Wednesday 31 October 2012, 13:16 | By

Universal settles with FBT Productions over digital royalties

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Universal Music

FBT Productions v Universal, the lawsuit that could as yet have massive ramifications on the major music companies, is at an end, with a closed-doors out-of-court settlement. It will mean that those artists suing the major labels they previously worked with for a bigger cut of digital revenue will not have FBT’s payout as a guide to potential damages. It will also save Universal from having the ways it calculates international royalties examined in court.

As much previously reported, the FBT case centred on digital royalties, and how pre-iTunes record contracts that make no specific reference to download sales should be interpreted. It was common in conventional record contracts to pay artists a much higher cut of ‘licensing revenue’ than ‘record sales income’, because the latter was traditionally so much greater than the former.

In contracts where downloads are not specifically mentioned, major labels have treated revenue from iTunes et al as if it is record sales income, paying the smaller royalty. But many heritage artists argue that download income is licensing revenue – because the upfront costs and risks to the label are minimal compared to releasing CDs, and income is generated by one-off licensing deals with each download store – and therefore the higher royalty should be paid.

The first artists to really sue on this issue were Cheap Trick and The Allman Brothers, though their litigation ran aground amidst legal technicalities. Then FBT, aka the Bass Brothers, producers on the early Eminem catalogue who are due a royalty on those recordings from Universal’s Interscope division, sued the mega-major. At first instance the major won, but on appeal the courts ruled in favour of FBT. The American Supreme Court subsequently refused to hear the case.

Universal insists that the ruling in the FBT case is unique to its agreements with the producers, but many artists, managers and music lawyers disagree. All the majors now face lawsuits on the issue, with the likes of Rob Zombie, Chuck D, Toto, Kenny Rogers, Sister Sledge, The Temptations, James Taylor and the Rick James estate all suing. And some of those cases have been declared class actions, meaning, if they are successful, any artists with similar deals could claim a higher royalty.

As common royalty percentages for record sales and licensing revenue were 15% and 40% respectively, if the majors were forced to pay the latter rate across the board to all artists with pre-iTunes contracts, the impact would be huge on the big music companies.

Sony, the defendant in the Cheap Trick and The Allman Brothers case, has proposed a more modest increase in digital royalties in a bid to circumvent a more costly court-enforced deal, though that proposal is still to be a approved by the judge overseeing the second round of Cheap Trick/Allman Brothers litigation, and then would have to be put to each affected artist individually, many of whom would likely rather wait and see what happens with the newer class actions being fought on this issue.

While officially the majors generally say the FBT ruling does not set an industry wide precedent, it’s thought deals are being done on this issue by the record companies with their key artists, including the aforementioned Cheap Trick and Allman Brothers. Whether, ultimately, such deals can stop the plethora of digital royalty cases getting an airing in court remains to be seen.

When FBT won their case against Universal on appeal in 2010, disagreements remained regarding how much money the Eminem producers were due. That argument was expected to be heard in court this year, though more recently an April 2013 date was mooted. That discussion would have been of great interest to those lawyers pursuing digital royalty lawsuits on behalf of other artists, though the terms of the FBT/Universal settlement will now remain confidential.

As previously reported, FBT also planned to raise how Universal deals with international revenues, and the tendency for portions of those monies to stay with local Universal divisions, so that the mega-major only has to pay the artist a share of the 29% of total revenue that ends up with the US division to which Eminem and FBT have their direct deal. Again the producers planned to argue that this was unfair in the digital age, where the cost to the record company of making music available in multiple territories is so much less once CDs are taken out of the equation. That issue will now not get a public hearing from this case.

So, the end of an important chapter in a very interesting story. All eyes will now be on whichever of the newer digital royalties lawsuits gets to court first.

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