[This post is by FMC contributor Greg Capobianco]
We like to see artists get paid. It’s kind of one of our big things.
Depending how things go in the courts, a lot of artists stand to make a serious payday. You may recall the Eminiem royalties payment lawsuit in which Em’s producers, F.B.T. Productions, claimed record companies are incorrectly treating digital music purchases as “sales” rather than “licenses.” This is the difference between 10-20 percent of revenue instead versus something closer to a 50-50 split. Acts like Rob Zombie, Kenny Rogers and Sister Sledge have all filed similar suits. Rogers’ claims include some pretty bold accusations of major label malfeasance. Apparently, Capitol Records knows when to hold ‘em.
The 9th Circuit – and for now, by way of its silence, the Supreme Court — gave us the answer to the “sale vs. license” question regarding Eminem back in 2010. It’s a license. That is, so long as an artist’s contract doesn’t specify otherwise. Such an interpretation could be HUGE for certain legacy artists whose contracts were drafted long before there was any such thing as iTunes. (We’re pretty sure that any modern contract would clearly stipulate that artists get a percentage of sale, after they “recoup” their debt to the label.) Again, if you need a primer on this, check out our recent coverage of Sister Sledge’s similar lawsuit.
The real question — as yet unanswered — is whether the terms between the labels and the music services indicate a “license,” and therefore obviate the “sale” provisions even in more modern contracts. But that’s above our pay grade.
Even though Eminem’s peeps had their day in court, the paper trail doesn’t end there. The Hollywood Reporter has been closely tracking the case, and recently scored an audit relating to the rapper’s career from the period essentially representing the rise of legal digital downloads. This is the music-legal nerd equivalent of snagging a single page from Harry Potter and the Deathly Hallows a few weeks before its release in 2007. Or some other novel you are highly anticipating. You know, something incredibly compelling.
The big number in this report is $3.8 million. That’s not the total amount the label took in from digital downloads (we’ll continue avoid calling them “sales” for hopefully obvious reasons), but rather, the difference between what Eminem was paid and what he should have been paid. Couple that with underreported “budget” downloads, vinyl, military earnings, etc., and we’re quickly looking at over $4 million owed to Mr. Marshall Mathers.
What caught our eye, however, are some of the other monies allegedly withheld. For example, it looks like Aftermath is holding onto over $86,000 related to its YouTube litigation settlement. Similarly, a portion of the proceeds derived from the record labels’ victories agains Kazaa and Napster doesn’t seem to have ended up in Eminem’s hands. Whatever you think of the RIAA’s strategy to go after the means of distribution as a way to stop piracy, it would be nice to see their pursuit in the name of artists actually benefit, you know, the artists.
Also curious is Aftermath’s anticipatory holding back of over 2 million dollars to cover the legal fees related to this lawsuit itself. Welcome to the self-reflexive world of royalty litigation.
Again, Aftermath isn’t just going to accept these numbers as gospel. While the 9th Circuit generally recognized a digital download as license rather than a sale, the label asserts it is up for the trial court to decide which of these figures in the audit actually get the higher rate. They’re hoping few, if any.
All of this is swell for Eminem, but what about the industry as whole? By some accounts, it looks like there is a lot of money outstanding. Some have suggested that the total amount of unpaid royalties may exceed 2 billion dollars. If the average royalty on a traditional sale is around 20 percent, and the standard royalty for a license is 50 percent, it’s easy to see how significant this issue really is for artists.
When the trial begins in April, we’ll start to get a sense of what Eminem is most likely to get back, which could possibly have an impact artists such at Sister Sledge, Kenny Rodgers, and Rob Zombie, who are all charging ahead against their labels. If it’s materially true that the labels have been not paying royalties, then we think they need to get out the checkbooks. It’s just right.