Rap artist Eminem and his producers, F.B.T. Productions, won another victory this week in their ongoing dispute with record label Universal Music Group over how royalties are divided for music sold online.
A federal court in California ruled that the record label could not take deductions for certain transactional services it routinely provided during the now-fading era of physical album and CD sales. That’s because licensing online music to companies like iTunes or cellphone companies no longer requires expensive services like packaging CDs.
Such “container deductions” and “new medium deductions” cannot be subtracted from the royalties owed to the artist and his or her production company for music sold online, U.S. District Judge Philip Gutierrez ruled this week in the Central District of California.
Instead, record labels must split the profits from online music sales 50-50, with the artist and producers. The split until now had been closer to 12 percent of profits (after companies such as iTunes or Verizon’s share) going to the artist and their creative team, with the record label retaining the rest.
The judge also shot down Universal’s efforts to exclude Eminem’s hit albums Recovery and Relapse from the case.
The ruling prevents potentially millions in back and future royalty payments for Eminem and F.B.T. from reverting back to Universal in deductions. It also could mean the same thing for many other artists, whose record labels have asserted similar deductions, according to Richard Busch, a Nashville-based attorney with King & Ballow who represents Eminem’s production company.
“We’re obviously thrilled with the decision because we think it clarifies for the industry the deductions that cannot be taken from payments to artists of digital download revenues,” Busch said.
The ruling clears the remaining objections of Universal Music Group in the case thus far, paving the way for an April 3 trial in Los Angeles to decide just how much the record label should pay for Eminem’s music.
Joel Martin, Detroit-based F.B.T. Productions manager, said the ruling will apply to potentially tens of millions of downloads of Eminem’s music thus far, and all future downloads going forward — translating into what could be millions of dollars for the artist and the company who helped discover him.
Martin called efforts by Universal Music Group to assert the package and new medium deductions several years into the ongoing case “a disingenuous way to whittle damages down to very little.”
“They’re trying to salvage any deduction in the book,” Martin said. “But those deductions only apply to physical product.”
Attorneys representing Universal Music Group could not be reached for comment.
The case already passed a significant and potentially industry-altering milestone earlier this year when a California appellate court ruled that digital music was “licensed” rather than “sold” to distributors such as iTunes or Verizon.
In many of the music contracts that predate the digital age, licensed music is spelled out as an even split in royalty shares between artist and record label, while sold music generally gave record labels a bigger cut. Universal Music Group appealed that decision to the U.S. Supreme Court, which declined to take the case.
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