Hold Onto Your Rights

by Chip Cox

With the recent release of the Apple iTunes service, it’s time to revisit digital downloads. In many existing contracts, the label has the option to license out digital download rights to a third party with the requirement that the label split 50/50 any license fees it receives with the musicians. At one time, the independent company EMusic busily was buying up digital download rights to many independent labels. As with so many internet companies, EMusic’s business plan was too optimistic and in order to avoid bankruptcy, the company sold itself to major label Universal, meaning that a major owned digital download licenses to many of the best known indie labels in the country.

There are several developments in the download area: one is that Universal’s parent, Vivendi, has the music company up for sale. Apple was a rumored buyer, as a way to boost the iTunes business. The latest is that Universal might be purchased by Liberty Media, the giant owner and part-owner of numerous cable television channels. Someone, perhaps Apple, perhaps Liberty, perhaps someone else, will buy Universal and with it, all the download rights owned by EMusic. Not ready to let Apple and Emusic take all of the spotlight, Roxio bought pressplay from Universal and Sony and said they were planning to re-launch it Napster, whose name and technology they had bought at auction earlier in the year.

At this very minute, it’s impossible to determine who is going to wind up with the system that will both appeal to users and be able to put money into the pockets of musicians. Early reviews of iTunes are incredibly good but at this point, only Mac owners can use it. Whoever buys Universal will wind up as a potential player, if only because they’ll wind up with EMusic. RealAudio is making a major effort in this area. And the majors have also tried various websites (one of which is/was pressplay), to less than excited reviews from music consumers. Looming over all of this are the “free” download networks such as Kazaa. The only thing that’s certain right now is that nobody knows for sure what’s going to happen or who the survivors are going to be.

Given this uncertainty, musicians who are entering into contract negotiations with labels in the near future should give serious consideration to trying to retain digital download rights. The standard label contract is going to claim rights in all formats that exist now and might be invented in the future. In some cases, you may be able to retain download rights if the label wants your band badly enough.

It’s usually not as difficult to negotiate with indie labels to keep download rights with the band. This has usually happened because (1) the label has rated signing the band as a priority and (2) the label isn’t optimistic about future income from downloads.

If you can retain those rights, then you can negotiate with the various sites on your own to collect your digital performance royalty. Labels can see about $.28 per song downloaded (at a price of one dollar per download) that they split with the musicians. If you can get that same deal without the label as a middleman, that’s a 28% royalty, far in excess of the standard terms with any label. Obviously, any download site is going to be more interested in bands with some proven sales in the past.

A consideration for bands with a long recording history is to check their original contracts. It’s not unusual for indie contracts written in the ‘80s to specify the format the label can manufacture - vinyl and cassette, for example. Sometimes, you’ll see vinyl, cassette and compact disc listed. If that’s the case, then the label needs your permission to license your recordings to any digital download site. Check the wording in your old contracts - if you have questions regarding whether a label can legally license to a download site, check with a music attorney. It’s possible your band owns those rights, not the label.

CHIP COX is a former professor at the University of Missouri Law School and currently practices entertainment law in his hometown of Kansas City, Missouri. He can be reached via email at chip@inspiratron2100.com