Rockers Sue Sony Over Download Royalties

Ohreally_factor writes "According to an AP article, groups Cheap Trick and The Allman Brothers allege that Sony is paying them less than what they deserve for music downloaded from popular download sites such as iTunes. Because Sony counts such sales as the equivalent of a physical phonorecording sale, they deduct costs for packaging (20%) and breakage (15%) from the artists' royalties, just as they would if they were selling CDs through more traditional means. Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges."

Comments

such sweet irony

[yagu]

I want you to want me. I need you to need me.

What a tasty irony one of the first incidents of the artists awakening to the double-edged sword that is the music industry's abuse is from a band named Cheap Trick!

From the article, assuming it's accurate and correct, what a staggering number each 99 cent sale of a Cheap Trick song nets Cheap Trick a paltry $.045. That's internet highway robbery.

I never thought about it this way before, but maybe a to date unreckoned force that could be brought to bear is the ire of scorned artists. Maybe, just maybe, in its seemingly infinite greed the record industry finally goes a bit (or bits) too far and the slumbering artists wake up and smell the corruption. Probably a bit of a pipe dream, but I'm pulling for Cheap Trick.

Re:such sweet irony

[quokkapox]

Typical Sony Bull$hit. Me and my band, $sysR00TK1T, tried to get a recording contract with Sony, we sent them a demo tape, but they didn't even notice.

Re:such sweet irony

[TWX]

Established artists that actually have some money should get smart and start re-recording their classic songs themselves without corporate money, so then they have completely independent music to sell.

Granted, they'd have to make the remake sound a lot like the original, and they'd also have to find a way to market their version through the Internet where it's higher-profile than the industry-owned tracks, but if they could find a way to get the Internet retailers to start classifying the existing industry stuff with names like "Sony/BMG/Cheap Trick" for the artist field and just "Cheap Trick" for the new recording it just might work...

Re:such sweet irony

[hackstraw]

From the article, assuming it's accurate and correct, what a staggering number each 99 cent sale of a Cheap Trick song nets Cheap Trick a paltry $.045. That's internet highway robbery.

The FA also says: "Tracks sold over the Internet usually go for about 99 cents. About 70 cents of the sale price goes to Sony. The bands are getting about 4 1/2 cents per song, according to the suit, rather than the approximately 30 cents they claim is rightfully theirs."

I'm not sure if the band's cut is out of the Sony cut or what, but Sony getting 70% of the money seems excessive. Remind me why artists need companies like Sony? Especially known bands.

Re:such sweet irony

[iminplaya]

Established artists that actually have some money should get smart and start re-recording their classic songs...

Most of them don't own their classic songs. The publisher does. The artists are probably not authorized to sell the work they created. They sold their souls, and now they must deal with it. That's your copyright dollars at work.

Re:such sweet irony

[Anonymous Coward]

That's internet highway robbery.

Must resist urge... will to resist fading... NNOOOOO!!!!!

More like information superhighway robbery!

Re:such sweet irony

[Rei]

It's not just confined to the music industry. The content creator in any medium tends to be the first to get ripped off.

For example, look at book publishing. Stores (especially large chains) have sweet deals. A book doesn't sell? Send it back, no cost. But if that's not enough, the large chains get discounts to carry books. They sell it to you at the cover price so that they get a larger profit margin than indy bookstores. In short, large chains rip off the publishers.

The publishers started looking at this, especially the discounts, and got frustrated. So what did they do? They take the already small author royalties (often around 10%) and decrease them -- typically 8% for general discounts and 6% for deep discounts. Take that value, subtract 15% for the author's agent (plus expenses, although those usually come out of the advance), and then factor in that the author has to do marketting in order to sell books unless they're a big name, factor in the used book market, and you start to get an idea of why all but the biggest authors tend to have second jobs.

Re:such sweet irony

[hackstraw]

And especially since the cost of distributing the song over the internet is next to nothing anyway.

How about zero, at least to Sony, et al. In the case of the iTunes store, Apple is the one paying for the bandwidth and the store maintenance, etc. Sony is getting 70% because they suckered some 20 something into a deal 20+ years ago.

Re:such sweet irony

[Ohreally_factor]

You're partly right, but partly wrong.

The reason a recording artist can't just re-record an album with a different record company is because the recording company has secured the mechanical rights, i.e., the recording rights.

Let's back up here. When someone creates a song, they own the copyright to that song. The copyright can be divided into component rights, i.e., publishing rights and mechanical rights. Recording companies do not generally try to buy the publishing rights from the artists, although there are certain exceptions to this*.) Generally, a songwriter will keep the publishing rights, and make a royalty every time the song is purchased or publicly performed.

*The most famous exception is the Beatles' catalog, which is not owned by their record company Apple Corp., but jointly by Michael Jackson and Sony. Apple Corp still holds the mechanical rights, however.

Re:such sweet irony

[Rei]

They get royalties. Of course, ripping content creators off on royalties is a classic business.

For the publishing industry, there's an entire accounting firm in New York City that makes its money simply by auditing the books of publishers at no charge. If an agent thinks that their author is getting ripped off on royalties, they have the company audit the publisher for free. The company gets paid a percentage of the unpaid royalties that they find for the agent/author, and nothing if there weren't any unpaid royalties.

