisher and a 50/50 income split between the publisher and the writer. While these were some of the most common agreements 60 years ago and are still used today, they aren’t entered into as often because many writers value owning their content more in today’s music market.

Co-Publishing Agreement

A Co-Publishing Agreement is very common today and involves a writer transferring 50% of the copyrights to the song(s) to the music publishers and an income split of 75/25 where 75% goes to the writer and 25% goes to the publisher.

Administration Agreement

An Administration Agreement is also very popular today and involves no copyright transfer—the publisher administers (handles licenses, tracks royalties, etc.) without owning copyright. This agreement includes a 90/10 income split where 90% goes to the writer and 10% goes to the publisher as a fee for doing the administration.

Songwriter Split Agreement

A Songwriter Split Agreement is something that always needs to be completed when co-writing songs with others. It is essential to minimize disputes between co-writers, but is also usually required by publishing companies, whether you are your own publisher, administer for co-writers or other unrelated writers, or are signed as a writer to a music publishing company.  A Songwriter Split Agreement can be custom drafted, or one can use a template from Indie Artist Resource.

Licensing/Placement Agreement

Many “placement houses” or “pitching companies” that have traditionally just focused on pitching music for placement in TV and film are now getting into the publishing game. The copyright transfer and income splits tend to vary on these deals, and I have seen a lot of them called “Co-Publishing Agreements” that really do not follow the traditional co-publishing model. These can get tricky because of term variations as well as retitling and other practices.

 

Music publishing is one of the most complicated areas of the music business and as you may have gleaned from this article, the associated agreements and principles can get extremely complicated. Any artists/writers should have an experienced music attorney draft their music publishing agreements agreements for them if they are administering their own publishing or publishing for others. An experienced music attorney is also invaluable to review and negotiate any publishing agreements or licenses presented writers, as an experienced music attorney knows what the terms and custom and practice should be, as well as has the training to catch problems or unfair clauses that writers may miss.

I regularly draft, review, and negotiate all of these types of agreements, so please don’t hesitate to contact me if I can handle one or more of these agreements on your behalf.

Protecting and Profiting from Your Original Music - Erin M. Jacobson, Esq. (Indie Artist Resource)

If you are interested in starting your own music publishing company and administering your own publishing or publishing for other writers, download Erin’s video on Protecting and Profiting from Your Original Music where she explains:

  • how to set-up your own music publishing company for your original music
  • the basics of running your publishing company
  • the different royalty streams and publishing contracts you need to know
  • what agreements you NEED to have in place
  • how to protect your music the RIGHT way
  • requirements for collecting your royalty payments
  • the different ways of exploiting your music to earn money from it

Click here to download the video now.

 

Disclaimer: This article is for educational and informational purposes only and not for the purpose of providing legal advice. The content contained in this article is not legal advice or a legal opinion on any specific matter or matters. This article does not constitute or create an attorney-client relationship between Erin M. Jacobson, Esq. and you or any other user. The law may vary based on the facts or particular circumstances or the law in your state. You should not rely on, act, or fail to act, upon this information without seeking the professional counsel of an attorney licensed in your state.

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Ways The Music Industry Can Change For The Better

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Categories: Articles, Music Industry, Music Publishing, Royalties, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By:  Erin M. Jacobson, Esq.

This article was originally published on Forbes.com.

2016 saw a lot of lawsuits and lobbying in regards to changes in the music industry. Here are a few major issues that need to be resolved in 2017 and beyond to help sustain the music business.

Higher rates for streaming and YouTube views

The rates creators and rights owners earn from streaming and views are currently fractions of pennies. A songwriter or rights owner needs to see millions of streams/views to make any substantial income from this revenue stream. Streaming services and YouTube are the biggest platforms for consumers to listen to music, but those that make music are not able to make a sustainable living solely off income from those sources. The rates need to be higher so that those who create music for a living are actually able to earn a living.

Music publishers need to be paid more

In a similar vein, music publishers earn less than record labels from YouTube, Spotify, and other streaming and digital services. There is no music – and no recordings to be made of music — without the creation of a musical composition first. When music publishers are paid less than record labels, not only are music publishers earning less, but the songwriters signed to those companies are earning less. If songwriters cannot make a living writing songs, then songwriting will become a hobby instead of a career.

