Digital Downloads as Licenses, not Sales: UMG Audit May Reveal $4m+ Owed to Eminem

February 29th, 2012

In my post February’s Finest Litigious Moments, I mentioned the recent lawsuits brought by Kenny Rogers and Sister Sledge against their respective labels, claiming unpaid royalties.  Their claims primarily hinge upon the argument that digital music downloads are “licenses” rather than “sales,” requiring a 50/50 split rather than 10/90, under their recording agreements.

The Eminem Lawsuit

Eminem and his first label F.B.T. Productions (referred to individually and collectively as “Eminem” in this article, to avoid party confusion) filed a similar lawsuit in 2010 against UMG owned Aftermath Records and other related defendants such as Interscope and UMG.  On appeal from a jury verdict in favor of the defendants, the 9th Circuit reversed the judgment and held that summary judgment should have been awarded to Eminem (read the full opinion here).

The 9th circuit agreed with plaintiffs that the “Masters Licensed provision [in Eminem's recording contract, as amended] unambiguously applies to permanent downloads and master tones.”  This meant that Eminem was owed 50% of net monies received in connection to the downloads, rather than the 12 – 20% his label had been previously paying.  An upcoming jury trial, scheduled for April 4, will determine exactly how much money is owed to Eminem as a result of the decision.

The Audit Report

THR recently published a leaked audit report prepared for the plaintiff by Gary Cohen. The report details monies owed to Eminem from July 2005 through December 2009.  The audit indicates that treating digital music sales as “licenses” instead of “sales” would result in over $3.8 million owed to Eminem.  This figure does not take into account monies owed from foreign licenses and only looks at the 3.5 year period.  The audit also reveals other accounting inconsistencies, including underpayment for vinyl sales and overstated tv advertising costs.

Aftermath is disputing the audit report, arguing that the calculations  wrongly include Eminem side projects and that money received in connection with foreign sales should be calculated differently.

The audit report highlights the millions of dollars that may be owed to artists if digital downloads are considered “licenses” rather than “sales” under their recording agreements.  Will other artists also be successful in their attempts to recover the higher royalty rate?

The Record Contract Language

The Eminem case looked to the recording agreement, its amendments, and parole evidence to determine the outcome.  The outcome of future cases will likely also be determined by  the individual contract language as well as statutory and case law regarding the definition of a “license” vs. a “sale.”

In Eminem’s 1998 recording agreement with Aftermath, the “Records Sold” provision provided the Eminem receives between 12% and 20% of the adjusted retail price of all “full price records sold in the United States . . . through normal retail channels.”  The agreement later provides that “[n]otwithstanding the foregoing,” Eminem is to receive 50% of Aftermath’s net receipts “[o]n masters licensed by us . . . to others for their manufacture and sale of records or for any other uses” (this is known as the “Masters Licensed” provision).  The agreement does not define the terms “licensed” or “normal retail channels.” The 1998 agreement was superseded by a 2003 agreement, which increased some royalty rates but contained that same wording of the Records Sold and Masters Licensed provisions as in the 1998 agreement.

The 9th circuit interpreted the language of the Masters Licensed provision as broad, but unambiguous:

The parties’ use of the word “notwithstanding” plainly indicates that even if a transaction arguably falls within the scope of the Records Sold provision, [Eminem] is to receive a 50% royalty if Aftermath licenses an Eminem master to a third party for “any” use.  A contractual term is not ambiguous just because it is broad. Here, the Masters Licensed provision explicitly applies to (1) masters (2) that are licensed to third parties for the manufacture of records “or for any other uses,” (3) “notwithstanding” the Record[s] Sold provision.

The court then looked to whether Aftermath actually licensed the Eminem masters to the third party digital music retailers. A license is a “permission to act.”  Aftermath entered into agreements that granted permission to iTunes and other parties to use its recordings to produce and sell downloads.  Accordingly, the court held that those agreements qualify as licenses. Further, under traditional copyright law principles, Aftermath didn’t sell the recordings to iTunes because it retained copyright ownership of the recordings and the download distributors never obtained title to the digital files.  Case law interpretations of the Copyright Act have held that where a copy of copyrighted work is transferred by the owner with limitations on how that copy may be used and the owner is periodically compensated for the transferee’s exploitation of the work, the transaction is a license.

