It’s every major label’s financial and legal nightmare – and it could soon be a reality.
Back in March, I wondered if Eminem’s victory over Universal Music Group in a case dealing with royalties and legal downloads would have an impact on the industry. (See original post here)
For Universal Music Group (UMG) that case has set off a firestorm one that no major label would want to deal with. UMG could soon be hit with multiple class action lawsuits that claim they have short-changed artists of royalties owed to them for digital downloads and ringtones. The lawsuits all deal with the basic principle – are digital downloads and ringtones sold or licensed?
The difference between a sale and a license? Billions of dollars.
Labels claim that digital downloads and ringtones are sales, however artists claim that they are licenses because there is little cost involved to the labels. Currently labels pay artists a royalty rate – anywhere between 10 and 20 percent – for a digital download or a ringtone. If the artists win their case, the revenue distribution is much closer to a 50/50 split – which would threaten the continued feasibility in the marketplace of the labels.
Earlier this year the 9th circuit court of appeals ruled that Eminem recordings transferred online were licenses. UMG spun that to mean that it as a singular case that dealt with specific language in Eminem’s contract. In the upcoming cases UMG hopes the cases are treated as breach-of-contract disputes. Otherwise it could mean huge losses for the recorded music industry if the artists get their way.
Currently UMG has been the only target of such claims, however if artists become successful in winning these cases in court, more labels could soon be the targets. In an industry that has already seen losses due to the digital age, this could potentially cripple the recorded music industry. (Recorded Music – not music – remember to distinguish the two).
In the coming months it will be interesting to see what perspires in two separate cases going on now – one spearheaded by Rob Zombie and the estate of Rick James, and one by Public Enemy member Chuck D – both of which are classified as class action.
References:
Universal Music Loses Bid to Dismiss Class Action Over Digital Revenue
Court Rules Against Universal Music In Lawsuit that Could Pay Artists Millions. Chuck D Joins Fight.
Judge Declines Universal Music Groups Bid to Dismiss Class Action Over Digital Revenue
