Fight The Power: Chuck D Sues Universal Music For Hundreds Of Millions In Unpaid Royalties

from the bring-the-lawyers dept

When Eminem's publisher won its lawsuit with Universal Music over how to account for iTunes royalties, we expected a flood of similar litigation, possibly enough to seriously cripple the world's largest record label. Universal Music insisted that Eminem's deal was unique and the case was specific only to that, but so far, we're seeing more and more musicians understanding the implications of the ruling, and filing similar lawsuits. If you don't recall, the battle came down to the simple question of whether or not an iTunes sale was a sale or if it was a license. Amusingly, in almost all other legal contexts, Universal Music claims that when you "buy" a song at iTunes it's just a license. But that proved to be UMG's undoing here -- because many of its old contracts had extremely different terms for royalties on "sales" and "licenses."

Now, there's a good reason for this. Historically, sales were of things like CDs, where Universal had relatively higher production, storage and distribution costs. So for "sales" (of CDs), the royalty to the musician was lower. "Licenses" generally referred to things like licensing a song for a movie or TV commercial. There, labels were willing to share higher royalties with the artist, and for good reason. The costs to the label of such a license were minimal, and licensing was always a relatively small part of the business.

But, of course, iTunes makes for a weird situation. The labels want to pretend it's the same thing as selling a CD, and thus they've been paying the lower royalty rate. But, in other legal contexts they keep claiming that downloading a song from iTunes is not really a "sale" but merely a "license." Thus, the basic legal claim from musicians is that for iTunes sales, they deserve the much higher royalty rate (usually closer to 50%, rather than 10% for sales). The court in the Eminem/FBT case said that iTunes songs were licenses... and thus the higher rates applied.

As we noted, when others started suing, this could lead to somewhere around $2 billion that the labels may need to pay out to artists, and the artists are noticing.

The latest to file suit is is Chuck D of Public Enemy, claiming that Universal owes him hundreds of millions of dollars.

The full filing (embedded below) provides some additional details about UMG's "standard" recording contract. As was detailed earlier this year by entertainment industry lawyer, Martin Frascogna, royalty rates are often just a part of the calculation -- and those royalties tend to come after a bunch of other "deductions." In the Chuck D lawsuit, he notes that the "sold" equation includes a ton of additional "deductions" compared to the "licensed" equation. This includes a "container charge" and an "audiophile deduction." Because of those significant other deductions that only are used on "sales," the claim is the amount owed is even larger than just the discrepancy in royalty rates... and considering that the "container charge" is officially for physical packaging of a CD, it seems pretty ridiculous that UMG has been applying the container charge to digital licenses like iTunes.

In the lawsuit, Chuck D actually reveals the data on how UMG has been calculating royalties... and how they should. It highlights record label accounting at its finest: As you can see, just as Frascogna explained in his video, the "standard" way of accounting for "sales" is pretty ridiculous. First, there's a "net sales" deduction, which simply deletes 15% of sales from the equation. Then the "container charge" takes out another 25%. So, on 1,000 units -- which brought UMG $700... UMG is able to say that Chuck D is only provided with $80.33... despite a (quite generous for a record label deal) royalty rate of 24% (standard deals start closer to 10%). In other words, the real royalty rate for Chuck D is actually more like 11%, rather than the 24% claimed in the contract.

As the lawsuit notes, the proper way to account for digital royalties would show a much, much higher number: $315.85 for every 1,000 units sold: The lawsuit goes on to make similar (though with even more number discrepancy) arguments around ringtone royalties, suggesting that UMG is paying $49.89 per 1000 ringtones sold... when the actual number should be more like $660.

UMG is going to be facing a lot more of these kinds of lawsuits, and it's somewhat amusing to see it hoisted on its own petard for being so insistent that iTunes and other digital stores were "licensing" deals. And, for what it's worth, Chuck D has actually been one of the artists on the forefront of embracing the internet and what it allows -- way before almost any other artist. All the way back in 2000, we had an article about him defending Napster in a debate against Lars from Metallica. If anyone deserves to take Universal for "hundreds of millions of dollars," he seems like a good candidate.

