A New Royalty Fight - Cheap Trick Vs. Sony

A cheap trick
May 21, 2006

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 Grokster.
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 new talent."
This high-minded 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."
Spearheaded by 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.
Admittedly, 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.
Sony recouped 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 download.
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."
This includes 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 wrong?"
Yes, according 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."


Anonymous said…
Why can't people just buy CDs anymore? It's much easier.

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