Re:such sweet irony

[SatanicPuppy]

I can't help but think that, as self publishing and self publicizing becomes more doable, that there is no way that the old model of the recording megacorps can continue to hold up. It's just not sustainable.

I've been thinking about the whole packaging/transport/etc issue for a while, because iTunes throws the whole deal into a clear perspective. As far as Sony and others are concerned, it costs the same to disburse 12 songs on a CD as it does to disburse them digitally. But obviously that can't be the case, therefore online music is overpriced.

Add into that the fact that the artists still aren't getting anything like their fare share of the profits, and you get a real good insight into how crooked the business really is. All these things, how much shipping, and breaking, and band publication costs, taken as fact by the artists, and supported by the available business records of the industry...Clearly they're cooking the books, at least in terms of online sales, and if there, then why not other places?

I don't see the RIAA lasting. I just don't see how they could. They can't monopolize distribution. Social networking sites make it very easy to self-publicize things like music. Convert venues can decide for themselves if the bands are worth hosting. What else is there? The CD market is on the way out, that's just inevitable. It's a dead-end format and they restrict it more all the time.

People always talk about the buggy whip manufacturers, but the difference is, some people felt bad when the buggy whip manufacturers went out of business.

Re:such sweet irony

[size1one]

"Remind me why artists need companies like Sony? Especially known bands."

Of course theres the common reasons of marketing, distribution etc...

BUT the big reason is the recording companies are the gateway to popularity since they own or are in bed with the major radio stations and MTV/VH1. They control what gets airtime and therefore what is popular. Sure you can have some success as an independant but rarely the instant popularity you can achieve through the recording companies.

I think the downfall of the recording companies will come from services that use aggragated peer reviews (ala digg) and recommendation engines (ala pandora.com) to provide listeners with a broader collection of music catered to thier personal tastes. When "popular" is derived from the people, instead of the companies' required playlists, the companies will no longer have the bargaining power to enforce prices or horrible contracts

Re:such sweet irony

[Planesdragon]

Please, go learn some basics about I.P. law in America.

ALL rights that someone has to a creative work that is not a mere identifier and not a mechanically novel creation are copyrights. A musician's only rights to their music are copyrights.

The start of the confusion, which is easy to make, is that a typical mass-media song has at least three distinct inter-related works, all with potentially different copyrights. First you've got the copyright on the song itself -- the sheet music, if you will --, then the copyright on the specific performance of that song the band did in a studio, and then you've got the copyright on the balanced and produced master of said performanc. And we're ignoring the potential for anything other than an original song on the air -- a compilation of songs on an album can have a distinct copyright, as can the album's cover art and ascetic layout, and of course there's the chance that a song contains within itself part of someone else's copyright enirely.

And, of course, once all of those copyrights are done, the various copyright holders have a network of contractual agreements on what rights are exchanged for what (i.e., the songwriter only lets the band play a song for a fee, the band only lets the company make an album for royalties and sometimes control et cetera), and these contracts often have limitations and standards that define what they can and can't do -- such as "sell this work to someone else" or just abou any other obscure thing under the sun.

Re:such sweet irony

[MadJo]

How many of the current artists write their own songs?

Re:such sweet irony

[cpt kangarooski]

Well, the main service that publishers of any sort provide is money.

If you want to go from having a band all the way to having a CD in stores, you'll need money to live on, to rent any instruments you need, to rent a recording studio for the time it takes to make the recording, to hire engineers to run the studio equipment for the recording, to create the master, to press a run of CDs, to design the cover art, to package the CD, to ship it to stores, and to advertise it. If you want to promote it by going on tour, you'll need money to do that too.

You'll also probably want contacts in the industry. Sure, members of a band could take the time to learn what the best studio in their price range is, who to get as an engineer (and who to settle for if they can't have their first choice), where to get the best deal for making the CDs, who to convince to get chain stores to stock albums, how to get reviewers to actually listen to the CD, etc. But if there already is someone available who can do this, it may be more efficient to take them on as a hired gun.

Of course, publishers could spend these resources on a band, or they could just invest their time and money in stocks. They're going to treat the band as just another investment, ultimately, which means that they want to make the greatest profit, and have that profit be more than they'd get from their best alternative investment.

As it happens, most bands end up not selling enough to recoup costs, or don't sell enough to make a bigger profit than the best alternative. They are bad investments, and the labels lose money on them. The same is true elsewhere too; books, movies, whatever. The idea is that a rare handful of the works being created will be such spectacular success that it will not only yield a great profit, but that the profit will cover the money lost on all those other, failed bands. And just to make sure, the publisher might want a contract for several works, so that if there is a success, it can not only exploit it for all it's worth, but if the band has staying power and isn't a one-hit wonder, it can keep pulling in the money. While this isn't perhaps the most efficient way of doing things, the unpredictability of the market rather necessitates it, and it seems to work okay, if you're careful about watching your expenses.

Anyway, now we get to the main reason why some of your friends are, as the man said, already this fucked.

