Archive for the ‘royalties’ tag

Songkick introduces Detour, challenges the live-music business status quo

leave a comment

The Internet has long been a place for fans to gather and discuss the pop culture they love. In recent years, however, the internet has begun to take that love to the next level, allowing fans to actively contribute to projects they find intriguing.  The most prominent website in this newly emerging market is obviously Kickstarter, yet more sites are beginning to adopt its model and diversify its applications. Perhaps the newest development comes from Songkick, which is attempting to apply the Kickstarter ethos to live music.

Since its founding in 2007,  Songkick has been devoted to providing its users with alerts about upcoming shows by their favorite acts in any given area. The site aims to provide a forum for live music lovers to gather, and a way for them to keep up to date on when they may have the chance to see their favorite bands again. The site began by addressing fans’ frustration at missing out on a great show, but it has now evolved to begin dealing with a similar frustration: finding out a band you love isn’t coming to a venue near you.

Detour, the site’s ever-growing solution to that problem, allows fans to place advance orders for tickets to a theoretical concert in their area, which they will only be charged for if the concert takes place. The process, called crowdfunding, allows fans raise money to bring their favorite bands to town and mitigates the risk artists take when traveling to new places.  The system lets fans to convince their favorite bands (and those artists’ booking agents) that there is not only a fan base in an area, but a base that is willing to buy tickets if the artist comes to town. After testing the system with smaller artists, like Hot Chip and Tycho, booking single venues through Detour, the site is now preparing to take the next step, by working with Andrew Bird to plan his entire tour of South America.

Bird plans to do a six-city tour of the continent in February, and Detour is facilitating. Twelve cities have been chosen as contenders, among them large metropolitan areas like Rio de Janeiro and Sao Paulo, and smaller outlets like Santo Domingo and Caracas, and the first six cities to sell 250 provisional tickets will get the dates. If successful, the tour will be the largest fan-funded music tour in history.

Co-founder and CEO Ian Hogarth insists the site aims to work within the existing framework, alongside bands, managers, promoters, and booking agents, yet he points out that “”If you think about recorded music over the last 20 years, we’ve seen MP3s and Napster; iTunes and the iPod; YouTube making Gangnam style an overnight hit and services like Spotify and Soundcloud — there has been an incredible amount of disruption. Meanwhile very little has changed in live music.”

With every technological progression, legal questions inevitably follow. It is too early yet to accurately predict the problems that Detour may run into, though challenging the status quo of the music business, especially when it comes to the live music booking framework, tends to be met with resistance from those the current system benefits. If Detour is successful, it may be the beginning of a new world order for live music, where fans have greater control over who they see and where concerts take place. By seizing the possibilities of modern technology, Detour may be forging a new path for the planning and execution of concert tours.

Written by

October 31st, 2012 at 7:44 am

Sony’s $8M Settlement and the Future of Digital Royalties

leave a comment

Wrapping up six years of heated litigation, Sony offered an $8 million settlement this week in a class action lawsuit led by The Allman Brothers and Cheap Trick, accusing Sony of underpaying the bands’ digital record royalties.  Originally filed back in 2006, this class action forged the way for numerous artists to sue their labels for counting digital downloads as “sales” rather than “licenses.”  Last year, Eminem’s producers won a similar suit against Universal.  See F.B.T. Productions, LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010).  At the crux of such disputes lies the discrepancy between sale and license royalty rates: royalties for phonorecord sales typically fall between 8 and 20 percent, whereas a 50 percent royalty rate remains the industry standard for licenses.