In 2004, Eminem’s agreement was amended to provide that “Sales of Albums by way of permanent download shall be treated as [U.S. Normal Retail Channel] Net Sales for the purposes of escalations” (emphases added). Escalations are when royalty rates are increased upon reaching specific sales targets. The amendment further state that “[e]xcept as specifically modified herein, the Agreement shall be unaffected and remain in full force and effect.”

Aftermath argued that this amendment clarified the Records Sold provision as setting the royalty rate for permanent downloads.  The court disagreed:

Read in context, the plan language of the amendment provides that sales of permanent downloads by third parties count towards escalations on the royalty owed when Aftermath itself sells records through normal retail channels.  It does not state, and in no way implies, that the royalty rate for the sale of the permanent downloads by third parties is set by the Records Sold provision.

The court also rejected Aftermath’s argument that industry custom indicated that the Masters Licensed provision only should applies to compilation records and incorporation into movies, TV shows, and commercials.  The court reasoned that the Masters Licensed provisions had never been previously applied to digital downloads because that form of exploitation only started in 2001.  The contract was not meant to be confined to the state of music industry in 1998.

Based on this analysis, the court reversed the judgment in favor of Aftermath and remanded for further proceedings, the next step of which is the April 4 jury trial to determine damages.

February’s Notable Hirings, Firings & Promotions

February 29th, 2012

Effective April 1st, Kazuo Hirai will be replacing Sir Howard Stringer as president and CEO of Sony Corp.

Def Jam has named Gabrielle Peluso as GM.

Sonos hired Kristen Bender as Senior Manager of Music Product Management.

Michael Bryan is now OM Of Clear Channel-Nashville.

X5 Music Group has hired Noelle Bell as account director.

Lots of action happening at Epic RecordsJulia Savoca is now SVP of Sales;  Sylvia Rhone will be launching an imprint under the label; and Heath Kudler is now Senior Vice President and Head of Business & Legal Affairs.

Pete Dodge is now General Manager & VP of its Artist and Label Services division at Kobalt Music Group .

The Orchard has named ADA cofounder Michael Black as SVP of its Client & Sales Group.

UMG-owned, Island Def Jam Music Group has hired Eric Wong as Executive Vice President of Marketing.

Dave Zierler has moved up to be president of INgrooves.

John Hogan became chairman and CEO of Clear Channel Media and Entertainment.

Shifts at NPR - Kinsey Wilson  is promoted to EVP/Chief Content Officer of NPR, and Margaret Low Smith is promoted to SVP of News.

The Country Music Association  named Troy Tomlinson of Sony/ ATV Music Publishing the new President of the CMA Board of Directors and Ed Hardy as President-Elect.

La-la-lawsuits: A Look at February’s Finest Litigious Moments

February 28th, 2012

Paul Tarascio, former stage manager of “Late Night with Jimmy Fallon,” has sued Jimmy Fallon for gender discrimination, claiming that after he was fired in 2010 he replaced by a “totally incompetent woman.”

Sister Sledge is suing Warner Music Group in an attempt to re-categorize digital sales as licenses, a change that could mean millions in extra royalties.

Kenny Rogers is also suing his label, Capitol/EMI, over the issue of digital royalty calculations as well as false accounting.  His suit additionally alleges that Rogers received no compensation following EMI’s successful settlements with Limewire, Grokster, and Napster.  For a full description of Rogers’ claims against Capitol, check out this Digital Music News article.

An anti-merger lawsuit was filed against SAG and its officers, alleging that that proposal to merge the two unions omits “necessarily due diligence” and is “deceptive.”  The merger would merge the unions, but not the pension and health plans, which are legally separate entities. Plaintiffs include Martin Sheen, Edward Asner, Ed Harris, Valerie Harper, Nancy Sinatra, former guild president Alan Rosenberg and current board members Anne-Marie Johnson and David Jolliffe.

A federal judge rejected a lawsuit brought by Michael Jordan against Jewel-Osco for a congratulatory ad the company ran when Jordan was inducted into the Basketball Hall of Fame three years ago.  The court rejected Jordan’s argument that the ad infringed upon his trademark and instead determined that the advertisement was “noncommercial speech,” protected by the First Amendment, and that there was no indication of a “commercial transaction” in the ad.