If you are a musician and you are offered a fairly ordinary record contract, you have the options of rejecting it, making a counter-offer, or accepting it.

If you reject it, then you just keep on doing what you're doing. The label will not give you the money you need to finance your career, and you probably either have to get a regular job, relegating music to a hobby, or live a rather poor life.

If you make a counter-offer, the label probably rejects it. After all, there are tons of musicians that would love to get a record label, and won't make waves. If you will not take the deal offered -- the deal that overwhelmingly favors the label -- then you'll get no deal at all.

In both cases, maybe you can scrape up some cash, or find a more amicable label to finance you, but it's not common.

Or you can accept, in which case, you get a lousy deal but a lot of money to make a go for the brass ring. Probably you flop, and your career is shot, at least for a spell. The label lost money on you, and while you don't have to repay it, you have the stigma of a bad investment. Or, maybe you become a hit -- a lasting hit -- and can quickly pop out a few albums to fulfill your lousy contract, and negotiate a new contract from an infinitely stronger bargaining position. For while there are plenty of untried musicians, there are not many proven successes. But the odds of this are actually quite low. Basically, the chances of becoming enough of a star to get rich are like winning enough in the lottery to get rich. Most people might fantasize about it, but in the end it's probably better

Re:such sweet irony

[Original Replica]

as self publishing and self publicizing becomes more doable, that there is no way that the old model of the recording megacorps can continue to hold up.

Could it be that this current bill in Congress to restrict streaming is the tip of the wedge used to make self publishing and promotion less doable. First streaming MP3s are illegal,then all Music files without DRM, then prohibitive licensing of DRM encoders. If Sony can make their products less functional to protect their $$$ why wouldn't they try to do the same with internet distribution?

Re:such sweet irony

[Ksisanth]

Mechanical rights are a component of the publishing rights, which are held by the songwriter and/or publishing company. That licensing is negotiated separately from the general recording agreement, though if the recording artist is also the songwriter, there are, of course, special opportunities to get screwed. It is the sound recording/"master use" rights that the labels hold--rights specific to that particular recording. (The performance rights, synch rights, and the print rights are other components of the publishing rights.) The two main divisions of copyrights, then, are those in the composition and those in the recording.

Where the record label can interfere with an artist re-recording songs previously released with that label is the "exclusive" part of the "Exclusive Artist Recording Agreement", which stipulates that the artist will record only under that label for the term of the contract, and frequently includes a re-recording restriction for some number of years after the contract ends or the last album is delivered, creating a sad case where anyone but the original artist (assuming he's the songwriter) can cover the song for however long this restriction lasts. And unless the artist negotiates exemptions, such agreements can also prevent him from guesting on other artists' albums or including songs on compilations and movie soundtracks distributed by other companies.

Re:such sweet irony

[pallmall1]

Like, my ponies are gonna cry! OMG!!!!

Hehehe. They won't cry as much as the *artists* when they realize they're bending over for a long hard ride on the Sony baloney pony.

Re:such sweet irony

[DannyO152]

I'm going to disagree with you. For compositions in the US there is a statutory mechanical reproduction (pressing the disk in old school terms) fee. Any one who pays this can record the song and sell the disk. The songwriter holds a "first-performance" right which may be granted to someone else on a negotiated basis, but once the song is recorded, any one can record that song without asking permission -- they just have to pay at pressing time. The recording company holds a copyright on the publishing of the performance, i.e., the disk.

Now, bands that were kinda successful (or not succesful at all) may still owe advances to the recording company. And the contract may require that any new labels reimburse the old label for the advances and that would put a damper on a re-do.

Songwriters of the Beatles era keeping their publishing was not as common as you make it out to be. And the money the songwriters get from the disk occurs not at sale but at pressing. Glossing over some of the ways people screw artists, for every $1.00 received as publishing revenues (commercial radio and live performances [collected by performance rights societies, such as ASCAP], inclusion on film soundtracks, advertising placements, sheet music sales) $.50 goes to the songwriter and $.50 goes to the publisher. The specific publishing deal may mean the songwriter also gets a bit of the publisher's $.50. The more successful the songwriter, the greater a piece of the publisher's $.50 the songwriter may get.

As far as copyrights go, there's nothing to prevent a band from rerecording its repetoire on a new label. The old record company only holds rights to the original masters, via the recording contract, the right to sell the disks in the warehouse, and the right to press more disks from the masters. Seems to me, five years ago or so, Prince was on the verge of re-recording his songs until he and Warners came to an understanding and Prince bought back his masters. I know I own some disks where 50s and 60s era artists re-recorded their hits years later for a different label.

Now the original packaging is the property of the old record company. So if we're being old school and talking about product in stores, this band would have to pay for original packaging and find a distributor who is willing to distribute what is duplicative product which will be placed side by side next to the originals (assuming the old company hasn't put the catalog out of print). So good luck with that. Of course, the packaging and distribution problems dissipate if we're thinking about mp3s via internet download only.