As the Amended Class Action Complaint alleges, Sony’s failure to properly account to Plaintiffs for recording royalties of their recordings sold by “Music Download Providers” and “Ringtone Providers” through digital distribution has resulted in a gross underpayment of royalties to Plaintiffs.  See Allman v. Sony BMG Music Entm’t, No. 06-CV-3252 (GBD), 2008 WL 2307598 (S.D.N.Y. July 10, 2006).  By treating digital downloads like traditional record sales, Sony has successfully triggered a lower-paying royalty deal for its artists.  The Complaint charts out the differences between the two royalty options, highlighting that of the 99 cents charged to the consumer by Apple for each download through iTunes, Plaintiffs receive approximately 4.25 cents.  Similarly, from each $1 to $1.50 that Sony receives for a ringtone, Plaintiffs receive only 8.3 cents.  Plaintiffs argue that these numbers stand in stark contrast to the revenue Plaintiffs would receive if Sony licensed its sound recordings to Music Download Providers, since the artists’ Recording Agreement requires Sony to pay its artists 50% of all net licensing receipts received, when such sound recordings have been licensed to third parties.

However, in a brief and pointed opinion, the district court judge determined based on the contractual language that there is “no basis from which it can reasonably be inferred that payment pursuant to the master recording lease provision is applicable.”  Allman v. Sony BMG Music Entm’t, 06-CV-3252 (GBD), 2008 WL 2477465, at *1 (S.D.N.Y. June 18, 2008).  Since the master recording lease provision (which would entitle Plaintiffs to 50% of net receipts as a royalty) necessarily required proof that the master recordings were in fact leased to the Music Download Providers – proof not provided by Plaintiffs – that provision did not apply.  Instead, the district court held that the royalty provisions applicable to “Sales of Phonograph Records” reigned supreme, which included master recordings sold by Defendant or its licensees through normal retail channels, such as iTunes.  Since the parties stipulated that digital music files fell within the contractual definition of “phonograph records,” the iTunes downloads constituted sales of the digital sound recordings rather than licenses and thus justified the lower artist royalty rate.

Now, almost four years later, the Settlement directs that $7.65 million (less attorneys’ fees) will go to class members who sold at least 28,500 downloads on iTunes, while the remaining $300,000 will be paid to class members equally, per capita, with sales fewer than 28,500 total downloads.

Despite being premised primarily on contractual interpretation, Allman nonetheless raises timely, compelling questions pertaining to the disconnect between emerging digital technologies and frequently outdated contracts.  For example, one background explanation for the prevailing lower royalty rate in Allman may be that the lead Plaintiffs’ record contracts came into existence before the advent of digital music sales online, and did not adequately predict or account for future methods of artist payments.  In any case, the district court’s opinion makes clear that “the emergence of a new era of digital sound recordings does not afford plaintiffs the right, under the guise of contract interpretation, to rewrite the terms of the contracts in order to secure a more favorable, or what they consider to be more equitable, royalty formula.”  See Allman, 2008 WL 2477465, at *2.  Depending on the exact wording of other artist contracts, then, we can expect to see an increase in this type of litigation.

Written by

March 22nd, 2012 at 1:33 pm

The “Trickle Down Theory” of Music Streaming Revenue: Is Legal Intervention Necessary for Artist Payout?


How much do streaming services pay artists?  The question has been asked with increasing frequency of online services from Spotify to Rhapsody and even iTunes, yet is often met by disparate – and thus unenlightening – figures, or naïveté.  Illustrating this latter occurrence with nothing but the best intentions, Rhapsody president Jon Irwin stated in an op-ed for Billboard last week that the company has paid out “hundreds of millions” to rights holders since 2001, and that he “trust[s] that this royalty revenue is flowing to artists.”

The accuracy of Irwin’s statement – and the validity of this “trickle down” theory of streaming royalties – may quickly be called into doubt upon the realization that streaming services such as Spotify and Rhapsody are only contractually obligated to pay whoever owns the music, and not necessarily the artists themselves.  For this reason, Glenn Peoples of Billboard posits that this post’s initial inquiry misses the target.  Streaming services need only concern themselves with making sure the appropriate rights holders are paid, and given the ubiquitous inequities in bargaining power between most artists and their labels, it is far more likely for a label to own the underlying copyrights to the master recordings than the artist.  When this is the case, then what Spotify and similar services must pay to the artist is entirely between the artist and his or her label, and artist recording agreements vary widely from deal to deal.