Paramount Pictures has sued the estate of Mario Puzo, author of the book The Godfather on which the iconic films are based.  The estate released sequels to the book in 2004 and 2006 and is set to release another one later this year.  Paramount is seeking damages and preliminary and permanent injunctions to stop the sequel’s release, arguing that the sequels violate its trademark and copyright interests in the Godfather franchise and story.

Event: EMP Pop Music Conference – March 22 – 25, 2012

February 21st, 2012

The EMP Pop Music Conference started in 2002 in Seattle.  This year, it is being sponsored by the Clive David Institute of Recorded Music (my alma mater) and will be held in New York at NYU’s Kimmel Center from March 22nd to the 25th.

According to the website:

Topics range from Korean, Egyptian, and Latin American pop to panels on Berlin, Detroit, New Orleans, and Los Angeles, with another half-dozen sessions on New York City music from ragtime to hip-hop to “Warhol’s New York.” Presenters will pay particular attention to what urban environments have meant for race, gender, and sexuality. Jazz, rock, indie, country, metal, electronic dance music, roots, disco, and Broadway music are but some of the sounds that will be the subject of entire panels. And there are surprises galore, from a look at James Brown’s Augusta by his new biographer RJ Smith to senior citizen choirs and ‘tween pop. Six or seven simultaneous panels, from 9am to 6pm Friday through Sunday, following a Thursday night keynote, guarantee one of the largest and most diverse gatherings of popular music intellectuals ever assembled. The conference also marks the publication of the latest anthology of Pop Conference writing, Pop When the World Falls Apart: Music in the Shadow of Doubt (Duke University Press).

The conference is *FREE* but registration is recommended as a big turnout is expected.

Bonnaroo 2012 Line Up Announced

February 15th, 2012

The 2012 Bonnaroo line up was released yesterday.

Headliners include: Radiohead, Red Hot Chili Peppers, Phish, The Beach Boys, The Roots, The Shins, Foster the People, Bon Iver, Skrillex and the Roots.

Other notable acts (personal highlights) include Feist, Ben Folds Five, Laura Marling, St. Vincent,  and Major Lazer.

The Tennessee festival will take place June 7 – 10 on over 10 stages of music.

Grammy Recap 2012: The Stats

February 14th, 2012

This year’s Grammys had its highest-ever ratings since the award show began in 1980, with over 39 million viewers tuning in.  It also is being hailed as the “most social event in the history of television.” According to social media tracker Bluefin Labs, there were over 13 million social media messages or comments about the Grammys.  This number even surpasses the recent Super Bowl, which was the most watched and social media-ed Super Bowl in history (with 12.2 million social media comments).  Check out the Bluefin infographic below, which also details the peaks in the evening.

 

Grammy Recap 2012: The Winners

February 13th, 2012

To recap the Grammy big-wins quickly -  Adele won 6 awards and Bon Iver picked up Best New Artist. Foo Fighters cleaned up the rock categories pretty nicely, winning a total of 5 awards.

Here is a list of all of the winners:

Album of the Year: 21, Adele

Record of the Year: “Rolling in the Deep,” Adele

New Artist: Bon Iver

Country Album: Own the Night, Lady Antebellum

Song of the Year: “Rolling in the Deep,” Adele Adkins and Paul Epworth, songwriters

R&B Album: F.A.M.E., Chris Brown

Rock Performance: “Walk,” Foo Fighters

Rap Performance: “Otis,” Jay-Z and Kanye West

Pop Solo Performance: “Someone Like You,” Adele

Pop Vocal Album: 21, Adele

Traditional Pop Vocal Album: Duets Ii, Tony Bennett and Various Artists

Pop Duo/Group Performance: “Body and Soul,” Tony Bennett and Amy Winehouse

Short Form Music Video: “Rolling in the Deep,” Adele

Long Form Music Video: “Foo Fighters: Back and Forth,” Foo Fighters

Rap/Sung Collaboration: “All of the Lights,” Kanye West, Rihanna, Kid Cudi and Fergie

Rap Song: “All of the Lights,” Jeff Bhasker, Malik Jones, Warren Trotter and Kanye West