Even though labels are making more than music publishers, the amount that the artists make is still substantially small due to the contractual terms with the labels. Again, the artists bringing songs to life are not making sufficient money based on their performances and interpretations of songs, and they will not be able to sustain a career that is financially inadequate. Creators need to be properly compensated and this should be recognized by anyone who values music in their life.

Support for fractional licensing within the music industry

The music industry has always operated on a fractional licensing basis where each writer or that writer’s representative controls the respective shares of the songs that writer has written. This model was threatened in 2016 by the Department of Justice that mandated performance rights organizations ASCAP and BMI move to a 100% licensing model, thereby potentially making millions of songs unlicenseable. BMI sued the DOJ and won, but the DOJ has appealed the decision and the outcome is pending. An upheaval of the fractional licensing model would wreak havoc on the music industry and cause creators and creators’ representatives, both within the US and abroad, to be compensated even less than they are now, or make their works unlicensable. This is an unacceptable solution and would be a massive blow to not only creators, but to the music business as a whole.

Cooperation between the law and the internet

When the copyright law was last written in 1976, the internet was not used by the public let alone as a way to consume music. Therefore all user-generated content websites, including YouTube, etc. are operating in a way not contemplated by the law when it was first written. The law needs to be updated to address how works can be licensed in a way that cooperates with the digital world while fairly compensating those who create the works being used. There also needs to be a better way to deal with online infringements. Most online infringements are dealt with via DMCA (another area of law needing reform) takedown notices, although YouTube is now allowing content owners to share in revenue from infringing videos through their content management system. Again, the amount of money shared in this scenarios is so small that it is not a sustainable model and goes back to the need for increased rates.

Consumers need to learn to value music

On a daily basis I am confronted with people who want to use music but don’t want to pay for it. They argue that they should be able to use the music for free because the writer or artist will make money on the backend from sales or promotion. However, that backend money is usually never earned as promised and results in the artist or writer allowing the use of his/her music for free. Companies want to pay less and keep the lion’s share of income for themselves, which again creates a problem for creators trying to live off making music.

Internet companies and radio make millions and sometimes billions of dollars per year, and they continue to lobby to be able to use music freely or at least pay less for it, as well as to loosen copyright laws. Many of these platforms have built their business on using music as their main commodity; yet they don’t want to pay for the music that is the central product of their business model. All of the performance rights organizations (most recently GMR) have been fighting with radio and other services to command higher rates for their members and affiliates, but they consistently get pushback from licensees that don’t want to pay. This problem doesn’t stop at the digital realm, as film and television companies also regularly try to offer low fees to use music in their productions.

When one thinks back on their life, usually there are certain songs that evoke certain memories, that were important at a specific life event, or that got one through a hard time. Couples usually designate at least one song as “their song.” Certain scenes in films and television shows would not come to life without the use of a particular song being used in that scene. Certain artists and albums serve as the soundtracks of people’s lives. Imagine if all of those memories were taken away because artists and songwriters could no longer have careers making music because they were not paid enough to make a living. Most people wouldn’t go into a store a take a piece of clothing or a table without paying for it, yet those same people think it is okay to take music for free. Most people would not think to ask if they could pay their doctor fractions of his fee because they can, yet people keep offering lower payments for using music. Music has value. Those that use or consume music need to recognize that value, or watch the quality and prevalence of music disappear from their lives.

*This article does not constitute legal advice.

Erin M. Jacobson is a music attorney whose clients include Grammy and Emmy Award winners, legacy clients and catalogues, songwriters, music publishers, record labels, and independent artists and companies. She is based in Los Angeles where she handles a wide variety of music agreements and negotiations, in addition to owning and overseeing all operations for Indie Artist Resource, the independent musician’s resource for legal and business protection.

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A Day at NAMM with Erin M. Jacobson

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Categories: Music, Music Industry, Speaking, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

 

Last weekend I had the pleasure of attending and speaking at the annual National Association of Music Merchants (NAMM) convention in Anaheim, CA (right by Disneyland!).  NAMM is a fantastic time to see incredible instruments, hang with musicians and industry folk, and conduct business.