So, copyright doesn't interfere with the redo the repetoire plan in the mp3 age. Are there any other impediments? Well, recordings can be difficult to duplicate. The studio may be gone. The room may have lost its acoustic signature. The budget, in relative terms, may have been higher when the record company was cutting the checks (even though the costs were recouped from royalties). Digital sounds different than analog tape. Engineers are exercising different skill sets. Plus, who wants to listen back to the playback and say "25 years later and we play it just the same." Regarding those re-did disks I mentioned above: the originals were better, despite the new ones featuring real stereo recordings on better requipment with better musicians. I'll conclude with this note: with the arguable exception of the 1969 Memphis recordings, Elvis sounded best when he was young and hungry and in Sam Phillip's house at Sun. Some moments are quintessential; they don't last and they don't come back.

Re:such sweet irony

[asckar]

"The CD market is on the way out, that's just inevitable. It's a dead-end format and they restrict it more all the time."

You know, a lot of people say this, except for one small problem: 128kbps AAC audio (iTunes Music Store) is of much lower quality than CD audio. Granted, a significant portion of people are incapable of recognizing this difference, but most people who have any sort of musical training at all (which I find to be a large number of intelligent people, and most of the /. population are of such a type) can hear the difference if a comparison is made very directly (i.e. play the lossy music file, then play the CD audio).

This is not to say that I thing the iTMS to be a bad thing, I'm all for it (although I feel they should offer 160-192kbps files instead, or perhaps a lossless version as well for a higher price like many artists do for live albums [DMB, Galactic, etc]), but CD audio will not disappear, just like vinyl hasn't disappeared. It's a sonically superior format to lossy digital music, just like the original pressing of an album on vinyl is sonically superior (if prone to the occasional analog "pop") to its reissue on CD (and if anyone wants to argue this point, I invite you to come over and listen to my copy of John Coltrane's Giant Steps and compare it to the CD reissue, which supposedly has been remastered).

As for the whole bit about artists being ripped off, I am a musician. I am not signed to a major label, but, being someone who attends the Berklee College of Music, and has had a variety of discussions with both my peers and my professors, I can honestly tell you that the pop music side of the business is quite rotted. And a staggering example of this is Sony taking 70% of an online sale, and paying the artist 4.5 cents. Yes, I'm aware that Sony fronted the $250-500k studio costs, and the physical media distribution costs, and the promotion (radio play, MTV, etc), but dammit, they make a digital copy of the album, tag it appropriately, point to a favorable review of the album somewhere, and upload it to Apple ONCE. I agree with the poster on here who mentioned 50%. 50% would be damn fine for digital stuff, since it's ALL CONTENT, and requires nothing beyond the initial digitizing. Hell, how about 25%?! I mean, seriously, it's a sad thing when I can go out with a wedding band and make more in a few months playing "The Chicken Dance" than a relatively popular group can make with a major label contract.

Let me the first to say...

[DaHat]

Such it Blue!... errr Suck it Sony!

Granted we shouldn't be taking pleasure in the legal issues of such a large company... it is nice to see their business model faltering even more.

First the rootkit now this, the question in my mind is now: "What will be next?"

Sony

[Anonymous Coward]

"One wonders how Sony will defend against these charges"

With a well placed root-kit!

Maybe...

[Anonymous Coward]

They're trying to cover for the cost of DRM packaging, and the possible breakage of the product when a listener tries to play it, forcing them to ship a fixed version? ;-)

I think it's safe to say that...

[fighthairloss]

...neither Sony nor any other major music label is going to get much sympathy from anyone on this.

Regardless of the merits of the case, I think Sony is not going to get much more than a shrug from the well-informed of the world.

Is this an example of karma? A cosmic balance? Maybe it's too early to say that until more lawsuits are initiated against the other side. Yes, that's right... more lawsuits against RIAA-affiliated companies, regardless of their merits. Sound familiar?

Defense?

[wile_e8]

Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges.

Blame it on piracy?

Easy, charge for shrinkage

[Anonymous Coward]

> Because Sony counts such sales as the equivalent of a physical phonorecording sale, they deduct costs for packaging (20%) and breakage (15%) from the artists' royalties, just as they would if they were selling CDs through more traditional means. Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges."

"We have altered the bargain. Pray we do not alter it any further."

Probably by counting online music sales in the way they account for MP3 downloading? To a RIAA weasel, online music in any form is indistinguishable from shoplifting, and the artists should be thankful that Sony's also not deducting costs for inventory shrinkage (100%).

Chewbaca

[chrae]

one wonders how Sony will defend against these charges.

The Chewbacca(tm) defense?

Re:Chewbaca

[chrae]

why is this funny?

I don't know why. It doesn't make any sense.

Re:Chewbaca

[msaulters]

Whoa whoa whoa... The Allman Brothers, Cheap Trick... You think MP3 *existed* when they signed their contracts? Depending on the wording of the contracts, there's an argument to be made that Sony doesn't have a right to ANY cut of/control of the music as published on ITMS. Even if online distribution is somehow considered to be covered, the contracts are probably pretty explicit that the fees collected from the artist are for packaging, etc, and if there IS no packaging, then the validity of the contract, in this specific area is certainly debatable. (IANAL) If you collect 35% from me for packaging and breakage, then by god, you better show me some receipts for packaging and breakage, or else I want my 35% back.