Filed Under: chuck d, contracts, license, public enemy, royalties, sales
Companies: universal music

DailyDirt: Food By The Numbers...

from the urls-we-dig-up dept

Some folks are obsessed with numbers. Others are obsessed with food. Combine these two tastes that taste great together and you get: Reese's peanut butter cups infographics about food. Here are just a few random sets of data on food consumption in the US.

• Just as you probably already knew: Thin Mints are the most popular Girl Scout cookies, raking in about 25% of Girl Scout cookie sales. Samoas (aka Caramel deLites) come in at #2 with 19% of sales. [url]
• What does the average American consume in a year? Hmm: 110 lbs of red meat vs 415 lbs of vegetables? Do those numbers sound right to you? [url]
• In a survey of 500 "dudes" (ages 18-35), 90% of them had visited a McDonald's in the last 3 months. It's gotta be the fries -- a surprisingly high percentage of guys just get a drink or fries. [url]
• To discover more food-related links, check out what's floating around in StumbleUpon. [url]  

By the way, StumbleUpon can also recommend some good Techdirt articles, too.

Filed Under: consumption, cookies, food, infographic, sales, samoas, thin mints
Companies: girl scouts, mcdonald's

Copy Protection Does Not Mean More Sales

from the and-the-flip-side dept

We've been pointing out that this isn't true for years now, but the entertainment industry is still so focused on "stopping piracy" rather than "what's the best business model," that they still don't seem to realize that many of their efforts to "stop piracy" actually do nothing to help their bottom line, and often do plenty to hurt their performance. We've already shown (with multiple studies) that people who download unauthorized copies often tend to be the best customers, but there's also the flip side of that equation, which is whether or not preventing unauthorized file sharing increases sales. We've suggested for years that even if the industry could slow down unauthorized copying, it's unlikely that it would directly lead to an increase in sales.

David Pogue has an article in Scientific American saying the same thing, highlighting how his own attempt at copy protecting some ebooks didn't lead to more sales, but that freeing up his ebooks actually did increase sales:

I make most of my income writing computer books. To my great distress, I discovered that they are widely available online as PDF files. But when I griped on my blog, my readers challenged the assumption that I was losing sales.

“First of all,” they said, “you’re counting a lot of people who never would have bought the book in the first place. Those don’t represent lost sales. And you’re not counting the people who like the PDF so much, they go buy the print edition or discover from the PDF sample that they like your writing.” One reader challenged me to a test: make one book available both on paper and as an unprotected PDF file. Report the effect of sales after one year.

I did that. The results were clear: Piracy was rampant. The book was everywhere online. But weirdly, my readers were also proved right. Sales of the printed edition did not suffer; in fact, they rose slightly year over year.

Now, there are two things worth pointing out. This particular story isn't entirely new. We wrote a similar story a year and a half ago when Pogue wrote nearly the same story for the NY Times. Also we tend to disagree with a straight "give it away and pray" sort of setup that Pogue went with here. However, that doesn't mean the point doesn't stand.

No matter what you think, morally or legally, about file sharing, if there are ways to embrace what your fans/consumers want in this manner and then make more money at the same time, does it really matter that you dislike the infringement? To put it another way: would you prefer making more with infringement, or less without infringement? Too many people assume that by cutting out infringement that leads to them making more, but there's more and more evidence that says that's simply not true.

Filed Under: copy protection, david pogue, sales

Did LimeWire Shutdown Increase Music Sales? Part II

from the checking-in dept

Earlier this year, we noted how copyright maximalists were celebrating the fact that according to one (historically untrustworthy) analytics firm, file sharing had taken a massive drop following the shuttering of LimeWire. Of course, I pointed out at the time that those celebrating this were (yet again) focused on the wrong question. So often we hear copyright maximalists talk about how "piracy" must be stopped, but they never seem to want to discuss whether or not that will make people buy again. So, we looked at some of the data provided by some who did believe LimeWire's shutdown had increased sales, but it came up a bit wanting. Still, I'm all about data, and if there really is data supporting the claims that LimeWire's shutdown resulted in increased sales, it might make me reconsider my position on the wisdom of taking legal action against operations like LimeWire.

So, with the recent settlement in hand, it seemed like as good a time as any to look into the data. Of course, it also helped that Capitalist Lion Tamer sent over the latest stats from Nielsen, noting that music sales are up in 2011.

