Eminem case throws internet royalty universe into disarray


Are sites where consumers pay to download music stores, or are they 3rd party agents licensing the use of the music they sell? According to the 9th Circuit, they are third party licensers, and the upshot may be a huge payday for artist Eminem and FBT Productions.

FBT, Eminem’s former production company, has been going after Eminem’s label, Universal Music Group’s Aftermath Records, for using the store model when paying royalties for downloads of songs and ringtones, rather than using the licensing model.

If internet sites are stores, Universal only owes the artist and FBT 18% of the take. But if they are 3rd party licensees (as is the case when a movie or TV show pays to use an Eminem tune), Eminem/FBT are owed 50% of the take.

The 9th Circuit overruled a lower court finding for Universal. For its part, Universal is asking for a rehearing.
According to the Detroit Free Press, most new artists are well aware of where sales are taking place these days and have deals that take the internet into account. Observers say the ruling, if it stands, may be a boon to older acts that have been getting a small fraction of download income on the basis of contracts signed long ago. Older acts, it is said, may find loopholes in their contracts that could benefit them as it stands to benefit Eminem and FBT.

RBR-TVBR observation: Does this have implications for the many-faceted talks about the Performance Rights Act? Certainly not directly, but at the very least, it shows that there is more to the royalty equation than using or avoiding the Copyright Royalty Board, and that any internet component to a potential NAB/RIAA deal may well be constructed on quicksand.

Another thing to consider is that if this ruling stands, the labels may well have another cash famine on their hands, which could change their negotiating position on PRA.

Bottom line: This ruling takes an extremely complicated situation with a lot of moving parts and throws in some brand new complications.