If It Quacks Like A Duck...

In a typical record deal, an artist normally would get a royalty for each album sold.  That royalty could be anywhere from 10-20% (or more) of the retail price after all the various deductions and recoupable amounts.  However, if their master is licensed (i.e., not sold), the artist would normally have a much higher revenue share.  It would be common for an artist to get 50% of licensed revenue.  Such revenue would include film, TV, commercials, video games, etc.

So, now we enter the digital world.  It would seem that a sale on iTunes is substantially similar to a retail sale.  A buyer pays a fixed amount and gets a copy of the music (albeit a digital one).  Simple, right?

Of course not.

If you ever have the opportunity to examine an itunes agreement with a label or distributor, you'll notice that it says "license" everywhere.  To some, that may seem like a minor, semantic detail.  But to Eminem (and Universal), it's a critical issue.  Recently, Eminem sued Universal because he was getting paid his artist royalty for itunes sales instead of the higher, licensed royalty.  If you do the math, you'll understand the impact of that word "license".

Let's assume he sales cumulatively 1 million, single track downloads at $0.99.   If he has an artist royalty of 20%, these downloads should generate $200,000.  But if this was considered licensed revenue, Eminem's share would be $500,000 (assuming a 50% rev share of such revenue).  That's a very significant difference.  

The math is simple and so is the motivation for Eminem to file a lawsuit.  He won his lawsuit and, of course, Universal filed an appeal.  But the big news of the day is that the Ninth Circuit has just denied the appeal.  

What does this mean?  It could cost labels millions of dollars if they have to treat digital downloads as licensed revenue versus retail sales.  My advice to every label, big or small, is to look at your artist deals and see if you differentiate licensed revenue or not.  I'd do it before the artist does just so that you will be prepared for their eventual phone call.

Comments

[Alex Halliday]

Hey there, Geoff's younger brother here, I believe we met last August when I was visiting, Love the blog Steve, I was led to the blog when referencing the BFM site as an example for my music business merchandising and law class. I came across this particular post which pertained to what we were discussing in class. Its blogs like this that help me to not only appear but become very credible and knowledgeable in class. I hope I can post more from your blog on my class discussion board so other students will read it and become enlightened, I look forward to learning more from your blog!