The major record
companies have made plenty of headlines in recent months via their
campaign to demonize what they call "illegal downloading." Since
June 2003, their umbrella group, the Recording Industry Association
of America, has filed 3,500 lawsuits in the United States against
users of peer-to-peer file-sharing services such as Kazaa and
The latest batch of 235 suits came in mid-April and included one
against a mother in Rome, Ga., who allegedly "stole" songs by Jewel,
Poison and Whitney Houston -- despite the fact that her family
hasn't owned a computer in a year. Carma Walls told her hometown
newspaper, the Rockmart Journal, that they got rid of the machine
after about two months. She admitted she did download some songs
during that time, but she didn't realize it was illegal, and she
never burned the tunes to CD.
The RIAA refuses
to comment on specific cases, but it happily issues its blanket
statement on downloading: "Not only does piracy rob recording
artists and songwriters of their livelihoods -- and threaten the
jobs of tens of thousands of less celebrated people in the music
industry, from engineers and technicians to warehouse workers and
record store clerks -- it also undermines the future of music by
depriving the industry of the resources it needs to find and develop
language is contradicted by another lawsuit filed on April 27 in
U.S. District Court in Manhattan. So far, this suit has received
much less publicity, though the trade publication Billboard is
already calling it "a case that could seismically alter the way
labels and artists share download revenue."
Sony artists the Allman Brothers Band and Rockford's own power-pop
heroes Cheap Trick, the class action suit accuses the artists'
label, Sony BMG, of consistently shortchanging the musicians on
royalties from music sold via Internet services such as Apple's
iTunes, which charges consumers 99 cents to download songs such as
Cheap Trick's "Surrender" or the Allmans' "Whipping Post." At the
heart of the dispute is how that money is divided -- and why the
artist gets the smallest cut by far.
As an electronic
retailer, Apple keeps about 30 cents of every tune it sells. Cheap
Trick's manager, Dave Frey, believes the artist and the label should
be splitting the remaining 70 cents, especially since the label has
almost no manufacturing or distribution costs. But Sony is paying
Cheap Trick only about 4.5 cents per song.
Sony BMG has
declined to comment on the case.
calculating an artist's royalty rate can be a Byzantine affair,
since it varies from album to album and is subject to numerous
deductions as the record company recoups its expenditures. But on
average, Frey says Cheap Trick earns about $1.20 from every CD sold
of 1979's "At Budokan." With a list price of $11.98, that's a
royalty rate of about 10 percent. The 4.5 cents the band makes from
a download of the single track "Surrender" represents a royalty rate
of less than 5 percent.
How is Sony
doing the math? Right off the bat, the company is cutting the
artist's royalty by 25 percent, citing a provision in every
recording contract that allows the label to pay less while coping
with the costs of employing "new technology." When Cheap Trick
originally signed to the label in 1976, vinyl LPs were the primary
music media. As CDs came into vogue, the company "had to retool the
plant and take out all of the vinyl-making machines and put in CD
burners instead," Frey says. CDs were widely introduced to the
market in 1983, and they became the primary medium by 1990;
nevertheless, Sony still defines compact discs as "new technology"
and pays Cheap Trick the lower royalty, Frey says.
its original recording and marketing expenses for the songs on "At
Budokan" decades ago, Frey says, and there are obviously fewer
expenses in selling "Surrender" as a download than on CD -- "You
don't have to put it on a truck, you don't have to take it to a
store or any of that stuff." Yet on top of the new-technology
deduction, Sony is also subtracting a "container deduction" of 25
percent and a "breakage reduction" of 15 percent from every 99-cent
Even the least
computer-savvy consumer knows that there is no "container" for an
MP3 file, nor is it possible for anyone to "break" one in transit as
a CD might be damaged. And even with all of these deductions, Sony's
math doesn't add up: Frey maintains that Cheap Trick should be
earning at least a dime per downloaded song, or double what the
label is paying the group.
The lawsuit grew
out of conversations Frey had with his friend, Bert Holman, manager
of Sony artists the Allman Brothers. "I was talking to Bert about
this and he said, 'Yeah, I just went through our [royalty]
statement,' and we were basically finishing each other's sentences.
A few nights later, there was this litigator who is an old Allman
Brothers' fan who showed up at one of their shows and said, 'You
guys have a big point,' and they [the law firm of Labaton, Sucharow
& Rudoff and Probstein & Weiner] said that they would take this on
and do it pro-bono on behalf of all of the artists at Sony that have
a contract that predates 2002."
thousands of artists ranging from Miles Davis and Bruce Springsteen
to AC/DC and Gloria Estefan. "If we win, anyone who wants to can opt
in and get their share of the settlement," Frey says.
The suit is
seeking $25 million in damages, though that figure may grow if the
case is expanded beyond Sony to include other record companies. Frey
also manages catalog sales for the Ramones, and he says Warner Bros.
is using the same math for download sales by that band that Sony is
using for Cheap Trick. Does this mean that the major labels are in
collusion on downloads? "Possibly," Frey says. "I think everyone is
keeping the exact same line on this: Universal is doing it the same
way, and so is EMI."
Despite being an
ardent advocate for the artists he represents, Frey is aghast at the
RIAA's legal campaign against downloading, which makes no
distinction between people who download a song to sample it before
buying and those who may indeed be "stealing" the music without
paying for it. "It really is embarrassing and terrible, and there is
just no excuse for that," Frey says. "What, the customer is always
to the RIAA. "Stealing music online is no different from going into
a music store and shoplifting," it insists in its boilerplate
statement. But by that logic, isn't shortchanging an artist on
digital royalties as much of a crime as withholding profits from CDs
sold in the store? "I don't know if it's a crime," Frey says. "But
we don't feel it's right."