Just don't dismiss this as whining about shitty contracts. ESPECIALLY don't dismiss it out of hand when the #1 argument put forth by the xxAA's lately has been 'protecting the interests of the artists'. This is PERFECT proof that they don't give a flying fsck about the artists.

Re:Cheap Trick & The Allman Bros?

[linuxwrangler]

Read the article (I did - just when I submitted the story someone else's submission of it hit the front page)....

The suit seeks class-action status for all artists who signed between 1962 and 2002. That's not chump-change.

Shocked!

[TedTschopp]

Shocked, Shocked I tell you Shocked, a large corporation not knowing how to properly do it's accounting.

Huh

[Mad Quacker]

The "breakage" charge has been bogus for quite some time. It really applied in the days of actual records, a lot of which wouldn't survive shipment. How many CD's (or tapes for that matter) end up broken per shipment? Definitely not 15%. So far they have been able to make this stick regardless. Now it's just completely ridiculous, versus just mostly.

Re:Huh

[Sycraft-fu]

Thing is CDs still do break. Or, rather, they get charged back for that. If something happens to make a CD unsellable, be it a consumer complaining it's broken, packaging damage, whatever, Best Buy doesn't eat the cost, they charge back the supplier. SOP for retail. There's usually negoations between the supplier and distributor about each months chargebacks and they agree on a final figure. A friend of mine does just this, on the supplier end.

Ok so CDs still break, they still get chargebacks, so there's still justification for the charge, even if it's much less than the percentage.

However on digital downloads, it's going to be real hard to back up. Apple doesn't charge back, since there is no sales going from Sony. Once Apple has secured the rights for distribution, they take on everything. They just cut Sony a check. Thus Sony is going to be very hard pressed to justify the fee.

A contractual fee can be higher than reasonable, and still be legal. However if it covers something that doesn't exist at all, good chance it'll be rule unenforcable.

Re:Huh

[cheekyboy]

They can always ship them to hong kong and sell them on the pirate black market for $2/copy.

Breakage

[swillden]

Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges.

How? The same way they do it with CDs. You don't really think 15% of CDs break in shipment, do you?

The history of the breakage clause that exists in pretty much every modern royalties contract is a sad one. See, it originated back when music was distributed on records made of shellac, before the advent of vinyl. Shellac records were very brittle and very fragile, and when you packed a bunch of them in a box and shipped them to a store, it was pretty much guaranteed that some of them would arrive broken. At first the store owners and distributors tried to actually count how many were broken and adjust the invoices appropriately, but that was just too hard, and allowed merchants to take advantage by claiming a higher level of breakage than actually occurred. So they compromised and set an arbitrary percentage reduction of every invoice to cover broken records. The number chosen was about right, and it worked for everyone.

Obviously, since the record company wasn't being paid by the stores for that percentage of theoretically-broken records, the same amount was likewise deducted from the net proceeds before calculating artist royalties.

When vinyl came onto the scene, broken records became a rarity, rather than the norm, but the royalty deduction stayed.

When eight track tapes and cassettes came into being, and then CDs packed in protective jewel boxes, actual breakage became nonexistent except in cases of egregious abuse by the shippers, which the shippers were actually to cover. So the net effect of breakage on distributors is and has been zero for a long time. But the royalty deduction stayed.

So how is it any different that the copies are bits now? It's not like the CD breakage was any more real. Sony's response to that part of the complaint, at least, will be "It's a standard contract term, and they agreed to it."

Re:Breakage

[Vellmont]

So how is it any different that the copies are bits now? It's not like the CD breakage was any more real. Sony's response to that part of the complaint, at least, will be "It's a standard contract term, and they agreed to it."


Contracts aren't that simple. Just because you agreed to the terms in a contract doesn't make those terms enforceable.

Re:Breakage

[geobeck]

So how is it any different that the copies are bits now?

My guess is that they will remove the 15% breakage deduction and replace it with a 25% piracy reduction. Or a 30% "Indy artists are stealing our profits" deduction.

Re:Breakage

[iminplaya]

So how is it any different that the copies are bits now?

It's not. They just charge for corrupted files now. You know. The ones that the RIAA puts up to poison the P2P networks.

how will sony defend against these charges?

[Surt]

My guess: they'll use lawyers.

My second guess is clowns, but we'll see which way it goes.

Re:how will sony defend against these charges?

[Otter]

I was thinking they'd call in the Dream Police...

Re:how will sony defend against these charges?

[mooingyak]

        My guess: they'll use lawyers.

        My second guess is clowns, but we'll see which way it goes.

There's a difference?

I'd let a clown to one of my kid's birthday parties...

Sony's explanation

[kebes]

Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges.

It's pretty simple. Sony will simply claim that there are marketing costs, server costs, bandwidth costs, and so on that amount to the same thing. To say otherwise would be to admit that they could be selling the downloads at lower cost to the consumer than the equivalent CD.

Sony may even capitulate so far as to actually update the contracts, so that it spells out, for online sales, how much money goes to marketing, bandwidth, etc. At the end of the day, however, I highly doubt that the artist will see a larger percentage of the sales than they did before. Nor will the consumer see any kind of savings.

