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Sale Or License? Sister Sledge Sues Over ITunes 257

Posted by samzenpus
from the show-me-the-money dept.
Hugh Pickens writes "The Hollywood Reporter reports that members of the iconic disco-era musical group Sister Sledge have filed a major class action lawsuit against Warner Music Group claiming that the music giant's method for calculating digital music purchases as 'sales' rather than 'licenses' has cheated them out of millions of dollars from digital music sales. Songwriters typically make much less money when an album is 'sold' than they do when their music is 'licensed' (the rationale derives from the costs that used to be associated with the physical production of records) but record labels have taken the position that music sold via such digital stores as iTunes should be counted as 'sales' rather than licenses. The difference in revenue can be significant as Sister Sledge claim their record deal promises 25 percent of revenue from licenses but only 5-1/2% to 6-1/2% of net from sales. Eminem's publisher brought a nearly identical claim against Universal Music Group and won an important decision at the 9th Circuit Court of Appeals in 2010 when the 9th Circuit ruled that iTunes' contract unambiguously provided that the music was licensed. The lawsuit argued that record companies' arrangements with digital retailers resembled a license more than it did a sale of a CD or record because, among other reasons, the labels furnished the seller with a single master recording that it then duplicated for customers. 'Unlike physical sales, where the record company manufactures each disc and has incremental costs, when they license to iTunes, all they do is turn over one master,' says attorney Richard S. Busch. 'It's only fair that the artist should receive 50 percent of the receipts.'"
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Sale Or License? Sister Sledge Sues Over ITunes

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  • Wait (Score:5, Insightful)

    by SJHillman (1966756) on Friday February 10, 2012 @09:15AM (#38994127)

    You mean the music labels aren't there for the protection of the artist!?

    It also seems that 75% cut is still a lot for copying an mp3 file and drawing up some paperwork. Even if the label also provided the recording studio, etc, it seems like the artist is still getting the short end of the stick. Why is it that the artist always seems to be the last one to realize the label is screwing him even harder than its screwing the consumer?

    • Re:Wait (Score:5, Insightful)

      by Anonymous Coward on Friday February 10, 2012 @09:28AM (#38994205)

      Don't think of RIAA as an isolated case. They're the middlemen; the brokers. The only "benefit" they have for the artists is its distribution channel and marketing/ promotions (but that''s been eroding for the past decade, thanks to the internet.)

      RIAA becoming greedy? That's what these brokers/ facilitators do. It's a service industry that's quickly becoming obsolete.

      • by synapse7 (1075571)
        BS! That is why they sue the piss out of anybody that can be proven to have downloaded music, to return all the lost profits to the creator.
      • Re:Wait (Score:4, Insightful)

        by Bob9113 (14996) on Friday February 10, 2012 @10:40AM (#38994751) Homepage

        They're the middlemen; the brokers. The only "benefit" they have for the artists is its distribution channel and marketing/ promotions (but that''s been eroding for the past decade, thanks to the internet.)

        They also provide the equivalent of venture capital to small artists with potential to go big. There is lots of room to debate the pros and cons of how those relationships are formed and how they mature (just as with venture capital). Regardless of those questions, however, it is another benefit that has to be acknowledged when forming a complete image of the problem space.

        • Re:Wait (Score:5, Informative)

          by dkleinsc (563838) on Friday February 10, 2012 @11:40AM (#38995413) Homepage

          Well, as a musician with a pal who was in the music business for a while (I'm not his kind of act, so I didn't work with him), he described it like this:
          "The big distributors screw the labels in a very uncomfortable place. The labels, in turn, screw the band managers, who screw the musicians. Every time you move up in the business, you basically get to shift your position so that you are more the screwer and less the screwee." He also mentioned that because of the cash involved, if he'd wanted to screw his bands he could very easily have taken most of their share of the door and told the band members (when they woke up) that they'd spent it on alcohol, hookers, and blow.

          You can also read this article [salon.com] by Courtney Love explainin precisely how record contracts screw musicians very very badly.

      • Re:Wait (Score:5, Interesting)

        by Mitreya (579078) <<moc.liamg> <ta> <ayertim>> on Friday February 10, 2012 @10:47AM (#38994853)
        RIAA becoming greedy? That's what these brokers/ facilitators do. It's a service industry that's quickly becoming obsolete.