Rap Album: My Beautiful Dark Twisted Fantasy, Kanye West

R&B Performance: “Is This Love,” Corinne Bailey Rae

Traditional R&B Performance: “Fool for You,” Cee Lo Green and Melanie Fiona

R&B Song: “Fool for You,” Cee Lo Green and Jack Splash

Pop Instrumental Album: The Road From Memphis, Booker T. Jones

Country Solo Performance: “Mean,” Taylor Swift

Country Duo/Group Performance: “Barton Hollow,” The Civil Wars

Country Song: “Mean,” Taylor Swift

Folk Album: Barton Hollow, The Civil Wars

Hard Rock/Metal Performance: “White Limo,” Foo Fighters

Rock Song:  ”Walk,” Foo Fighters, Songwriters (Foo Fighters)

Rock Album: Wasting Light, Foo Fighters

Alternative Music Album: Bon Iver, Bon Iver

Producer of the Year, Non-Classical: Paul Epworth

Best Compilation Soundtrack for Visual Media: Boardwalk Empire: Volume 1

Score Soundtrack for Visual Media: The King’s Speech

Song Written for Visual Media: “I See the Light” (From Tangled)

Recording Package: Scenes From the Suburbs

Boxed or Special Limited Edition Package: The Promise: The Darkness on the Edge of Town Story

Album Notes: Hear Me Howling!: Blues, Ballads & Beyond As Recorded by the San Francisco Bay

Historical Album: Band on the Run (Paul McCartney Archive Collection—Deluxe Edition)

Engineered Album, Non-Classical: Paper Airplane

Best Remixed Recording, Non-Classical: Cinema (Skrillex Remix)

Surround Sound Album: Layla and Other Assorted Love Songs

Instrumental Composition: Life in Eleven

Instrumental Arrangement: Rhapsody in Blue

Instrumental Arrangement Accompanying Vocalist(s): Who Can I Turn To (When Nobody Needs Me)

Gospel/Contemporary Christian Music Performance: “Jesus,” Le’andria Johnson

Gospel Song: “Hello Fear,” Kirk Franklin, Songwriter (Kirk Franklin)

Contemporary Christian Music Song: “Blessings,” Laura Story

Gospel Album: Hello Fear, Kirk Franklin

Contemporary Christian Music Album: And If Our God Is for Us…, Chris Tomlin

Latin Pop, Rock, or Urban Album: Drama Y Luz, Maná

Regional Mexican or Tejano Album: Bicentenario, Pepe Aguilar

Banda or Norteño Album: Los Tigres Del Norte and Friends, Los Tigres Del Norte

Tropical Latin Album: The Last Mambo, Cachao

Engineered Album, Classical: Aldridge: Elmer Gantry

Producer of the Year, Classical:  Judith Sherman

Orchestral Performance: “Brahms: Symphony No. 4,” Gustavo Dudamel, Conductor (Los Angeles Philharmonic)

Opera Recording:  John Adams, Doctor Atomic, Metropolitan Opera Orchestra; Metropolitan Opera Chorus

Choral Performance: “Light and Gold,” Eric Whitacre, Conductor

Small Ensemble Performance: “Lonely Motel,  Music From Slide,” Rinde Eckert and Steven Mackey; Eighth Blackbird

Classical Instrumental Solo: “Schwantner: Concerto for Percussion and Orchestra,” Giancarlo Guerrero, Conductor; Christopher Lamb (Nashville Symphony)

Classical Vocal Solo: “Diva Divo,” Joyce Didonato

Contemporary Classical Composition: “Elmer Gantry,” Robert Aldridge and Herschel Garfein

New Age Album: What’s It All About, Pat Metheny

Reggae Album: Revelation Pt 1: The Root of Life, Stephen Marley

Spoken Word Album (Includes Poetry, Audio Books and Story Telling): If You Ask Me (And of Course You Won’t), Betty White

