Are Downloads Licensed Music or Traditional Record Sales?

According to at least one major label, they are both!! It just depends on whether you’re an artist or a consumer . . .

I know that it’s old news that Cheap Trick and the Allman Brothers are suing Sony over download royalties: a while back, Kassia did an excellent analysis on it.

The other day, however, I came across a posting on P2Pnet.net (love that name!) that discussed this very topic. The posting had an excerpt from an article in the Internationl Herald Tribune that reminded me just how two-faced the record companies really are when it comes to this issue, and why you have to take it with a grain of salt when they say that they’re (all together now) “just trying to protect the artists” with their draconian download restrictions.

According to the suit, the record company is treating digital downloads like traditional record sales, rather than licensed music, triggering a different royalty deal.

Let’s review, shall we?

For the artists: downloads are traditional record sales, not licensed music.
For the consumers: downloads are licensed music, not traditional record sales.

I’m sure that people quicker on the uptake than me have already jumped on this point, but it’s really a question that can’t be asked enough:

How can downloads be both traditional record sales and licensed music at the same time?

The obvious answer is they can’t. Unless, of course, you are a major label trying to ~~screw~~ maximize your take from both artists and consumers at the same time.

What I want to know is what would happen if Rick Nielsen legally downloaded and then shared copies of “Surrender?” Would he end being a party to a lawsuit suing himself for violating as a consumer the music license that Sony claims doesn’t exist for him as an artist?

Kassia says

June 23, 2006 at 6:49 pm

This is really interesting. With one option comes the doctrine of first sale — you know my personal belief system about this, but it doesn’t change the facts on the ground. The consumer has the right, under this doctrine, to resell the product on the open market. This is established law. It is only when the consumer “licenses” the music that they lose their right to resell the product.

However, in this case, iTunes (for example) has (possibly — I don’t have access to those agreements) entered into a licensing agreement with the record labels. This means that iTunes pays the record company and the record company then pays the artist in accordance with the provision in their agreement that covers licensed music. As indicated by the Allman/Cheap Trick suit, this is a more favorable rate. Cool, though I’d be interested to see these agreements to verify the facts. I’m old-fashioned that way.

We do need to note that the consumer is purchasing songs from iTunes. It is possible that there is language covering the usage of the song by the consumer, but the bottom line is that iTunes is not the owner of the music,. Therefore, it’s tough to argue that iTunes is somehow sub-distributing music to the consumer. Not only would that be unprecedented (as far as I know), but also pretty weird. I mean, with a sub-distribution deal, you have all sorts of reporting requirements. And, let’s be honest, sub-distributing, often associated with clubs (the Columbia House model) is even less favorable to the artist. I believe the Allman/Cheap Trick lawsuit is not predicated on the club model, but the actual act of licensing music to a third party for another use. This may seem like I’m splitting hairs, but when you look at the contractual language, there are two different concepts.

And we should recall that the agreements we’re discussing were written well before this entire notion was a glimmer in Arpanet’s eye.

Of course, what I’m not considering in this is the DMCA. Mostly because I believe it’s shoddy legislation that fails to take reality on any level into account.

Comments

Kassia says
June 23, 2006 at 6:49 pm
This is really interesting. With one option comes the doctrine of first sale — you know my personal belief system about this, but it doesn’t change the facts on the ground. The consumer has the right, under this doctrine, to resell the product on the open market. This is established law. It is only when the consumer “licenses” the music that they lose their right to resell the product.
However, in this case, iTunes (for example) has (possibly — I don’t have access to those agreements) entered into a licensing agreement with the record labels. This means that iTunes pays the record company and the record company then pays the artist in accordance with the provision in their agreement that covers licensed music. As indicated by the Allman/Cheap Trick suit, this is a more favorable rate. Cool, though I’d be interested to see these agreements to verify the facts. I’m old-fashioned that way.
We do need to note that the consumer is purchasing songs from iTunes. It is possible that there is language covering the usage of the song by the consumer, but the bottom line is that iTunes is not the owner of the music,. Therefore, it’s tough to argue that iTunes is somehow sub-distributing music to the consumer. Not only would that be unprecedented (as far as I know), but also pretty weird. I mean, with a sub-distribution deal, you have all sorts of reporting requirements. And, let’s be honest, sub-distributing, often associated with clubs (the Columbia House model) is even less favorable to the artist. I believe the Allman/Cheap Trick lawsuit is not predicated on the club model, but the actual act of licensing music to a third party for another use. This may seem like I’m splitting hairs, but when you look at the contractual language, there are two different concepts.
And we should recall that the agreements we’re discussing were written well before this entire notion was a glimmer in Arpanet’s eye.
Of course, what I’m not considering in this is the DMCA. Mostly because I believe it’s shoddy legislation that fails to take reality on any level into account.

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