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Rock bands sue over cut of digital revenues

By | Published on Tuesday 2 May 2006


And while Apple do their best to ensure the record labels have no control over what they charge for their music, their artists are trying to make sure the record companies get a smaller cut of what is charged.

Rock bands Cheap Trick and The Allman Brothers Band are suing SonyBMG over the royalty payments they receive from digital download sales. The lawsuit claims that the two bands, and any other band who signed a recording contract with SonyBMG prior to the legitimate download era, are losing out because of the way the major record company calculates what money is owed to an artist for each download track that is sold.

The lawsuit essentially centres on whether download sales are a modern version of physical record sales or recording licensing – which are treated differently in recording contracts. In the former, the record label deducts various expenses associated with manufacturing, distributing and marketing of physical recordings before splitting revenues with the artist. In the latter the artist receives more or less 50% of the revenue, without deductions.

Because both Cheap Trick and The Allman Brothers Band’s contracts pre-date the arrival of legitimate download platforms they do not define whether digital music sales follow the physical sales or licensing revenue models. The record labels have been treating download sales like physical sales and deducting expenses before passing on a split of revenues to the artist. The plaintiffs claim digital music sales should operate on the lines of the licensing model – meaning artists should be seeing 50% of the revenue the label gets from download sales.

According to the lawsuit, after a record label has deducted its expenses the artist sees just 4.5 cents per download sold. Without those expenses being deducted the artist could expect to receive up to 30 cents per track (based on the assumption the record label receives 70 cents per track from the download platform, of which 6.9 cents goes to the publisher).

Although the figures per track are mere cents, if the courts were to rule in the two bands’ favour it could cost the major record company a considerable sum of money. More so if the plaintiffs are successful in persuading the courts to make this case a class action, meaning that a ruling in their favour would also rule in favour of every other artist who signed a similar recording contract with Sony Music between 1962 and 2002 – possibly 2500 bands. And presumably the other three majors could face similar litigation if this one goes in the artist’s favour.

SonyBMG is yet to comment on the lawsuit – though in some ways all the record labels could do with speaking as one on this one. The issue, of course, is the perception of many outside the record companies that the cost of delivering digital music to the consumer is practically zero, over and above the recoupable recording, encoding and marketing costs incurred when an album is first launched. This perception isn’t just held by the cynical downloader, but also by the publishers who are pushing for a bigger slice of the pie and now, it would seem, the artists. The cost to a record label of selling digital music is certainly higher than most people probably realise, though whether it is really as high as the labels say is anyone’s guess. Either way, the labels certainly need to better communicate what their costs are, given that they are yet to convince their own artists and publishing sister companies, let alone the music buying public, that they’re not ripping anyone off.