While there is nothing inherently illegal about such an agreement (such is the practice in the music industry), the position of labels as intermediaries between streaming services and artists makes it difficult to obtain any sort of transparency regarding the actual royalties streamed down from the services to the artists.  Due to increasing worries about the amounts being paid out by subscription services – and to whom – recent discussions have ignored the steadfast existence of the industry’s financial hierarchy.  Perhaps that is a good thing, incentivizing an artist or manager who is unsatisfied with the amount of streaming royalties received to directly approach the label or distributor responsible for negotiating the deal with the streaming service.  Or perhaps we need better laws and business models in place to protect uneducated artists and those with particularly weak bargaining power from having to negotiate those rates independently (and probably unsuccessfully).

Coldplay’s recent refusal to license its newly released album, Mylo Xyloto, to any on-demand streaming service speaks to the concern that platforms like Spotify may not provide a financial benefit to the actual artists.  Evidence that the free model of Spotify and other similar streaming services may be diverting potential customers away from paid download services like iTunes makes Coldplay’s decision to withhold content even more enlightening.  Perhaps larger artists like Coldplay risk losing more income from streaming services than do smaller artists, who would not experience the same volume of paid downloads.  In fact, an impressive 40% of Coldplay’s early Mylo Xyloto sales came from paid downloads.  To put it simply, there is no way Spotify royalty income will ever come close to the amount a big act like Coldplay could make by selling albums and downloads.  A study conducted last year reveals that in order for an artist to earn the federal monthly minimum wage of $1,160, their fans must stream a staggering 4,053,100 plays per month (versus “only” 12,399 digital downloads per month).

The disparity between per-stream payouts and those for actual digital downloads raises the question: is legal intervention necessary to protect artists from manipulative labels pocketing their streaming royalties?  Placing the burden of finding a solution to this nearly impossible dilemma  on streaming services unfairly attacks companies trying to run legitimate business operations that simply lack the expertise to tackle this issue, not to mention that most services are private companies with no obligation to report sensitive financial details to the public.  Could artist and continuing legal education seminars effectively help artists and managers better negotiate terms in their recording and publishing agreements and take full advantage of revenue streams from constantly evolving technologies?  Should we ask our legislators to draft more effective anti-piracy laws and/or increase the statutory royalty rate?  Anti-piracy laws alone will not directly solve the problem, however, since many former P2P downloaders may instead turn to free streaming.  The solution will require an ongoing and candid dialogue between artists, labels, distributors, and legislatures alike.

Written by

October 30th, 2011 at 8:44 pm

1,200 TV Stations Sue BMI Over Music License Fees

leave a comment

The topic of music royalties has come up time and again in 2009, from the introduction of the Performance Rights Act, currently making its way through Congress, to various digital performance royalty rate disputes, from Internet broadcasts to satellite radio.

To end the year in music royalties and law, and to help open up 2010, on the week of December 21, 2009 the owners of about 1,200 “local” television stations filed a lawsuit against performing rights organization Broadcast Music, Inc. (BMI) seeking “lower broadcast fees to reflect declining television viewership and advertising revenue,” according to a report from music industry news publication Billboard.  The suit, WPIX v. BMI, was filed in U.S. District Court, Southern District of New York.

The plaintiffs, who have periodically renegotiated the rates with BMI, now state that a federal judge should “set reasonable fees and terms” because of a decline in television viewership and advertising revenue, according to Businessweek.  According to the Businessweek article, the “television industry will end the year with lower-than- expected revenue of $15.6 billion, a 22.4 percent decline from 2008.”

