As the labels continue to see their public business models implode, you gotta figure they’re going to spend even more time making sure that their private ones don’t.

The private ones, of course, involve screwing artists by not paying them royalties. I was just catching up on the latest suit involving such shenanigans.

Cher is suing Universal, saying it owes her and the heirs of Sonny Bono royalties from two compilation albums. There’s a fairly substantive Hollywood Reporter story on it here.

The article doesn’t make it 100 percent clear, but the issue seems to be the difference between royalties and licensing fees. Universal farmed out both Cher’s and Sonny & Cher’s music to another label for compilation purposes; in general terms, that would fall under the rubrick of licensing, fees from which might typically be split between label and artist fifty-fifty.

This is how the fees break down if an artist’s song is used in a movie, or is picked up for a Now That’s What I Call Music collection, on the grounds that it’s essentially free money.

A normal record sale, by contrast, would generate a normal royalty payment, which might typically be 20 percent of the wholesale price of the CD.

Cher’s suit says that Universal let a Warner repackaging arm put out the compilations, but tried to route the money back to make it look as if it had come in through normal Universal sales channels, and subject to the lesser percentage.

As the labels continue to sue file-sharers—and generate press clippings that cite unchallenged the labels’ crazily high estimates of their alleged losses—it’s important to remember that the real criminals are the labels themselves. They routinely underpay royalties, and then make it punitively difficult to audit.

… come at this very strong blog, Copyrights and Campaigns, the work of DC lawyer Ben Sheffner. He does a quick recap of how the retreat was first reported and covered since. Nothing really earth-shattering, just, you know, the facts.

He also writes lucidly and candidly on an ongoing Patterico brouhaha and the Jammie Thomas case—that’s the one where the RIAA took a file-sharer to rial and got a judgment.

Most amusingly Sheffner, who is apparently a Republican, is a strong supporter of the RIAA’s file sharing suit, for all sorts of reasons, some of which are detailed here.

He’s wrong about this*, but it doesn’t take away from the substance of his blog. He seems to be pretty intellectually honest.

* For the record, the RIAA’s suits are ineffective; file-sharing has grown immensely since their inception. They are a distraction; the industry should have been harnessing the new technology, not fighting against it. It’s a PR nightmare; it is much easier now to root for the industry’s downfall, whereas it has deserved that fate for many years, for reasons I’ll detail in the next paragraph, and never managed to engender such hostility. And finally it’s harmful to the tiny tiny percentage of users who are getting ensnared in this, the low-hanging fruit of the most unsophisticated file-sharers who don’t know how to minimize their risk in various ways. These people are like the kids who are rotting in Texas jails for minor marijuana infractions.

Why does the industry deserve to be dismantled? Because it has been paying radio stations to pay its music, and it has never paid artists their royalties, and has used its power to make it difficult to hold it to account.  The indignance we hear about file-sharing, a minor offence, has never been demonstrated about the Great Royalties Ripoff, which is a massive industrywide fraud.

There’s an interesting aspect to the Allman Brother’s recent suit against Universal. (Here’s the story from Billboard; link via the Daily Swarm.) The front line in royalty disputes in the digital age is whether processes like streaming or selling a song digitally are equivalent to a traditional sale (on which the royalty rate might be roughly ten percent of wholesale) or a traditional licensing (say, for a movie soundtrack, where the label and artist might split the one-time proceeds equally).

Here’s how Billboard describes the sticking point in the Allmans’ suit:

The lawsuit, filed in Manhattan federal court, said UMG [Universal Music Group, which bought up Polygram, which distributed Phil Walden’s Capricorn] “refuses to pay Plaintiffs at the correct royalty rate for its digital exploitation of the Capricorn Masters,” including from compact discs, digital downloads and ringtones.

The agreement dated back to a 1985 agreement between the band and Polygram, which Universal bought, that said the band would be paid half of profits from the sale of records by third parties such as Apple’s iTunes or any other commercial usage not specified in the agreement, the lawsuit said.

The story is somewhat unclear—there was no iTunes in 1985. The story also says part of the suit is about CD sales, which were already around in 1985, so it’s difficult to believe the dispute is about the royalty rate on those. And, finally, the story could just be a poor encapsulation of standard industry boilerplate. But as written it looks like the band had the prescience to sign a contract, way back then, that gave them a clear claim of a 50 percent share of, in effect, new media exploitation.

A federal judge has ruled on a complicated case about how ASCAP-represented songwriters should be paid for music streamed by online services like Yahoo and AOL.

ASCAP has a PDF of the decision here. WSJ ($) story here, WashPo here. Wired News has the AP story on the ruling here.

Note that this doesn’t apply to artists and record companies, just royalties stemming from the rights of songwriters, the so-called publishing world. ASCAP is one of two major organizations that represent songwriters and publishing companies; the other, BMI has its own deal with the services. The ruling applies to AOL, Yahoo and Real Networks.
I haven’t read the decision yet. While some figures in the decision are blacked out, it seems that the judge reasoned that since radio pays, on average 2 percent to songwriters, the online streaming word, which involves a lot more listener choice and control, is more valuable and hence should pay more, or 2.5 percent.