Boom! Case closed. LimeWire's shutdown saved the music industry. Right? Well, actually, no. Doesn't look like that at all. In fact, Nielsen doesn't even mention LimeWire's shutdown in its note about this, attributing much of the increase to the Beatles finally coming to iTunes. And, actually, if you look at the same Nielsen reports going all the way back to 2006, they show music sales going up each year. It's just that more of it is single tracks, rather than full overpriced albums. It looks like the same is true of the latest data as well. If anything, the data suggests a noticeable slowdown in the growth rate. That is, sales are only up 1.6%, this year, which seems significantly down from the growth rate in past years. In 2006, the growth rate was 19%. In 2007 it was 14%. In 2008 it was 10%. In 2009 it was 2.1%.

Perhaps there's some other data to be found, but it's hard to see how there's much of an argument that the shutdown of LimeWire, even if it really did cause file sharing to drop massively, then resulted in an increase in music sales. Kinda makes you wonder about those claims from the RIAA about just how much LimeWire had to do with their problems.... It also explains why the labels were happy to settle for $105 million after claiming trillions in damages from LimeWire. Even the industry seems to know that it's not file sharing that's the real issue.

Filed Under: music, sales
Companies: limewire, nielsen

Record Labels May Owe Artists Close To $2 Billion; Lawsuits Ramp Up With Rick James In The Lead

from the i'm-rick-james... dept

With the Supreme Court rejecting the appeal of Universal Music concerning how much it owes Eminem for iTunes sales, we expected a bunch of lawsuits to be filed, and that's starting. The estate of Rick James has filed a class action lawsuit on behalf of other artists who also believe that Universal incorrectly paid them for similar digital sales.

If you don't recall, the key question is whether or not digital "sales" are really "sales" or "licenses." That's because old record label contracts (the newer ones, not surprisingly, have been changed) gave artists a very small percentage of royalties on "sales," which was supposed to be about CDs, vinyl and tape, and a much higher percentage on "licenses," since there's not much involved in a license. Eminem and some other musicians have been suing the record labels pointing out that iTunes and ringtones appears to be a lot more like a license than a sale, and thus they should get the (much) higher royalty rates, and the appeals court agreed with Eminem. I'm not sure the status of some of the other lawsuits in this space, but with this new class action, I'm sure we'll be hearing about plenty of these lawsuits soon.

While Universal Music keeps insisting that the Eminiem contract was "unique" and had special language that makes the ruling only applicable to Eminem, clearly these other musicians do not agree. David Kusek has done some (ha ha) back of the iPad calculations to estimate the potential liability for the record labels at close to $2.15 billion. Even if the estimates are a bit off, the record labels should be pretty worried about all of this. Of course, I can't wait until the next time they want to insist that they've really only "licensed" the music you have rather than "sold" it to you, since they were arguing exactly the opposite of that in court...

Filed Under: contracts, licensing, rick james, sales
Companies: universal music

Did Limewire Shutdown Increase Music Sales?

from the digging-in dept

Last week, we had a post following the report from NPD suggesting that file sharing in the US had dropped off significantly due to the Limewire shutdown. While there are some serious questions about NPD's methodology, we assumed that it was at least mostly accurate, and then asked if there had been a corresponding increase in music sales. After all, despite what you hear from the RIAA/MPAA, the end game should be about business being stronger, not about "reducing piracy." And if "reducing piracy" doesn't end up with more sales, then what good does it do, really?

In the comments to that article, commenter artistrights pointed to a report from Soundscan that music sales had been up for five straight weeks, and separately to another report claiming that Taylor Swift's album sold well after Limewire shut down, selling a million albums in its first week of availability.

I think this is worth exploring, because I've been asking for some actual empirical evidence and we have some. If it's really true that reducing piracy leads to greater sales, that would surprise me, but it would be good to know. If it turns out that reducing piracy leads to more revenue than could have been made otherwise (such as by embracing file sharing) then that would likely cause me to change my opinion on the best strategy for the RIAA to take in this fight. As for the Taylor Swift example, I don't think that proves much of anything, frankly. Throughout the file sharing era, there have been a bunch of releases that sold over a million copies in their first week. In fact, prior to Napster, there had been only two such releases. The rest all came post-Napster. So I'm not sure we can really learn too much about that. Big hit albums still sell. I'm not sure that's got anything to do with Limewire.

