Monday, January 10, 2011

What The Beatles Unique iTunes Deal Means For Other Artists

It's recently been revealed that The Beatles/EMI deal with iTunes has a very unique feature. iTunes pays all royalties directly to both The Beatles Apple Corps and their publishing company Sony/ATV Music Publishing, bypassing EMI.

This type of payment arrangement is normally never done. The record label normally gets the payment from iTunes, then distributes the money to the artist and the publisher. By being paid directly, The Beatles made sure of a couple of things.

1) There'd be no hanky panky with the books by EMI.

2) They don't have to wait until the end of EMI's payment cycle to get paid.

But wait. There is one case where an artist is paid directly by a distributor (which is what iTunes is) and that's in a licensing deal. What's the difference? In a record deal, the record label manufactures the product. In a licensing deal, another entity is given the right to take on the burden of manufacturing from a duplicated master, but the royalty rate to the artist is then increased to as much as 50% (up from 12 to 25% on a record deal, depending upon the contract). But if EMI isn't manufacturing any product (because it's digital) and iTunes is the distributor of duplicated master, isn't that a license?

There's been a number of artists that have been arguing this is the case for the last couple of years. As I reported here, Eminem's production company F.B.T. lost its first court battle with UMG then won the appeal, but UMG has asked the court to review the decision, so the result isn't as cut and dried as it initially seemed. Cheap Trick and the Allman Brothers have also taken their labels to court for just the same issue. Cheap Trick eventually settled the case with Sony Music, but the Allman Brothers case is still continuing.

While EMI vehemently denies that the deal with iTunes is not a licensing deal, if it looks and sounds like a duck, it probably is a duck, and that sets a precedent. While you have to have some hits to play in this league, the fact that EMI agreed to such a deal (probably because they just wanted to get some revenue through the door) may ultimately cause the courts to rule against other labels the next time this situation comes up.

That doesn't mean that all artists will ultimately benefit from The Beatles/EMI/iTunes deal, but it does bring it into the realm of possibility. And once the ball starts rolling downhill, it only picks up speed.

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