Friday, March 06, 2009

Should Music Contracts Reflect Today's World or Yesterday's

The one-week trial between Universal Music Group (UMG) and F.B.T. Productions (Eminem) closed this week with FBT asserting that ‘When a music fan buys a song off of iTunes, the record label hasn’t done very much to get it on their playlist, and thus doesn’t deserve the lion’s share of the profits.’ About $1.6 million is a stake, with Eminem seeking three times the current royalty in the trail and the implications of any outcome on others is obvious.

F.B.T. claimed the download arrangements are similar to the one UMG has with traditional record clubs, and under this licensing agreement, Eminem gets 50% of the profit. When an album is downloaded on iTunes, it falls under the “records sold” provision of the agreement, giving Eminem an 18.23% royalty rate. F.B.T. are claiming that Universal simply grants a license for iTunes to distribute the recordings and by doing so, minimises its manufacturing costs.

Lawyers for UMG countered that they put millions of dollars into building the technology to send music files to digital retailers, and so deserve the royalty they currently receive. UMG, state that because record clubs fall under a separate part of the recording agreement they have with the artist, the situation is not comparable. They point out that the royalty rates are the same (18.23%) for cassettes, vinyl and CDs, even though the manufacturing costs vary considerably. So if a digital download costs less for the record company to manufacture, why should that rate change?

Some artists would say that they lost out when they moved from vinyl to CD's. They are cheaper to manufacture, but the packaging deduction went up from 10% to 25%. They lost when they moved to downloads, since labels would still charge for packaging under existing contracts. How can an artist be held under a contract to not-yet-developed technology in record contract negotiations that took place years ago?

If FBT wins this case, it will have a bigger impact on smaller bands and also bands that are held to contracts signed in the 60s and 70s. Contracts that were signed before digital downloads became prevalent often have a different royalty rate for albums than singles which could seriously be impacted as digital downloads consider all tracks as singles and are paid at the lower rate under these contracts.

Should artists have the right to renegotiate their contracts when new technology emerges to deliver their music? Universal is not only fighting Eminem's F.B.T. in court, but their entire roster, and this again shows the level of the mess that digitisation is heaping on the music producers and why they are haemorraghing artists and some would say trust.

There is a lesson here for all media companies who believe that they can roll old contracts forward with little regard to the spirit in which they were entered into or the fact that things have changed.

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