F.B.T. Productions, the former production team of hip hop heavyweight Eminem, just lost their 2007 lawsuit against Universal over digital sales in online stores such as iTunes.
The brothers behind F.B.T. alleged that when Universal provided music to iTunes, the music conglomerate was actually "licensing" the tunes to another distributor rather than doing so themselves. F.B.T. argued that it deserved four times more dough per sale from digi stores than from CD sales. But the jury said that sales through digital downloads should be treated like CDs for the purposes of paying royalties, although it's the digital download stores that actually make the copies offered for sale.
So what’s the difference between licensing and distributing, you wonder? Well, it’s basically the difference between lending someone something to sell and then continually taking a cut of the profits, versus having them buy it off you for a one-time up front fee and you get little or no profits at all in the future. But it makes a BIG difference in the royalty rate. And that’s why everyone is up in arms over it. Ya see, Eminem got a 12% royalty on CDs sold that Universal distributed, but a 50% royalty whenever the music was licensed.
The decision doesn’t really change anything in the current system as labels generally already pay artists the same royalty rate from both digital download sales as they do on CDs. But if the jury had ruled against Universal, it could have opened the legal floodgates for artists to much higher digital royalties. And we certainly wouldn’t want artists making ample profits off their hard earned works of art, would we?