Written by

December 31st, 2009 at 4:46 pm

Posted in Cases

Tagged with , , ,

Microsoft Word Injunction and Damages Upheld in the Federal Circuit

leave a comment

A three judge panel of the Court of Appeals for the Federal Circuit recently upheld the injunction against Microsoft that goes into effect January 11, 2010.  The panel also upheld the nearly $300 million in damages from the U.S. District Court for the Eastern District of Texas.  The injunction will bar Microsoft from selling versions of Word that contain the ability to open documents with “custom XML.”  The injunction does not affect any versions of Word sold before January 11, 2010, but does prevent Microsoft from “instructing or assisting new customers in the custom XML editor’s use.”  Technical support can still be offered by Microsoft from versions of Word sold before January 11.  Regardless, Microsoft has said that it is ready to remove the infringing feature from copies of Word and Office that will be sold after January 11.  The upcoming 2010 versions of Word and Office should not have the infringing feature, and thus should be unaffected by the injunction.

The only changes to the injunction by the panel were a modification of the effective date of the injunction, from the original 60 days (stayed during appeal) to 5 months from the original issue date of the injunction.  This was because the panel determined that the district court erred in setting a time frame of 60 days, when the only evidence concerning time to remove the infringing XML functions from Word was “at least” 5 months.  As Microsoft has said, it initiated steps in August to remove the infringing feature, so the change in the effective date of the injunction should have little practical impact.

In regard to the damages, most significant is the $200 million damages for royalties.  The panel even admitted that, “Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $ 200 million damages award was “grossly excessive or monstrous” in light of Word’s retail price and the licensing fees Microsoft paid for other patents.”  The opinion makes it sound as if the panel, if able to review sufficiency, would have significantly reduced the royalty damages.  This is because the baseline royalty rate used by i4i’s expert witness to calculate damages was $98, when certain Word products could sell for as low as $97.  On a sufficiency review, it seems entirely possible that the baseline royalty used was grossly excessive and monstrous, since it could be greater than the entire selling price of a single copy of Word.  Further, Microsoft told the court the typical license it paid to use a patent was in the $1 – $5 million range, something completely out of line with the i4i calculations of $200 million.  But the panel stated it was unable to review the sufficiency of the evidence, as Microsoft had failed to file a pre-verdict judgment as a matter of law motion, restraining the panel’s review to the standard of a clear showing of excessiveness.  The panel even seemed to question Microsoft’s failure to file a pre-verdict JMOL motion as to the sufficiency of the evidence for the damages, stating, “Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different” because then the panel could decide “whether there was a sufficient evidentiary basis for the jury’s damages award.”  Given the panel’s statements, Microsoft might have blown its chance to have the damages significantly reduced on appeal by deciding not to file a JMOL motion for sufficiency of the evidence as to damages.

It also seems as if i4i’s decision to file in Texas has paid off, after gaining some measure of approval from the panel of the Court of Appeals for the Federal Circuit.  I don’t know if I would go so far as to call the panel’s opinion “a complete and utter vindication of the judgment,” given the statements of the panel regarding the royalty calculation and the limited level of review available for the findings of the jury, but it does give some credence to the inability of an appeal to alter the jury verdict.  While Microsoft’s loss on appeal may not make the district court’s decision completely right, it may well signal the verdict’s irreversibility.  The Federal Circuit may well refuse a request for a full hearing, as the decision clearly sets out the limits of appellate review in this case.

The size of the verdict against Microsoft makes you wonder why they didn’t just license the patent from i4i back in 2000, when Microsoft was aware of i4i’s presence in the market, or even at the start of litigation in 2007.  At this point, there appear to be very few reasons for i4i to consider talking with Microsoft about licenses or settlement, as i4i looks to have a winning case and a firm hold on nearly $300 million from Microsoft.

Should Traditional Radio Stations Pay Music Royalties?

leave a comment

Congressional hearings this week focused on whether or not traditional radio stations should have to pay royalties for the music they play. Billy Corgan of The Smashing Pumpkins, was among those who testified in support of H.R. 848, The Performance Royalties Act. Radio stations argue that the value of promotion they give artists outweighs the costs of any royalties due. That’s an argument that sounds familiar, and may explain some of the impetus for copyright holders to come forward now to reject such a rationale.

