Sony Music will pay past royalties for digital songs

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Case in Point

April 3, 2012

Sony Music will pay past royalties for digital songs 

The plaintiffs alleged breach of contract based on the defendant’s practice of paying many artists only about 4 cents per 99-cent song for digital downloads when their contracts called for 50 percent of net profits from distribution and licensing. The parties reached a $7.95 million settlement. Allman v. Sony BMG Music Ent.

Between 1962 and 2002, record label Sony BMG Music Entertainment had standard contracts with its recording artists that gave the artists 50 percent of net profits from distribution or licensing of “phonograph records.” When digital downloads from sites like iTunes became popular, however, Sony started paying many artists only about 4 cents of the 99 cents customers paid per song. Also, the artists received only about 8 cents of the $3 charges for songs used for cell phone ringtones.

Members of Cheap Trick, the Allman Brothers, and Elmo & Patsy filed a class action against Sony Music for breach of contract, claiming that the term “phonograph records” includes digital downloads because they are recordings sold and licensed by Sony. The plaintiffs noted that Sony music was deducting up to 25 percent for container charges, even though it didn’t have to ship anything, and up to 50 percent for “audiophile deduction,” which was previously used to pay for the development of recording technology and is no longer relevant in the digital age.

Music group The Youngbloods later filed a similar action against BMG Music, now Arista Records, and the suits were consolidated.

The parties reached a $7.95 million settlement, including $7.65 million to artists whose songs have been downloaded from iTunes at least 28,500 times and $300,000 to artists whose songs have been downloaded less frequently. Sony Music will pay about $4.36 million, and Arista will pay about $3.59 million. The record labels also agreed to a prospective royalty increase of 3 percent for artists whose songs have been downloaded at least 28,500 times or who have earned at least $18,000 in royalties since iTunes was launched. The court has preliminarily approved the settlement.

Citation: Allman v. Sony BMG Music Ent., No. 1:06-cv-03252 (S.D.N.Y. Mar. 9, 2012).

Plaintiff counsel: AAJ member Sanford P. Dumain, Benjamin Y. Kaufman, Gary S. Snitow, Brian D. Caplan, and Jonathan J. Ross, all of New York City; Gerald B. Weiner, Culver City, Calif.; and Thomas A. Cohen, Mill Valley, Calif.

Comment: Several similar suits against record labels are pending. Trial is set to start tomorrow in rapper Eminem’s suit against Aftermath Records to determine how much the label owes him in past royalties, after the Ninth Circuit held digital recordings are licenses, which requires a 50-50 split of the revenue, rather than sales, for which the label pays smaller royalties. (F.B.T. Productions, LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. Sept. 3, 2010).)


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