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Categotry Archives: Digital Distribution

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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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Contract Language Explained: “In all media now known or hereafter devised”

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Categories: Business, Digital Distribution, Law, Music, Music Contracts, Music Industry, Music Publishing, Record Labels, Tags: , , , , , , , , , , , , , , , ,

By:  Erin M. Jacobson, Esq.

music-791631_640It’s possible that you have seen or heard of the contract phrase “in all media now known or hereafter devised” or some similar variation.

In music contracts, this language is usually used to define in what media your music can be used.  This phrase allows a company that has the rights to your music to use the music in the formats currently used at the time the contract is signed, as well as any new formats that are invented in the future (and may or may not be known at the time of signing).

For example, pretend that this is 1995, the most popular music format is still CDs, and MP3s had not hit the scene yet.  If you signed a deal at that time that said the company had rights to your music “in all media now known or hereafter devised,” then that company also had the rights to start reproducing and distributing your music in MP3 format once that medium started being used circa 1998.

If you are signing a deal now with that language, the company can probably use your music on vinyl, cassette, CD, MP3/other digital file formats, and whatever they think of next.  So when they start implanting microchips with music, you can bet your music will probably be on that too.

Got questions on your contract?  Schedule a consultation now to get answers!

 

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 mattersThis article does not constitute or create an attorney-client relationship between Erin M. Jacobson, Esq. and you or any other user and Erin M. Jacobson, Esq. is not acting as your attorney or providing you with legal advice.   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.

If this article is considered an advertisement, it is general in nature and not directed towards any particular person or entity.

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January Music Business and Legal Round-Up

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Categories: Articles, Business, Copyright, Digital Distribution, Legal Disputes, Legal Issues, Music Industry, Royalties, Tags: , , , , , , ,

cowgirl, lasso, roundup

Image via freeimages.com

I’m trying something new where I do round up at the end of the month of some interesting stories or issues that have occurred during that month in the music industry. Please let me know if you like this new feature believe in the comments below.

First, you’ll want to check out my articles for January:

In other news:

The reports are in from 2015, and the industry numbers are actually up thanks to streaming, although digital sales have dropped. Some artists, like Adele, have proven they don’t need streaming to sell records.

Although streaming has upped some numbers, the artists aren’t getting paid. Spotify was hit with two class-action lawsuits for failure to properly pay royalties. They have now just instituted a new system for tracking and paying royalties. Some accusations claim that Spotify has not properly licensed much of the music that it plays and further that Spotify apparently doesn’t know who to pay. While there are issues that sometimes arise in the industry where finding the proper rights owner can be difficult to find, the majority of rights owners are easily able to be located and paid by those who take a few minutes to look for them.

Spotify has enough money to fight these lawsuits and they’ll probably be some sort of settlement along the way, however Spotify should’ve put a system in place in the very beginning to ensure streamlined and proper payment. This seems like the beginning of a lot of legal hassle for Spotify, but if truly not paying legitimate royalty recipients, it’s a legal hassle that they deserve.

And here are some predictions for 2016.  Let’s see if they come true…

 

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5 Music Companies That Will Disappear Within 5 Years

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Categories: Business, Digital Distribution, Music Industry, Record Labels, Tags: , , , , , , , , , , ,

Paul Reskinoff predicts that Pandora, one major label, Spotify, Live Nation, and MySpace will all be just a memory within the next five years.  Why?  According to Reskinoff, Pandora does not have a sustainable business model and its founder Tim Westergren has been liquidating his available shares.  The major label model continues to crumble in the digital age; Spotify and Live Nation have been continually losing money, and MySpace has lost its relevance.  Keep a watch on these companies to see if Reskinoff’s predictions become realities.