It's unfortunate, too, because a reasonable pricing model for online downloads of music could have been arranged where:
1. The consumer pays less per track than for the equivalent physical media (which is fair, considering compression losses and lack of a physical object).
2. The artist gets slightly more per sale than before.
3. The label gets slightly more per sale (because of savings due to lack of packaging, etc.).

However (and not too surprisingly), the labels have decided that any savings that arise should all be kept by themselves. As we are starting to see, this strategy will lead to losses instead, as both artists and consumers seek out better strategies... maybe even business models without so many middle-men.

Not so fast

[Locke2005]

...one wonders how Sony will defend against these charges. The same way crew managers on the Alaska pipeline defended getting paid for 25-hour days: it's in the contract! Sony should know, they wrote the contract. Until artists wise up and stop signing contracts that allow the record companies to screw them any time they please, artists are going to keep getting screwed. Granted, in this case the contract was written before any such thing as internet downloads existed, but since Sony owns the copyrights and not the bands, they are in a very poor position to renegotiate.

Re:Not so fast

[wpegden]

Blaming artists for their contract terms is like blaming a fast food restaurant worker for the low minimum wage. In the artist-label economic relationship, the labels have all the power. Every artist needs a label, no label needs any particular artist. A rich and famous artist is a horse of a different color, of course, but by that point, you probably owe a label a bunch of money (for all they "invested" in you). The solution to the problem you're talking about would be some sort of collective bargaining unit for the artists, but this seems unlikely to happen given the diversity of the group, and the absence of any collective workplace per se.

Re:Not so fast

[jandrese]

This is what happens when the one side has pretty much all of the power in a contract negotiation. The other side gets screwed. Record companies pick and choose a small handful of bands from hundreds and hundreds of entries each year. The reason every band is screwed is that if a band tries to negotiate better terms, the recording company just walks away from the deal and finds a less financially savvy band. Granted, big names that renegotiate their contracts really have no excuse, except that they were the same ones who agreed to the original horrible contracts in the first place.

This is why smart bands tend to form their own labels or join together with other small time artists to form coop labels. Sadly, this makes it very hard to promote and hold big concerts because most of the radio stations and large venues are held by the same companies that run the labels, and they tend to prefer their own artists over outsiders.

Re:Not so fast

[bill_kress]

Some people just want to get their work out there. :-)

And to tell you the truth, these are the only people who's art I'm interested in. That's been my real problem with this crap all along.

If you actually can say "I refuse to create art unless I am paid X dollars", I don't want your "Art"

If you say "I want to create the art regardless of pay rate, or being paid at all", then chances are your art is going to end up being amazingly valuable. More often than not I don't mind paying for this at all.

Free Market isn't all that it's made out to be, there are other factors at play. Seriously--and Free Market logic is totally useless when it comes to something that can be replicated for free.

Seriously, what is the justification for keeping huge sections of humanity away from a certian type of art just because that artist hasn't been paid. Art is something to desciminate, to put in lives. It's a privilage to be able to create art for others--getting paid for it's a nice bonus, but it really shouldn't be considered a right.

Actually France has a pretty good plan here. The state pays artists to create. This has been done in one way or another since, well, since the beginning of art.

Might not be bad to have a similar system for Open Source programmers--Just enough money to keep them off the streets and happily coding away. (I know it's not quite THAT easy, but it's not THAT difficult either)

Re:Cheap Trick & The Allman Bros?

[winkydink]

But it will only cover those songs sold electronically, yes?

Let's look at iTunes. $0.99 per download. One billion songs downloaded. I dunno, 33% of these are sony, or 300 million. Sony gets $.070 of each sale. $210 million. Artists claim they've been screwed out of $0.255 per sale. $76.5 million.

That is chump change to Sony.

The only people who will see any serious monrey froma settlment like this will be (like always) the class-action attorneys.

My guess...

[DragonWriter]

Seeing as how there is no physical packaging, nor physical inventory that might suffer breakage, one wonders how Sony will defend against these charges.

Since the charges appear to be fixed percentages and not based on any actual breakage or packaging costs, I'd guess (and this is only a guess) they are based on a schedule of charges included in some part or annex to the contract, which doesn't differentiate by media type, and the plaintiffs in the suit are going to have to try to defeat that by arguing that internet download was not envisioned by the original contract and either shouldn't have the deductions applied, or should require a new negotiation of terms.

The way the entertainment industry works

[Anonymous Coward]

For record companies, every imaginable expense is billed to the artist. If you go on tour, ALL the expenses are billed to you including expenses like this one that are just ridiculous. The bottom line is that the record company tries to take zero risk. All the risk is moved over to the artists. You can have a hit record and end up owing the record company money.

It is sort of the same for movies where actors are paid a percentage of the profits. The idea here is to make sure there are no profits so that the actors don't have to be paid.

The fat cats make darn sure they get their share though. It's an expense after all.

The silver lining is that, unless you are one of the really big name artists, you're much better off promoting your own career on-line. Once the majority of artists realize that, the record companies are toast.