That’s an interesting observation. According to the stories, that could total $100 million from the three services over an eight-year period in question, based on all sorts of variables. More on this later.

The New York Post has an unexpectedly substantive story about the funds from the settlements the majors made with the various file-sharing networks some years back. If you recall, Napster alone shelled out more than $250 million to three of the four major labels. (Sony/BMG by that time had corporate connections to the service.)

None of this had yet been disbursed to the artists. (They are the ones the record companies are fighting for, right?)

A contingent of prominent artist managers claims that little to none of that money has trickled down to their clients. They are now considering legal action.

“Artist managers and lawyers have been wondering for months when their artists will see money from the copyright settlements and how it will be accounted for,” said lawyer John Branca, who has represented Korn, Don Henley, and The Rolling Stones, among others.

“Some of them are even talking about filing lawsuits if they don’t get paid soon.”

The story talks to an unnamed company source who said that after legal fees there wasn’t much left. The writer also quotes Irving Azoff, who says that some labels are trying to assess the money against unrecouped advances.

Over in Billboard ($), the magazine’s executive editor, Bill Werde, is coming out strongly for an ISP tax on file-sharing as a way to compensate the failing record industry. His starting point is a MIDEM address by Paul McGuinness, U2’s manager, who Werde notes was one of the handful of folks in Steve Jobs’ kitchen when the deal was struck to introduce a special U2 iPod nearly four years ago.

And so it was important, I think, that he’s also the guy who, a couple of days later used a keynote slot at MIDEM [to attack] the Internet service providers (ISPs), telecoms and tech companies that have been happy to profit from, or at least abide by the losses of the music business.

Werde goes on to talk about a proposal along these lines introduced by the Electronic Frontier Foundation.

The EFF plan noted that charging “the 60 million Americans who have been using file-sharing software” $5 per month would net more than $3 billion of annual “pure profit” to the music industry. Not a shabby start for offsetting losses, but no one from the business is keen to listen to the EFF. McGuinness was the perfect man to sell the idea—not just to the outside world, but, especially, the music business.

In 2004, top label executives would tell me off the record that there’s no way you’d be able to get everyone with a stake at the same table and agree on a rate that consumers and ISPs and the music business could find palatable. Now, after three years of dramatic decline, more of those same folks—the ones that are still around anyway—are realizing they may have little choice, if they hope to avoid a swan dive of their own.

This is probably a pipe dream; such a sensible compromise is entirely out of keeping with everything the record industry has done in this arena for the last decade. To make things worse, the EFF calls for many sensible provisions. Music fans could use any software they wanted to swap whatever recorded music they wanted, all under the auspices of that dollars-per-month model. If they didn’t voluntarily join the program, they could get sued. The group also wanted a transparent, nonprofit group to oversee the money.

The big reason the industry will never go for it is that, as the EFF probably apprehends, such an arrangement will still, in the long term, reduce the industry’s impact in the music business markedly. Right now, the vast majority of the music swapped online is major-label product. As bands and artists get the hang of internet distribution, this percentage will ineluctably go down, and the amount of money going to the unaligned will go up.

Beyond that, it will remove what stigma remains from online file-swapping and, as informal friends- or dorm-based “nodes” spring up, it will make it easier for one online contact to pass music around on the sneaker net. (I’ve written before about how this will work; with the now-standard PC DVD burner, you can put fully half of the Billboard 200 album chart on one CD.) There’s even the possibility that, at a certain point, online file-sharing may start to dry up.*

There’s another argument against it, what I think of as the “let them stew in their own juices” argument. It doesn’t have law on its side, but it does have a sort of blunt moral force. The main reason the record industry doesn’t like file-sharing is that it muscles in on a hegemony they have long held. The record industry is like the Sopranos; ripping off artists is its job, and it doesn’t like faceless computer programs or emo college students muscling in on the family business.

Consider this Reuters report on a recent suit against Universal from a group of famous artists and artist estates, including Count Basie, charging underpayment of royalties. Universal denies the charges, it’s just a suit, and the company deserves its day in court. All that said, there’s a comment I have heard again and again from artists lawyers; that in a career of auditing record companies, often over a period of decades, it is almost never the case that the artist wasn’t owed money. The companies also make it punitively difficult to find out whether they do owe the artists money, as of course they would. This systemic theft is built into the structure of the industry at this point; it’s a good potent reason to hasten the end of the companies as financial conduits between artists and fans.