Musical Theater Album: The Book of Mormon

Dance Recording: “Scary Monsters and Nice Sprites,” Skrillex

Dance/Electronica Album: Scary Monsters and Nice Sprites, Skrillex

Children’s Album: All About Bullies… Big and Small, Various Artists

Comedy Album:  Hilarious, Louis C.K

Improvised Jazz Solo: “500 Miles High,” Chick Corea

Jazz Vocal Album: The Mosaic Project, Terri Lyne Carrington and Various Artists

Large Jazz Ensemble Album: The Good Feeling, Christian McBride Big Band

Jazz Instrumental Album:  Forever, Corea, Clarke and White

Americana Album: Ramble At the Ryman, Levon Helm

Bluegrass Album: Paper Airplane, Alison Krauss and Union Station

Blues Album: Revelator, Tedeschi Trucks Band

Regional Roots Music Album: Rebirth of New Orleans, Rebirth Brass Band

World Music Album: Tassili, Tinariwen

Whitney Houston Dead at 48

February 13th, 2012

Whitney Houston, one of the greatest singers of all time, died this past Saturday evening, February 11.  The cause of death has not been officially released and official autopsy results will likely take a couple weeks. Houston’s Aunt, Mary Jones, found the singer submerged in water in a bathtub in her Beverly Hilton hotel room and administered CPR.  However, according to TMZ, the LA County Coroner’s office informed Houston’s family that the death was caused by a combination of prescription drugs and alcohol, not by drowning.

Houston was one of the world’s best selling artist for over a decade, starting in the mid-1980′s.  Her music led to starring roles in films such a The Bodyguard and Waiting to Exhale, which also featured Houston’s music.   The Guiness World Record holder for most awarded female act of all time, Houston won over 415 awards during her life, including two Emmy awards, 6 Grammy awards, 22 American Music Awards, and 30 Billboard Music Awards. Last night’s Grammy show included a tribute performance by Jennifer Hudson and prayer in her memory presented at the beginning of the show by LL Cool J.

 

Court Declares California’s Gay Marriage Ban Unconsitutional

February 8th, 2012

The Ninth Circuit Court of Appeals held yesterday that Proposition 8, California’s voter-enacted ban on gay marriage, is unconstitutional.  The decision did not go as far as requiring that every state recognize gay marriage but held that Proposition 8 violated the 14th Amendment by stigmatizing a minority group without a legitimate reason.  The 128 page decision may face an appeal where it would be reviewed by an expanded 9th Circuit court or the Supreme Court.  By focusing on the California statute, rather than the broader constitutionality of restrictions on gay marriage, the holding will likely pass further scrutiny.

The majority opinion, penned by Judge Stephen Reinhardt, held that Propostion 8 “serves no purpose, and has no effect, other than to lessen the status and human dignity of gays and lesbians in California, and to officially reclassify their relationships and families as inferior to those of opposite-sex couples.”

Six states currently permit gay marriage and the topic is likely to be a hot issue in upcoming elections.

The WSJ presents a detailed overview of the history of the fight for legalized gay marriage in California.

My favorite, poetic quote from the decision:

‘Marriage’ is the name that society gives to the relationships that matters most between two adults. A rose by any other name may smell as sweet, but to the couple desiring to enter into a committed lifelong relationship, a marriage by the name of ‘registered domestic partnership’ does not.

Super Bowl Slip Up: NFL, NBC Apologies for M.I.A.

February 6th, 2012

First, I must admit I was thoroughly impressed with the Super Bowl halftime show.  I can’t remember seeing a better one.  Madonna looked amazing, had some incredible moves (a series of handless cartwheels!!), and the music sounded good.  I noticed Madonna stumble a little at one point, but otherwise, it seemed like a pretty smooth show.

Not quite.. apparently M.I.A. got a little too swept up in the excitement of the moment.  The British singer flashed the camera/audience/11 million viewers her middle finger at one point and dropped the s-bomb.  NBC censors tried to blur out the moment but weren’t fast enough, by less than a second apparently.

Following the game, NBC issued an apology: “We apologize for the inappropriate gesture that aired during halftime.  It was a spontaneous gesture that our delay system caught late.”

The NFL, in its form of an apology, blamed NBC: “There was a failure in NBC’s delay system. The obscene gesture in the performance was completely inappropriate, very disappointing, and we apologize to our fans.”

Lots of apologies about the finger, but does this mean that the s-bomb would be considered safe-for-primetime language?

Reports indicate that M.I.A. had kept it clean during rehearsals.

Hopefully the prompt apologies will keep down viewer criticism and outrage.  The network and NFL do not want another Janet Jackson-esque controversy on their hands.

Check out M.I.A.’s naughtiness if you also missed it the first time.