Check out my video above where I take you behind the scenes at the convention, and here are some fun photos from the weekend below.

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Major Record Labels Under The Gun In Sales v. Licensing, Carpenters Case

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Categories: Articles, Digital Distribution, Legal Disputes, Music Contracts, Music Industry, Record Labels, Royalties, Streaming, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By:  Erin M. Jacobson, Esq.

This article was originally published on Forbes.com.

The dispute between artists and labels over the income earned from digital downloads continues to rage.

Traditionally, record labels sold physical copies of music mediums, like CDs, and then would pay a royalty to the artist for each record sold. When iTunes came on the scene in 2001, the labels treated the sales of digital downloads the same as sales of physical CDs, and ever since have paid the artist a royalty on sales of those digital downloads. However, labels actually license the master recordings to digital distributors like iTunes and after a while artists began to make the argument that the income earned from digital downloads should be treated as licensing income and not sales income. The reason why artists want downloads to be treated as licensing income is because instead of getting a small percentage for a sales royalty (most commonly ranging from 11-20%, with an average of about 15% of the wholesale purchase price), licensing income is usually split 50-50 between the label and the artist. Therefore, artists stand to make a lot more money in royalties if a digital download is treated as a license rather than a sale.

This issue came to court starting in 2007 with the case FBT Productions v. Aftermath Records, a case involving royalties paid on Eminem recordings at the “sales” rate rather than the “licensing” rate. FBT won the lawsuit, establishing that income from digital downloads should be treated as licensing income rather than sales income, but Universal Music Group (owner of Aftermath Records) argued that this case should not set a precedent for all artist or record deals. Even though Universal tried not to set a precedent with this case, many artists renegotiated their deals behind closed doors to get better royalty rates for digital downloads than was originally provided for in their contracts.

Now the issue has once again arisen with classic group The Carpenters. Surviving member Richard Carpenter (fighting on behalf of his sister Karen Carpenter’s estate, as well) audited the band’s label, A&M Records/Universal Music. Artists often audit record label books to make sure that they are getting paid the proper royalties. Richard Carpenter’s audit showed that the label was under-reporting the number of downloads sold, was calculating the royalty on those downloads at a lower base price than they were supposed to, and that the label was paying a royalty on digital downloads at the sales rate instead of the licensing rate. Apparently, attempts to resolve the issue amicably were unsuccessful, and thus Richard Carpenter sued.

The Carpenters’ suit cites the FBT case as a precedent, and if the court follows FBT’s ruling then Carpenter has a good chance of success. Another case is currently pending between Sony Music and 19 Entertainment (the producers of American Idol) regarding how labels pay on digital streams. It’s the same argument as in the Carpenters’ case, but the position of a stream being treated as a license is even stronger than in the digital download scenario. However, it’s unclear at this point which way the court will side in both cases.

The labels make the argument that if they had to pay a 50-50 split on all digital download income, they would go out of business. However, the 50-50 split model is quite common with independent labels in the current marketplace and the indie labels are not necessarily going out of business. Both artists and labels often like the 50-50 split model because it creates more of a feeling of partnership between the label and the artist rather than an adversarial view of big company versus small artist.

What should be more of a concern to major labels’ fate than royalty rates is the fact that this digital age has made it much easier for artists to be independent and make a living off of making music without major label backing. Major labels can ensure their longevity by creating a new model that involves a deal that artists want to be a part of, that is advantageous to both the label and the artist, and provides for a long-standing working relationship, rather than one where artists are constantly concerned about being taken advantage of by the label. The tighter that major labels hold on to their traditional model, the more artists are going to look for alternative means of pursuing their musical careers — whether that be making direct relationships with distributors or other scenarios that benefit them financially and allow them to create a sustainable career off making music. This issue is not going away, especially with the growing popularity of streaming as a way of consuming music, and it’s time to adapt.

 

*This article does not constitute legal advice.

Erin M. Jacobson is a music attorney whose clients include Grammy and Emmy Award winners, legacy clients and catalogues, songwriters, music publishers, record labels, and independent artists and companies. She is based in Los Angeles where she handles a wide variety of music agreements and negotiations, in addition to owning and overseeing all operations for Indie Artist Resource, the independent musician’s resource for legal and business protection.

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