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This is Celia Hirschman with On the Beat for KCRW.

Last month, the legendary rock band, the Allman Brothers, filed a lawsuit for $13 million against Universal Music. The Allman Brothers contend that Universal has been shorting the band their full compensation for the sale of their music on outlets like iTunes.

The heart of the lawsuit lies in the way recording contracts used to be written. Until the mid to late 70's, contracts outlined a record label's rights to sell music but often failed to consider future innovations in sales and distribution. The label was given the right to manufacture a prescribed collection of music on vinyl, cassette tape, eight-track and later CD. In exchange, the label would get a large percentage of the revenue generated. The artist would also receive a royalty, usually around 12% to 15%. The reasoning was that the label risked millions in manufacturing, promoting and selling the artist and therefore was entitled to reap a larger benefit of that investment. But selling music in record stores was only one way to generate income. Another important revenue stream was licensing songs to third parties. A third party usage might include licensing a song for a compilation record, or for a TV commercial. Third party usages have different financial considerations in a recording contract. They usually earned the artist 50% of the revenue generated. The idea is that the song was licensed to a third party, who put up the money for the manufacturing, distribution, marketing and promotion of the song. The record label’s involvement was very limited and therefore their revenue share was limited.

The difference between the artist royalty rate and the third-party licensing rate is at the heart of the Allman Brothers lawsuit. The Allman Brothers contract was written before digital sales were recognized as a viable revenue stream. The Allman Brothers contend that iTunes licenses their music from Universal as a third party, but the band is only paid an artist royalty instead of the contractually agreed third-party usage rate of 50%. Universal feels the sale of an Allman Bros single is like a sale of a 45 single, and pays the band accordingly. In the late 90’s, and certainly by the millennium, recording contracts were adapted to clarify revenue royalties for digital downloads, ring-tones and other digital new mediums, but language in older contracts is far more vague and left to interpretation.

In 2006, The Allman Bros filed a law suit against Sony Music for the same infraction in the band's Sony contracts. The Sony lawsuit was dismissed, but without clarity on this issue. The band’s attorney is planning to refile a lawsuit against Sony as well.

The Allman Brothers are hoping to make their case an example for other recording artists with similar contracts. Cheap Trick has already filed suit, and many in the business are watching to see how these lawsuits will finally play out.

Innovations in the marketplace require contractual clarity, for the fairness of all involved. But before the 1970's, no one was thinking about their digital future. Who could have imagined new distribution pipelines, created by third parties who would parse out a digital song file and sell it at the click of a mouse.

This is Celia Hirschman with On the Beat for KCRW.


Banner image: Allman Brothers

Reach for the Sky

Allman Brothers Band

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