Friday 29 June 2012

Royalty reducers back in the spotlight

Judge Philip Gutierrez is not a man to be messed with, as lawyers for the Universal Music Group have found out as the 'Eminen' digital royalty case progresses onwards.  

This is one of the claims brought by artistes and here producers (FBT Productions) to try to force record labels to pay a higher royalty on digital sales of sound recordings. This case was the first to reach a conclusion which favoured artistes, although another major claim by artistes including Cheap Trick and the Allman Brothers was settled by Sony. 

So what's happened now? Well, having lost the battle to keep royalties at the lower 'per unit' sales basis on appeal, Universal Music Group’s still hoped that royalties could be paid on 'net receipts'. But their lawyers really didn't want their royalty reducing practices to fall under the court's scrutiny,  As UMG had argued in court that any royalty that had to be paid to FBT (even at a higher rate for digital) should be paid on a “net receipts” basis they thought that this was settled and agreed by the judge. FBT had other ideas having discovered that only about 29% of international revenue actually returns to the major's Aftermath division (the relevant label here) with the other 71% being kept by the local Universal companies that actually sell the product - so a net receipts basis made a massive difference - reducing royalties by a whacking 71%.

One can see why FBT might not want this as the basis for accounting, but UMG felt that the Judge had already accepted the “net receipts" basis. Judge Gutierrez was having none of this,  and made it clear in a written judgement that [a] he did not mean to make a ruling on this matter when asked for clarification on "our net receipts" last year, and [b] he doesn't believe that FBT were aware that Universal intended for the international royalties issue to be resolved via that clarification either, because there would be no logic in them choosing to ignore the matter until later. On the latter point, the judge wrote: 

"The court is deeply troubled by defendants' argument. While it is hard to see what FBT could gain by feigning ignorance, it is now quite apparent what defendants could hope to gain by bamboozling the court and plaintiffs on this issue. Defendants' current stance makes it appear as though defendants carefully inserted the issue into the motion for summary judgment before they had notified FBT or the Court of what percentage of the revenues from foreign sales of permanent downloads would be paid to FBT. An attempt to dupe the court into a premature ruling will not serve as the basis to deny FBT an opportunity to challenge defendants' accounting practices". 

Harsh criticism and UMG will also no doubt be horrified that royalty reducers have been put in the spotlight as they attempt to convince regulators in US, EU and elsewhere that they are a safe haven for EMI’s recorded music division and artistes. 

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