Easy

[Xichekolas]

"one wonders how Sony will defend against these charges"

Easy... Sony will do what all major labels and the RIAA do... They will allot some people-crushing money to their lawyers, file countersuits, and keep the legal battle going on long enough that the artists run out of money and are forced to accept a settlement out-of-court for a paltry amount that probably doesn't even cover their legal fees.

Meanwhile, Sony keeps collecting 94.5 cents of every 99 cent Cheap Trick song and puts it into a special account labeled 'Cheap Trick Settlement Fund'...

That, my friends, is the glory of controlling the distribution channel!

Zonk! I'm shocked!

[Ohreally_factor]

You've edited my submission, and my submission was thereby improved! This is (almost) causing me to question all my notions about slashdot and the slashdot editors! Maybe you guys really do do some work around here? =)

Re:Sony's Defense?

[Bob3141592]

RTFC (Read the fuckin' contract) and note your signature at the bottom, guys. You agreed to this. Should've thought about that before signing yourselves away to a corporate babylonian whore like Sony.

Perhaps. But fraudulent claims in a contract are unenforcable. IANAL, but note that the contract doesn't say 15% for the possibility of breakage.

Isn't this also evidence of tax fraud?

[constantnormal]

It would seem to me that inflating such "expenses" would reduce the reported profits considerably.

I would expect the IRS to be going all medieval on them, but for the satanic protection of lobbyists.

I would also hazard a guess that such exaggerated "expenses" are a standard practive in the music distribution business, not just a practice at Sony.

Re:What took them so long?

[SoccerManUNLV]

I wouldn't be suprised, as much booze and drugs that group did, they really aren't aware of it yet, their attorneys are(read benefactors, illegitimate children etc). I'd figure them 5-7 years behind the times and all still thinking they are touring, it's been a long crazy ride.

Re:Revised fee structure

[Mr2cents]

You forgot about the "Lost packet fee". It replaces the breakage fee.

Re:Madonna's Response?

[91degrees]

Charging for storage media and breakables. Sad thing is that it is probably in the contract they signed and there is nothing they can do about it.

A creative lawyer may well be able to make something of this. The band agreed to pay for damage and packaging. The deduction is for this exact purpose, and no other. The record company is claiming for this damage and packaging, even though there isn't any. There was no need for the record company to do so. Surely they're making fraudulent claims.

Re:Sony's Defense?

[dafoomie]

The argument is not, "There is no breakage on the internet therefore you can't have that 15%." The argument is, music downloads fall under the 'licensed music' portion of the contract and not 'record sales', which have different royalty structures. I don't know the terms of their contract and either do you, but they could have a case. Their label is not distributing the downloads, and certainly not on a physical medium, they're licensed to someone else, such as Apple. Its all about what a music download qualifies as under the terms of a contract written before there were such things.

Re:Quick fix:

[theurge14]

And Apple's lawyers reply back to Sony "Let's talk about this 'DRM Application' money you have been holding onto, we think it may have something to do with us and FairPlay."

Lets try to see how the case will proceed

[Tired and Emotional]

Presumably the contracts already contained language for licensing agreements. So for example if Sony licensed a track for use in a car ad, or a film, the band would get 1/2 the net. This seems to be what the article is saying. Sony's point will be that a license licenses the use of the track (ie the "mechanicals"), and that the sale of a track to a customer for 99c does not include such a license, so its a sale of media not a license of rights. The bands will argue that the agreement with the vendor is a licensing of the rights since it gives the vendor the right to manufacture and distribute copies of the track (here, manufacture = transmit over an internet connection). Note that, according to the article, Sony is not distributing directly to the end user - there is a middle man. If Sony does the manufacturing itself (ie, you always get the tune from a Sony server) on the surface it seems they would prevail. If the vendor does so, it seems the bands should prevail. However there is also the doctrine of "unfair surprise" and internet distribution being so very different from the modes of distribution in place when these contracts were signed, having the contracts ruled inapplicable seems a possible outcome. That would probably be best for the bands - otherwise it might be possible for Sony to adopt a narrow technical solution that would limit how much the bands get. Clearly, given that Sony appears to be trousering around 60c after all costs, having the bands get a mere 4.5c seems quite unfair. [note - this is all speculative, since I have not seen the contracts, the article is not totally clear, and I am not a lawyer - nor do I play one on TV. I have however, as an occasional musician, done a certain amount of reading on contract law applying to the music industry]

Not bullshit.

[babbling]

It's not necessarily bullshit.

One could consider the DRM as a form of packaging. It is not the song itself, but something placed around the song. The DRM costs Apple money (CPU usage, initial and ongoing development), and Apple surely pass that cost onto Sony.

Similarly, when Apple changes the number of CDs a user can burn from 10 to 7, AFTER that user has already purchased the song, that could be considered a breakage from the point of view of a user, despite the fact that it was intentional. Surely Apple are forced to hand out some refunds to users because of a change like this, and so the "breakage" might also cost Sony money.

Re:Not bullshit.

[rajafarian]

What costs does Sony have at that point?

Lawyers to sue copyright infringing teenagers! Duh.

I want the artists to go for the whole enchilada..

