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Warner pulled into digital royalties dispute via Sister Sledge lawsuit

By | Published on Monday 6 February 2012

Warner Music

Sister Sledge have entered the digital royalties dispute party, which is interesting mainly because it brings Warner Music into the ongoing debate over whether revenue generated by download stores should be treated as record sales or licensing revenue.

As previously reported, the distinction is important because under many pre-internet record contracts the artist receives a much bigger cut of any royalties if the revenue stems from a licensing deal rather than record sales.

The record companies have always treated iTunes-style downloads as the digital equivalent of selling CD singles or albums, and therefore paid the lower royalty. But some heritage acts claim that, as there are no direct production costs associated with an iTunes download, and as Apple sells their music on the back of one single licensing deal, iTunes revenue should be classified as licensing revenue and that artists should receive the larger cut of the loot.

This isn’t a new dispute, though the US courts which heard earlier digital royalty claims from heritage acts generally sided with the labels. But that changed when FBT Productions, the production outfit that worked on Eminem’s early output and still have an interest in those recordings, sued Universal’s Interscope in a bid to get the higher licensing royalty paid out on iTunes sales. FBT won.

Universal insists the ruling in the FBT case is only relevant to the wording of that exact contract, and does not set a more general precedent, but that hasn’t stopped Rob Zombie, Chuck D and the estate of Rick James suing the uber-major on the issue. And now Warner is being pulled into the digital royalty squabble by a lawsuit filed by the Sledge sisters and American singer/actor Ronee Blakely.

According to reports, the lawsuit claims: “Rather than paying its recording artists and producers the percentage of net receipts it received – and continues to receive – from digital content providers for ‘licenses’, Warner wrongfully treats each digital download as a ‘sale’ of a physical phonorecord … which are governed by much lower royalty provisions than ‘licenses’ in Warner’s standard recording agreements”.

The new lawsuit is a class action, in much the same way as the Zombie/Spring estate lawsuit against Universal. That major failed to have the class action status overturned, meaning any artists operating under similar agreements with the record company could be due the higher pay out if the plaintiffs are ultimately successful.

Lawyers for both Universal and Warner – and any other record company with similar contracts with veteran artists – will be hoping the former’s assessment of the FBT ruling is accurate. If the majors are suddenly forced to start paying out a significantly larger share of their digital revenues to all their pre-internet artists it could have a devastating effect on companies for whom download sales are fast becoming their primary income stream.