Sunday, May 22, 2011

The Serious Ramifications Of The Eminem Lawsuit

As stated in the last couple posts about this subject, the Eminem win in court over Universal Music Group (UMG) would have some serious ramifications on the major labels at some point. It looks that point is now.

To catch you up, Eminem's production company sued UMG over how the royalties were computed for digital music. They suit hinged on whether a download is a treated like a record royalty or license agreement. The difference is that in a record deal, the record label manufacturers the product (CDs) and pays the artist a royalty of anywhere between 12 and 20% of the wholesale price. In a licensing deal, the record label provides the licensee (such as a distributor in another country producing CDs) with a master, and they in turn manufacture the product. The record label and the artist split the proceeds from the license deal 50/50.

Since in the case of digital downloads, a label doesn't actually manufacture anything and provides the user with a master, it sure looks like a license and the court agreed.

UMG originally won the case but lost the appeal, meaning that the court agreed that a download is really a license rather than a sale, awarding FBT (Eminem's production company) the right to collect a lot more money, reportedly as much as $30 million. The irony is that Eminem declined to be part of the lawsuit so as not to make waves with UMG, so he might not see an extra dime.

As predicted, more classic artists are coming forward to sue UMG. First came the estate of Rick James, then last week Rob Zombie, White Zombie, Whitesnake and Dave Mason filed a class-action suit against UMG in the United States District Court in San Francisco.

Supposedly a number of attorneys for other UMG classic acts are preparing lawsuits as well. As predicted, this will change the music industry in that the major labels don't have enough money as it is, and they'll all be in serious trouble if big payouts are necessary. That said, some artists are afraid to engage in a battle with a major label, especially if they depend upon royalties from their catalog. There's enough accounting shenanigans that goes on with labels already, and many artists are wary about giving them an excuse for more.

A suit by artists signed after about 2003 won't happen however, since the labels put language in the all contracts from that time on that clearly specifies that a digital download is a sale.
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