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EFF Asks Essential Questions Regarding Digital Copyright Ownership

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Categories: Copyright, Digital Distribution, Legal Issues, Music Industry, Tags: , , , , , , , , , , , ,

A recent panel featuring Electronic Frontier Foundation‘s Julie Samuels, Techdirt‘s Mike Masnick and American University Washington College of Law professor, Michael Carroll posed some very interesting questions regarding future ownership of digital content.  The panel’s topic was prompted by the Megaupload decisions.  The panelists asked who owns digital content and that if you upload content to a website that has terms and conditions to own the content you upload (or changes those terms to own the content after you have already signed up), does that digital content become digital assets able to be seized by a bank in bankruptcy proceedings if the company/website folds?  What happens to and who owns a person’s digital content when he dies?  The panel further explained that they don’t feel copyright law is progressing fast enough to keep up with the speed of technology, although it appears lawmakers are open to change.

I know many folks in this business do not like the EFF because they feel the EFF is usually too radical in it’s approach to copyright, however, I think everyone can agree that the questions posed are ones definitely worth answering.

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Artists Fed Up With Low Streaming Royalties — Threaten to Sue Labels

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Categories: Digital Distribution, Music Industry, Music Publishing, Record Labels, Royalties

International music artists are fed up with low streaming royalty payments, and fed up with the labels getting a bigger cut of those royalties than the artists receive.  Warner and Universal Music are now facing possible lawsuits from artists unless they agree to increase the artists’ share of those royalties.  While The Guardian cites example figures in British pounds, today’s currency conversion rates show that while the artist could make roughly $800 on 1 million Spotify streams, the label would make over $7,000 for those same streams.  To further complicate things, some artists’ contracts pre-date the online wave and those artists’ royalty shares fall under the old model when online streams were not contemplated.  In addition, music publishers are joining the fight to complain they are not paid as much as labels from the digital streaming services.  (Source:  The Guardian — “Spotify row:  artists threaten to sue labels over music streaming)

Due to the speed of technology, many of the artists’ contracts are outdated in their terms even though the contracts themselves are still governing the relationships between artists and labels.  In this digital age, it is important for artist lawyers to attempt renegotiation of these older agreements to ensure artists are sharing fairly in the income from these new technologies and services.  The problem is that many labels may not be willing to renegotiate royalty terms.   In addition, major label contract terms often lag behind the times even for newly-signed deals, so it is important for the artist representative to stay current on industry trends and know which terms to update in deal negotiations.  Major labels have notoriously been somewhat behind the times in relation to many online and technological developments, and my prediction is that they will not be so willing to renegotiate a large number of contracts.  Sure, they might change terms for some of their most important (i.e. financially successful) artists, but I doubt they would do a long list of renegotiations without an influx of lawsuits — or at least the threat of them.

Technology definitely has a way of keeping the litigators busy…

© 2013 Erin M. Jacobson, Esq. All Rights Reserved. If you like this article and want to share it, please provide a link to www.themusicindustrylawyer.com or a direct link to the post for others to read it.

This site is not intended or offered as legal advice. These materials have been prepared for educational and information purposes only. They are not legal advice or legal opinions on any specific matters. If they are considered advertisements, they are general in nature and not directed towards any particular person or entity. Transmission of the information is not intended to create, and receipt does not constitute, a lawyer-client relationship between this site, Erin M. Jacobson, Esq., and you or any other user. The content is not guaranteed to be correct, complete, or up-to-date. The law may vary based on the facts of particular circumstances or the law in your state. You should not act, or fail to act, upon this information without seeking professional counsel. No person should act or fail to act on any legal matter based on the contents of this site. Unless expressly stated otherwise, no document herein should be assumed to be produced by an attorney licensed in your state. For more information, please click on the “Disclaimer” section in the top menu of this site.
 

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Interview with Steven Corn of BFM Digital

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Categories: Digital Distribution, Music Industry, Music Industry Interviews, Uncategorized, Tags: , , , , , , , , , , , , , , , , ,

 To kick off my first in a series of interviews with music industry professionals, I had a chat with Steven Corn of BFM Digital.

bfm_header_logo

 

BFM Digital is a digital distribution, marketing, and promotions company for select music, film, and other digital content.  BFM distributes its diverse catalog via all the leading digital and mobile platforms worldwide.

