Recently, Warner Music settled an 11.5 Million Dollar class action lawsuit over the way they calculate digital royalties. Originally filed by members of Sister Sledge, Ronnie Blakely and Gary Wright the suit alleged that Warner had been miscalculating their digital royalties by defining digital downloads as a sale instead of a license. By calling them sales, Warner was paying much less than they would have if it was defined as a license. Because Warner was able to settle, they didn’t have to admit there was any wrongdoing, but avoided costly litigation that would have taken years to complete. Class action members who want to benefit from this settlement have to fall into a number of criteria to be eligible for any payments, including having a royalty paying contract with Warner dated before January 1, 2002 and have their royalties paid on a Penny Rate or Royalty Rate Basis. Also any eligible members who want to benefit from this settlement will disqualify themselves from suing Warner in the future, which is something that could deter some artists who would otherwise qualify for payments from taking part if they think they could have a better claim down the road.
The argument over whether a download is a sale or a license is at the crux of this settlement and was left unanswered because Warner chose to avoid litigation. It is a question though that will need to be addressed as music consumption gets less and less physical. Warner argues that because someone purchases a download they are effectively “buying” the song the same way we used to purchase physical CDs. This allows Warner to pay less in royalties. On the other hand, the class action members argued that a download should be a license because the transfer of the song from Warner to the buyer is not as permanent as a physical sale as Warner retains some of the ownership in the digital material because downloads are prevented from being “re-sold.” They argue that because Warner retains some ownership, they essentially issue a license every time someone downloads a song legally. The difference between these two definitions can mean a vast difference in royalty payments for artists, as royalty rates for sales range between 6% and 20% and payments for licenses are about splitting revenue and can mean splitting up to 50% of net revenues with the artist.
This settlement isn’t the first time the sale vs. license argument has come up. Both Universal and Sony Music have been sued over the way they calculate royalties. In 2012, Sony settled a 5 year battle with certain artists over digital royalties. They paid out $8 Million to the class action members and each member got a 3% bump in their digital royalty rate. More importantly though, was Eminem’s case against Universal that actually went to trial and was ruled in his favor on appeal. Eminem argued that sales of his music on iTunes should be a license on a master recording rather than a record sold. The U.S Court of Appeals agreed and reversed the initial trial court’s ruling in UMG’s favor. In the court’s decision they stated that Eminem’s contract was unambiguous in respect to digital downloads constituting a license rather than a sale. This means that Eminem was entitled to 50% of the net revenue from those sales. UMG appealed to the Supreme Court in 2011 for a new hearing and their request was denied and later in 2012 UMG ended up settling with Eminem.
With all three of the major labels being sued over their digital download royalty calculations it would seem obvious that something needs to change going forward. As there isn’t a set statute for this area of law it will be up to the lawyers who are drafting these contracts to make sure that the royalty calculations are set out in great detail. Hopefully, even though the UMG/Eminem case eventually settled, the Court of Appeals decision will set forth some precedent going forward to help future drafters. Problems will continue to arise with older contracts though, as technology continues to evolve and accessing music continues to get easier and less and less “permanent”. Unfortunately for artists who chose to partake in either Warner’s or Sony’s settlements now they will bar themselves from any settlements in the future. Let’s hope artists with older contracts take a leaf out of Kenny Rogers’ repertoire and “know when to hold ‘em and when to fold ‘em” when deciding whether to partake in these class action settlements.
Big data is all the rage these days and the music industry has certainly jumped on the bandwagon with two new metrics: the Track Equivalent Album (TEA) and Streaming Equivalent Album (SEA).
So, imagine you went to this amazing concert last night. Your favorite band/artist/artists played some of your favorite songs from their most recent album… But midway through their set, they do some improvisation. Something you’ve never heard before. Just a spur of the moment, burst of imagination and genius. You loved every second of the improvisation!
Well, unfortunately, if there was no fixation of this improvised musical genius, there’s no way for the work to be protected by federal copyright. Federal copyright attaches to a work at creation; there is no need for registration, paperwork, or signatures. However, copyright protection only attaches when a work meets two requirements: fixation and originality. Fixation requires the work be fixed in a tangible medium and originality requires the works be a an original work of authorship.
The story leading up to the recent rate court decision is nothing short of an epic trilogy (a long, but good read—highly recommended). Whether the decision is seen as a victory for ASCAP or Pandora, one thing remains clear: the fight to shape the future of the music industry has only just begun. In this article, I will discuss five things to consider following the latest ASCAP-Pandora Rate Court decision.
