Artists Seek Greater Share From Label Of Revenues From Digital Downloads

Artists: Digital Copies Are Licenses, Not Sales

The essence of the plaintiffs' claim is that Sony is calculating the artists' shares of revenue from digital download sales through services such as iTunes, Pressplay, Napster, Music Net and others ('music download providers') in the same manner that the label calculates royalties for physical sales of CDs through traditional retail outlets. The plaintiffs allege that this constitutes a mischaracterization that results in drastically understated royalty accountings for those sales. They claim that these are not physical sales, but are instead sales of digital copies of recordings that have been licensed to music download providers by Sony. The music download providers distribute digital copies of the licensed recordings to their subscribers, either in the form of a downloaded copy that can then be reproduced on an iPod or MP3 player, or as a 'stream' that can be listened to on a computer connected to the provider through the Internet. There is no physical device, such as a CD, anywhere in this process, and the entire transaction (subscription, payment, download or stream) is handled electronically through an end-user's computer. Accordingly, the plaintiffs claim, the royalty rate payable for licensing income, which is much higher than for physical sales, should apply. (A similar claim, though not a class action, was filed in May 2005 in the U.S. District Court for the Central District of California against Warner Music Group over Tom Waits' recordings. Third Story Music Inc. v. Warner Music Group Corp., CV05-3942. The matter settled on confidential terms after some discovery and a mediation.)