[R2.0]

specifically, assert that the major labels have NO right to distribute songs electronically. Prior to 2002, electronic distribution wasn't a blip on the radar screen. If the artists can argue that it is impossible to sign over distribution rights for a method that didn't exist when the contract is signed, then the rights devolve to the original copyright holder. that means the artists could cut deals with Apple directly and cut the RIAA members out completely.

If they can get a legal team with big enough balls, and the right judge, it could happen.

Re:Cheap Trick & The Allman Bros?

[Jherek Carnelian]

The only people who will see any serious monrey froma settlment like this will be (like always) the class-action attorneys.

While the affected musicians will each receive eletronic coupons good for 100 free downloads from iTunes...

Re:"Breakage"

[kcbrown]

Aren't there laws against these things?

The RIAA and their cohorts write the laws and pay the legislators to pass them. The People, whom the government is supposed to serve, no longer has any representation.

So by now, I would expect any such laws to have no teeth.

Re:I want the artists to go for the whole enchilad

[kimvette]

You beat me to pointing that out. :(

The other thing I'd nention is this:

Because the contract covers defined methods of distribution, and online distribution is not allowed by the license from the copyright holders, this means that the labels themselves are guilty of copyright infringement, and are doing so willfully, for profit, and by levying fees against the artists and mailing checks which are baased on the fraudulent fees, they are adding mail fraud on top of the simple copyright infringement (of which there would be 1.000,000,000 individual counts if files). This is a felony actiity, and obviously piracy (if we accept the new term piracy).

This is obviously not within fair use (simple trading of mix tapes for free, which is essentially what is done on P2P networks) but criminal activity, and as we all know, piracy funds terr'rists. Therefore, homeland security and the NSA should be closely scrutinizing the big labels (and their subsidiary "Indie (but not so Independent" labels) for terr'rist funding.

Re:Solution... Get rid of the Record Labels.

[shark72]

"Apple is making the Record Labels obsolete."

The iTMS has been a huge success and, whether we like it or not, the record companies are laughing all the way to the bank.

"They didn't produce anything."

Are you sure about? A piece of paper with some song lyrics is not the same as a completed recording that's been engineered, mastered, produced, and promoted.

"...and music publicity should be free (radio/touring)."

I have a pretty good voice and a sheet of paper here with some pretty good lyrics. I would like to get it recorded and produced, and then into heavy rotation on radio stations nationwide. I would also like to start a multi-state tour. I would like to get this all done, as you've put it, for free. Can you give me some suggestions for doing this without outside assistance?

"They just aren't needed any more."

That's great news. Have you considered going into business in helping artists do all of this without a record company? I presume you'd want to work for free, though. It wouldn't be fair for you to take a cut of sales in exchange for your expert assistance, because then you'd be just as bad as the record companies.

Re:My theory on contracts

[cpt kangarooski]

Nice try. One of the top rules in contract negotiations is to keep control of drafting the contract.

You don't just give the other side a copy like that. You ask why they want it. If they want to add terms, offer to put in the terms for them, if they provide you a list. If they do want a copy, then that's fine, but you request a copy back. And if they send you something back (as opposed to just wanting something to review), you redline the hell out of it so that no change goes unnoticed. It's not that the sides don't trust one another, it's just that they don't trust each other so much as to throw caution to the wind.

Hell, the lawyer for the label is going to get paid no matter what, so he can afford to take the time to be careful. The band, OTOH, probably has less money for a lawyer, or worse yet, might be trying to negotiate on their own.

And you can always add a belt to your suspenders by putting in clauses in the contract that require changes to have been clearly identified through negotiations in order to be valid in the end.

Courtney Love was... and still is correct

[merc]

For those who never read the speech Courtney Love gave at the Digital Hollywood Online Entertainment Conference a few years ago it's worth a read. Most noteworthy was the position she held that the record labels are the real pirates.

Sony, (once again) continues to make her position tenable.

Courtney Love does the math:
http://archive.salon.com/tech/feature/2000/06/14/l ove/

You are also only partly right

[PCM2]

The reason a recording artist can't just re-record an album with a different record company is because the recording company has secured the mechanical rights, i.e., the recording rights.

While some of what you say is mostly true, mechanical rights do not equal recording rights. They represent the record company's rights to a particular recording. So, while you cannot take your master tapes and put out the same recording on a different label, if you own the publishing rights there should not be anything stopping you from re-recording your old songs and releasing them on a new label. I believe the only reason this does not happen more often is because albums with "no new material" do not typically sell all that well, so labels aren't all that interested in them. They'd prefer you record brand-new songs. But it does happen. The skatecore band Suicidal Tendencies, for example, re-recorded their entire eponymous debut album and released the new versions of the songs on a new label under the title "Still Cyco After All These Years."

OT: Philip Glass

[PCM2]

At first the store owners and distributors tried to actually count how many were broken and adjust the invoices appropriately, but that was just too hard, and allowed merchants to take advantage by claiming a higher level of breakage than actually occurred.

Amusingly enough, the modern classical composer Philip Glass's first job was working at a relative's record store, where among his duties he had to take poor-selling records down to the basement and smash them, so the store wouldn't have to pay. (Heard that on NPR once.)