FBT sued UMG over what amounts to the definition of ownership of a digital file. FBT claimed that UMG owed them a lot more money for each download sold because a digital file sold by iTunes or Amazon MP3 is actually a license. UMG insisted that regardless of whether it's a CD, vinyl record, or digital file, Eminem's music is part of their distribution deal.
So is it licensing or is it distribution? That's what the court had to decide.
There was a lot of money at stake here. If the court decided that selling a digital file is a licensing deal, then the record label and the artist would split the proceeds 50/50 and the artist would be entitled to about 35 cents per download. But if they decided it's distribution, then the original recording agreement would still be in force and the artist would make about 15% (more or less), or about 10 to 20 cents on every download instead.
FTB claimed that, since there's no manufacturing or packaging costs (which are covered by the record label), and only a single copy is delivered to the digital download companies, then it should be a license, since that's what occurred in licensing deals of physical product for years. UMG argued that a sale is a sale regardless of how it happens.
In the original ruling, the court sided with UMG and the whole music industry let out a huge side of relief. If the ruling had gone Eminem's way, every record label would owe their artists a huge amount of money, effectively bankrupting the music industry.
Last week, an appeals court ruled against UMG and ordered them to pay FBT a full 50% split of all royalties, instead of the 12% that they were getting before.
This ruling will be worth millions of dollars for FBT, but it could mean that the music industry will be on the hook for hundreds of millions, even a billion dollars depending on who you talk to, in back and future royalties.
If you thought that the music industry was really changing, you haven't seen anything yet. This may be the tidal wave that finally sweeps the music industry as we know it away for good.
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