Much of the focus at the recent ASCAP-Pandora Rate Court trial was on whether Pandora is “similarly situated” as commercial broadcast radio to entitle Pandora to the broadcast radio licensing rate (The rate for broadcast radio is set at 1.70% of all revenue from terrestrial broadcasting, including revenue derived from internet transmissions from terrestrial broadcast stations. The rate for Pandora is currently set at 1.85% of its revenue). Under its Consent Decree, ASCAP is prohibited from price discrimination between similarly situated licensees—music users in the same industry that perform ASCAP music, operate similar businesses, and use music in similar ways and with similar frequency. Despite referring to Pandora as “a customized radio service,” the Court concluded that Pandora is not similarly situated to broadcast radio. In this article, I will explore why I think Pandora is similarly situated to broadcast radio.
For Pandora to be “similarly situated” to radio, it must 1) perform ASCAP music, 2) operate its’ business similar to broadcast radio businesses, and 3) use music in similar ways and with similar frequency as radio. Relevant to a determination of whether licensees are similarly situated also include whether the licensees compete with one another, and the amount and source of the licensees’ revenue.
it ain’t just music, it’s a piece of art, it’s a capture of time….music chronicles time, and this is a chronicle of our time….Art is art, but at the same time generations’ tastes are changing- RZA (April 4, 2014).
By now I’m sure that you’ve heard about “The Wu — Once Upon a Time in Shaolin,” the upcoming album from hip-hop supergroup Wu-Tang Clan. The 31-song album is gaining notoriety for its limited edition sale—only one copy will be available, sold in an engraved silver-and-nickel box. “The Wu” follows Beyoncé’s surprise release visual album and Jay Z’s Samsung-sponsored app-released album with its own high-profile, innovative marketing scheme and business model—further proof that #newrules are still trending.
In a recent Billboard interview, Wu-Tang member RZA discussed the concept for the forthcoming album as “a piece of art…put [ ]under the same definition as a work of art,”—think famous paintings or rare 710-year-old copies of the Magna Carta. This raises some interesting questions about “art” ownership. What rights are associated with the sale of a one-of-a-kind album? Will the purchaser of “The Wu” also receive the right to commercially distribute or license the album’s content? We don’t yet know the answers to these questions, but for now, we can muse about the possibilities.
A new music trend can spark a pop culture movement or at least entertain us with shock value. On the business and legal side, a new trend can alter the way in which the entire music industry operates. The latest music business trend is no different, involving legal disputes over how artist royalties are calculated for music downloads sold via third-party distributors (i.e. iTunes) and music streaming.
Before the days of digital piracy and the proliferation of new digital music services, the traditional revenue-generator for labels and artists came from music sales, with royalty rates set based on the number of units sold—artists typically received a 10-15% royalty on sales. But since the 2000s, music sales have been slowly declining. Accordingly, record industry economics are adapting to maintain the bottom line.
ASCAP. BMI. Pandora. SiruisXM. SoundExchange. Five parties. Three lawsuits. One issue: royalties. While artists, labels, and music services continue to explore ways to maintain healthy revenue streams within the music industry, recent music lawsuits have challenged the delicate marketplace equilibrium, once again pitting traditional music business models against new services.
SoundExchange v. SiruisXM
On the left, we have SoundExchange, the U.S.-based digital performance rights organization that collects and distributes royalties on behalf of sound recording copyright owners. On the right, SiriusXM, the world’s largest radio broadcaster by revenue. At issue, allegedly unpaid royalties for the public performances of certain pre-1972 sound recordings in rotation on SiriusXM stations.
This week, Billboard magazine celebrates the 10th anniversary of rapper Kanye West’s debut album, The College Dropout. No doubt that (for better or worse) Mr. West has significantly contributed to our culture lexicon—Yeezy taught us. He is even the subject of a forthcoming academic textbook, The Cultural Impact of Kanye West, which explores “the moral and social implications of West’s words, images, and music in the broader context of Western civilization.” Not only has Kanye made his mark on the fashion, music and scholarly worlds, he has also added several pages to the growing volumes of U.S. case law. In honor of The College Dropout ten-year anniversary, I present a look back at ten years of Kanye West lawsuits:
Good question. I wish I had a simple answer, but I don’t. As the 113th Congress eases back into its second session, I would like to propose an additional action item for their Copyright reform to-do list: add a substantive definition for non-interactive service to the Copyright Act.
Presently, there is no statutory definition for a non-interactive service found in the Act, which is a perplexing oversight considering: 1) “interactive” is a defined term in the Act; 2) the term “non-interactive” is mentioned nearly ten times in the Act; and 3) the significant distinction between (and ongoing discussion about) interactive and non-interactive services with respect to licensing and royalty rates—interactive services must negotiate private agreements and rates with copyright holder(s) to publicly perform sound recordings, non-interactive services are subject to statutory licensing and rates.
Our staring point for understanding what a non-interactive service is to understand its opposite—it is NOT an interactive service.