 

1.  Please explain a bit more about your company, BFM Digital.

BFM Digital distinguishes itself through its boutique size, personalized customer service and quality catalog.  Representing only select labels and artists allows us to become a true partner and advocate for our client’s digital goals. We work one-on-one with clients to develop a comprehensive release schedule. Further, we interface with clients about pricing and marketing strategies aiming to increase revenue and maximize exposure of their content.

Conversely, BFM also works closely with the leading digital services to promote our catalog on their storefronts through featured placements and product promotions. The strength of our relationships with them enables us to be aware of various promotional opportunities for which we will submit your titles if they are the right fit.

2.  Describe a typical day at the office for you.

During breakfast, I check on the previous sales for iTunes, Amazon and Youtube and make a note of any interesting trends or unexpected sales.  On the way to work (a 45 min commute), I often will skype from my cell phone to one of our European tech partners or distributed labels.  It’s a great way to kill the commute.  I also create my daily to-do in my head while I commute.  Usually the first thing that I do after arriving is to review the back log of agreements that need my review and attention.  I try to get to at least a couple each day.  Next up would be to meet with our delivery department to see if there are any new issues that have arisen.  I’ll look at financials and cash flow statements along the way.  At some point, I’ll discuss potential marketing submissions to the DSPs with my VP of Marketing.  Mixed into the fray is reviewing potential new content providers, reading up on trending news, and seeing how various biz dev workflows are proceeding.  Generally, there are several fires to put out and that can disrupt any plans that I created along my commute.  If I’m lucky, I get to complete 50% of my daily goals.

3. What is your favorite part of your job?

I love tracking the success of a digital compilation that my A&R team created.  We make inter- and intra-label virtual albums to create new retail sku’s from existing catalog.  It’s such a rewarding feeling to see these start to sale.  Creating a new revenue-earning product from nothing is very satisfying.  A close second is when I see one of our needy, indie artists start to make money from their digital catalog.  Our payments have literally housed some of our more financially challenged artists.  Getting them off the streets into decent housing is one of the greatest motivations for being in business.

4.  What do you think is the most profitable area of the music industry for independent artists today?

If you can get an album or catalog to sell across borders, that can be immensely profitable considering the cost efficiencies.  However,  it seems that on a per-unit basis, ringtones and limited edition vinyls present the best profit margins.  But for many, a good synch placement trumps download sales.  Those are few and far in-between in this competitive market for synch’s.

5. What do you look for when you are signing artists?

First, the music has to be high quality.  It doesn’t matter what the genre is.  I have experts in all genres on my staff who can evaluate submissions.  However, good music, regardless of genre, is usually self-evident.  As important as the music is a good strategy.  We need the artist and label to commit to making their product a success.  This means developing and executing a marketing plan.  This doesn’t have to be anything complex or expensive.  All we are looking for is some form of creative and consistent activity.  Without having the proper ammunition, there is little that we can do to assist an artist or label to achieve the next level of success.

6. What would you say is the single most important thing independent artists can do to help grow their careers?

It’s actually two things.  First, gig and gig.  It is important to develop your local market as fully as possible.  These will be the fans that will spread the word.  Secondly, develop a plan.  With very few exceptions, albums without a release strategy and a well thought out plan, rarely succeed.  Take the time to figure out how you want to build momentum and fans.  It always pays off to do so.

7.   Today, everything is online and there is so much content from an infinite number of sites and platforms.  How can artist or band can make itself stand out when there is so much content from so many artists on every digital retailer/platform?

With up to 30 million tracks on some digital services, it is most definitely a crowded marketplace.  While there is no simple strategy for getting your music discovered more easily on the music stores, there is assuredly a very easy way to make your music harder to find.  That would be to just “set it and forget it” (as the infamous infomercial states).  It is more important than ever to develop an action plan to keep your fans engaged and interested.  This can be anything ranging from  a series of homemade videos, blog entries, to candid behind-the-scenes photos or videos. One email blast or tweet orFacebook post is simply not enough.  An artist needs to have a consistent and continuous stream of interactions with their fans to increase discoverability on these services.

 

Thanks to Steve for sharing his thoughts!  I’ll be sharing more interviews soon.