Digital Music: Sale or License?

Historically, musicians have entered into recording contracts with record labels for the sale of music and publishing agreements with publishers for the licensing of music. When recordings are sold, musicians receive a percentage of the sale, and when a song is published, i.e. placed in a movie, tv commercial, etc, a musician receives a percentage of the licensing fee. Typically, the record label pays the musician between 10-15% of the money received per sale (minus an assortment of other deductions we need not discuss here), and a publisher pays the musician 50% of money received per license.

With that in mind, let’s think about downloading a song on iTunes or other online retailer. Often, the song is only available in DRM (digital rights management) format, meaning only the downloader can play the song on a number of approved devices. DRM is in place to fight online piracy. A question has arisen lately whether a digital download is a “sale” or a “license,” based on the DRM format and other contractual terms contained on websites that only allow the downloader to play the song. That restriction placed on the download can be argued is more like a license, than a sale.

Many of the older pre-digital recording contracts do not discuss complex digital issues such as this, creating massive problems for record labels. Many older artists, such as the Knack (muh muh muh my Sharona) are bringing lawsuits against their record labels arguing they should receive the higher licensing percentage from online downloads rather than record sales. Some musicians have been successful bringing these claims, while others have not. The success turns on how well and forward thinking the recording contract is written. Which brings us to your record deal. Defining exactly what constitutes a “sale” is becoming an incredibly important issue for all parties, as it could grossly limit potential income based simply on a definition. This is yet another reminder why any Artist needs an experienced intellectual property and entertainment attorney to review these types of contracts.

Bradley Legal Group, P.A. are Intellectual Property lawyers, Entertainment lawyers and Music lawyers servicing clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Orlando, and Nashville. We also affiliate with entertainment lawyers licensed in New York and Washington, D.C. © 2012 Bradley Legal Group, P.A.