As for the other link to sales being up for a five week period, that's definitely worth noting, though, it does not correspond to the same quarter that the NPD study covered. NPD looked at Q4 of 2010. The link above is talking about February and March of 2011. Now, it's entirely possible there's a lag, and people who stopped using Limewire did nothing for 3 months and then suddenly started buying. Perhaps that's the case. If anyone has more info on what was actually selling during these past five weeks, that would help us dig a bit deeper into this information. Some might also point out that SoundScan is not the most trustworthy source of data on music sales -- but it wouldn't surprise me if it were accurate "enough" for the type of music that people used Limewire for, so I wouldn't write it off just because it's Soundscan.

I'm not yet convinced that these two data points are necessarily connected, but it is certainly worth noting the recent bump, and it would be great if folks here were able to dig in a bit deeper and see if we can unpack the reasons for the bump in music sales over the past few weeks.

Filed Under: file sharing, music, sales
Companies: limewire

Cheap eBook Authors Realize Even Cheaper Is Even Better

from the do-the-math dept

We've been covering how more indie authors are discovering that just releasing their works as incredibly cheap ebooks can be amazingly profitable. But just how cheap? Kevin Kelly highlights how JA Konrath, who is the leading experimenter in this arena, has just discovered that $2.99 might have been too high. As an experiment, he dropped the price on one book that was $2.99 down to $0.99... and saw sales leap from 40 per day to 620 per day. As Kelly notes (his original math was wrong, but now there's updated math and more, including Amazon's cut:

Do the math:

2.99 x 40 = 11.96

.99 x 620 = 613.8

Amazon pays out 35% for ebooks priced below $1.99, and 70% for ebooks that are $1.99 and up. So the math is:

2.99 x 40 = 119.60; x .70 = $83.72


.99 x 620 = 613.80; x .35 = $214.83

I don't think publishers are ready for how low book prices will go. It seems insane, dangerous, life threatening, but inevitable.

It's not even that publishers aren't ready for how low book prices will go... it's that they still don't even realize that the prices are going to go down at all. Instead, many of them are still looking to make the prices go up, not realizing the umbrella they're creating for disruptors.

Filed Under: business models, ebooks, pricing, sales

Japanese Government Study Shows Anime 'Piracy' Could Boosts Sales

from the but-but-but-piracy! dept

Just as a whole bunch of folks have been sued in one of these mass copyright infringement shakedown lawsuits over sharing of Funimation anime, it seems worth pointing out that a new Japanese government study on the impact of unauthorized file sharing of anime has concluded that unauthorized copies of anime often appear to increase DVD sales. The study looked at both videos showing up on YouTube as well as those that appeared on Winny, the super popular file sharing platform in Japan. The study found a very strong impact from YouTube -- even saying that it appears many people learn about potential anime DVDs by watching the videos on YouTube first. With Winny, the impact wasn't as strong, and could decrease rental income, but did not decrease DVD sales. Of course, the study only looks at the correlation of videos appearing online and sales, rather than proving any causal link, so it's possible that other variables are involved. At the very least, though, this study (which is similar to other studies we've seen) certainly suggests that having the video widely available doesn't kill off sales, as many industry folks insist.

Filed Under: anime, japan, sales

Oh Look, Digital Downloads Aren't Saving The Music Industry

from the who-could-have-possibly-predicted-that... dept

About a year and a half ago, I gave a presentation at a music industry event, where one of the points I tried to make was that those who were betting on digital sales as a savior were making a fool's bet. However, many in the industry have been infatuated with this idea, even if the evidence always suggested that digital sales would only ever make up a small fraction of what CD sales used to bring in. Earlier this year, we warned that the growth rate was slowing, and now as we hit the end of the year, it's confirmed that while there's still some growth, it's slowed down dramatically. Betting on digital sales as the key business model for music is, and is going to remain, a mistake. There are lots of other opportunities to make money, but you have to think beyond just selling music.

Filed Under: downloads, music, sales