Written by

March 12th, 2009 at 5:21 pm

Posted in Quick Links

Tagged with , ,

Webcaster Settlement Act: Can it Really Save Internet Radio?

one comment

by: Adam Denhoff, Associate Editor, MTTLR

Image this is podcasting by Thomas Kamann. Used under a Creative Commons BY 2.0 license.

Internet radio broadcasters were given renewed hope of long-term stability when President Bush signed the Webcaster Settlement Act in October. The Act allows webcasters and record labels to continue negotiating for a reduced performance royalty rate while Congress is in recess, as it extends the deadline for a new deal to February 15, 2009. The issue stems from a March, 2007 decision by the Copyright Royalty Board (CRB), which would force webcasters to pay for each song streamed to each user at a retroactive rate as follows:

2006: $0.0008 per song, per listener
2007: $.0011
2008: $.0014
2009: $.0018
2010: $.0019

SoundExchange, the organization that represents artists and record labels, favors higher performance royalties because it believes that musicians deserve their fair share of Internet radio profits. The Digital Media Association (DiMA), a trade organization that represents a number of prominent webcasters including AOL Radio and Yahoo! Music, believes that the decision of the Copyright Royalty Board would bring about the end of Internet radio by forcing webcasters to pay outrageously high performance royalties at rates that they simply could not afford.

The Radio and Internet Newsletter (RAIN) calculates that, assuming the average Internet broadcasting station plays 16 songs per hour, a webcaster would have a royalty obligation of 1.28 cents per listener hour in 2006 (which would skyrocket almost three-fold by 2010). These royalties would only cover use of the sound recording, and webcasters also have to pay an additional fee to holders of copyrights in the composition. Using the CRB’s proposed royalty structure, it would be nearly impossible for an Internet radio station to remain profitable, and most, if not all webcasters would be forced out of business. Tim Westergren, the head of Pandora (one of the nation’s most popular Web radio services), believes that its royalty fees for this year could represent 70% of its projected $25 million dollar revenue. According to David Oxendide, a lawyer representing many smaller webcasters, CRB’s royalty structure would be a fatal blow to small and medium sized stations whose royalties would be between 100% and 300% of annual revenues.

Traditional radio broadcasters, like those represented by the National Association of Broadcasters (NAB), have seen web-based radio as a serious threat to their dominance. They lobbied against the Webcaster Settlement Act. However, they retracted their aggressive opposition to the Act when the negotiating deadline was extended to February 15; the extension will allow the NAB to negotiate its own performance royalty structure with SoundExchange. Today, terrestrial radio broadcasters pay licensing fees only, but SoundExchange is working to change that.

What does all this mean for Internet radio? Well, even SoundExchange acknowledges that the royalties in CRB’s model might be unworkably high. Nonetheless, SoundExchange officials complain that Internet radio stations have done too little to turn a profit from streaming music on the web. Webcasters counter by arguing that advertisers have yet to embrace Internet radio which makes it nearly impossible to get investment funding.

Although the music is industry is in shambles and record labels are desperate for new sources of revenue (i.e. performance royalties from online radio stations), perhaps biting the hand that feeds is not the right approach. A thriving source of online music is essential for the survival of the music industry. Surely record companies would prefer that new music be spread via web-based radio rather than on illegal file sharing networks? Introducing performance royalties into both the digital and terrestrial radio schemes makes sense; why should radio stations be required to compensate the songwriter, but not the performer or record label for use of copyrighted material? However, the Recording Industry Association of America, SoundExchange, and DiMA should negotiate a performance royalty rate that benefits all parties by ensuring that Internet radio lives on. The impossible-to-interpret “willing buyer, willing seller” model utilized by the CRB is not a transparent approach. The Webcaster Settlement Act, which allows the parties to negotiate further, is a step in the right direction.

Written by

December 3rd, 2008 at 5:40 am