* As new generations of fans come online, the diversity of the genres swapped (now largely rock and pop) will gradually right itself, as jazz, then country, then, I don’t know, Christian rock will all ultimately find its online presence match its offline appeal. Isn’t there the possibility that a critical mass will be hit at a certain point? As computer storage and download speeds increase, you will soon see zip files of the complete Stones catalog, and then a complete “classic rock” catalog, swapped. It’s possible we might see a situation where an ever-increasing percentage of the population carries a complete historical collection of whatever their favorite genre of music is around on their computer, with actual swapping correspondingly declining. On the other hand, by that point the ISP fees will become forgotten and folks may continue to pay them, even if they don’t actively collect music online any more.

Previously: The Year in CD Sales: It couldn’t have happened to a nicer group of people.

From the LAT, the latest entry in an old book with many chapters. Deborah Gregory, the author of “The Cheetah Girls,” a series of books for young teens, sold the rights to Disney for 4 percent of the net proceeds. Three movies, and millions of CDs, DVD and concert-sale tickets later, she’s made a grand total of slightly more than $100,000.

Gregory said she’s pocketed $125,000 over the last nine years in option fees and payments for her title as co-producer of the movies. Although she’s asked for them, she has never gotten “net profit participation statements” from Disney, spelling out details of expenses and revenues. If anyone is getting rich on this formidable franchise, Gregory noted, it’s not the woman who created it

What does Disney say? No comment:

Disney officials, asked to explain why Gregory has not received any net profits — and to estimate the collective revenue that “the Cheetah Girls has generated — declined to respond. “Disney Channel doesn’t comment on the terms of its contracts,” spokeswoman Patti McTeague said in an e-mail.

The digital convergence has decimated the music industry, caused a strike in the movie industry, got the Library of Congress embroiled in a controversy over setting outrageous (and later overturned) royalty rates for internet radio, and allowed the music industry to wage war on its customers in the form of the lawsuits against illegal downloading.

It’s clear at this point that no one is going to get out of this transition clean. The latest fault line: The so-called mechanical royalties songwriters get for their work. Right now, songwriters get paid in a couple of complicated ways. One is the small amount—roughly nine cents, in theory—for each track on a CD that’s sold. The also get some other small amount, which varies in the five- to eight-cent range, each time a song they’ve written gets played on the radio.

(This is in contrast to the royalties the performer of a song on a particular record gets. The artists have a separate deal for royalties with the label releasing the records, and get no money for radio play, the idea being the radio play gives the artists free publicity.)

Anyway, on the mechanical royalties front, the Library of Congress, a board of which oversees royalties, is considering a couple of new proposals. In one, the music industry wants to lower the royalty rate for digital downloads. In this effort, they are joined by a new major player, the Digital Media Association, which includes companies like Apple and Amazon and Microsoft. (A full list of its members is here.)

A Hollywood Reporter story on the issue is here.

The music publishing industry, which represents songwriters, says the rate should be increased, on the grounds that the labels are making more proportionally off each download, because they don’t have to manufacture and package the music.

The figures debated are complicated and don’t quite make for apples-to-apples comparisons. The nine-cents-per-track CD rate is just nominal; the various ways record companies manipulate contracts and manhandle new artists in contract negotiations often produce much lower rates in practice.

Right now, the record industry wants an 8 percent royalty on gross revenues from downloading. Since, last I heard, the prevailing 99-cent iTunes purchase gives about 65 cents to a record company, that’s a ostensible royalty rate of a little over five cents per track.

The second issue before the copyright board is how to compensate songwriters for digital streaming. This gets down to a distinction that has bedeviled the royalty issue since the practice began. It’s pretty clear that when you buy a song from the iTunes store, it’s a purchase, just one lacking the physical dimension of a compact disc. But what’s exactly happening when you stream a song, though a subscription service? Is that a sale, triggering royalties–or a performance, which doesn’t?

The Digital Media Association, or DiMA, as it calls itself, unsurprisingly paints a picture of a delicate, fragile industry that make get killed a-bornin’ if royalty rates are too high:

“Fundamentally, this fragile marketplace is showing signs of promise, but it cannot be saddled with additional, excessive costs,” DiMA wrote. “The board should be careful not to impose a royalty that kills the proverbial goose and deprives songwriters and publishers of their golden egg.”

How other manifestations of the digital world will affect the real-world incomes of songwriters remains to be seen. For one, songwriter income from hit singles alone should rocket upwards. Music fans, instead of having to buy albums to get the one song they like, are now free to buy just the song for a quick and easy 99 cents. On the other hand, those tens of millions of album purchases now foregone will cost the songwriters who traditionally piggy-backed on the popularity of a hit song or two will now vaporize.

The Chicago Reader recently opened up its archives. I went hunting for one of my favorite Reader stories, written by Josh Goldfein a few years after I stopped working there, which I don’t think got enough attention when it came out. Perhaps not all that relevant today, it nonetheless functions as a sobering coda to the indie-rock era, whose idealism and discontents colored the debate of the time.

While the story is very nuanced, it basically details what happens when, after a label-band handshake relationship of many years standing, one of the parties figures out it can make a lot more money by abrogating the deal—which, as it turns out, wasn’t worth the paper it was printed on.

A shorter follow-up article is here.