        Hardly obsolete - perhaps less relevant. RIAA has many, many faults, but internet has not magically removed the need for middle-man and promotion.
        Just because you can distribute your music world-wide does not replace the need to market yourself and achieve the initial recognition. That is still expensive to do, perhaps more so nowdays. All of the self-published successes tend to come from bands that were first made famous by the very same RIAA. Just saying...

    • Re:Wait (Score:4, Insightful)

      by jbolden (176878) on Friday February 10, 2012 @09:43AM (#38994307) Homepage

      Supply and demand.

      There are tons of groups that would like a shot of making it.
      There are a limited number of slots available.
      The cost to get one of those slots is being willing to bid a large percentage of your future rights.

      • Re:Wait (Score:5, Interesting)

        by Migraineman (632203) on Friday February 10, 2012 @10:36AM (#38994719)
        The RIAA members intentionally create a "limited number of slots available." This artificial scarcity alters the market dynamic, very much so in the favor of the RIAA. Don't think this is an accident. It's fundamental to their business model. An open market is the last thing they want.
        • by jbolden (176878)

          I would argue the scarcity is natural. How is the RIAA creating an artificial scarcity? What are they doing to create star culture? And if it is the RIAA why do we see a similar culture in: books, movies, television dramas, journalism, sports... that the RIAA has nothing to do with?

          Most likely without the music publishers, and their marketing music sales would be lower, and this would be more of a middle class occupation. That incidentally is what you see in Europe, the "stars" still don't do incredible

      • The "limited number of slots" argument might apply if you're talking about say radio airplay or music videos on a single channel that can only show so much. With the Internet, there are effectively an unlimited number of slots, thus vastly lowering or negating entirely the need for a middle man such as a record label.
        • by tepples (727027) <.moc.liamg. .ta. .selppet.> on Friday February 10, 2012 @11:53AM (#38995559) Homepage Journal

          With the Internet, there are effectively an unlimited number of slots

          Not if your target audience lacks access to the Internet. For example, a lot of people aren't willing to pay roughly $30 more per month to replace their dumbphone with a smartphone just to listen to Internet radio instead of FM radio. (Dumbphone plans on Virgin Mobile USA start at $7/mo; smartphone plans on the same carrier start at $35/mo.)

          on a single channel that can only show so much

          The front page of a web site can only show so much. Not everybody's music video can be on the front page of, say, YouTube at once.

    • Re: (Score:3, Interesting)

      by CastrTroy (595695)
      I've heard similar reports about the labels taking their cut for loss and breakage on digital sales. The artists are getting screwed over. The contract probably doesn't say anything about digital sales at all. Only about physical sales, and licensing. Since digital sales doesn't clearly fall into any one of those categories, one would think that a whole new contract would have to be drawn up to even sell the MP3/AAC version of the song.
    • Re:Wait (Score:5, Informative)

      by Overzeetop (214511) on Friday February 10, 2012 @10:00AM (#38994427) Journal

      Oh, they're not providing the recording studio for free. All of the costs of recording and production - at full retail value - come out of the artists share of their contract proceeds before they start receiving any money. It's just that the studio is lending them the money so they aren't out of pocket for those costs up front.

    • The same with nearly any artist whether they be video, comic, novelist, gaming, etc. Back in the day you had to go through a publisher. In this case for music we call the publisher a label. They had a monopoly. Right now, I can't say how fair their practices were or how much each level should get. That was then. Now? Aaron Diaz of the Dresden Codak had a blog post explaining that he makes more money going solo. Many artists are now making art through music, comics, eBooks, etc. because the publisher

    • You mean the music labels aren't there for the protection of the artist!?

      It also seems that 75% cut is still a lot for copying an mp3 file and drawing up some paperwork. Even if the label also provided the recording studio, etc, it seems like the artist is still getting the short end of the stick. Why is it that the artist always seems to be the last one to realize the label is screwing him even harder than its screwing the consumer?

      No, you misunderstand. All the expenses for renting a studio, mixing, marketing etc comes from the artist's share. The 75% goes to coke, hookers and limos for the bosses.

    • by Feyshtey (1523799)
      I really dont want to find myself defending the vultures, but to be fair its the label thats also handling all the event scheduling, the promo materials, the advertising, the distribution, etc. There is a significant outlay of cost for the label early, and for them it's a gamble. They put up the cash hoping to bring the next big hit to the scene and rake the cash in. They probably fail or break even more often than succeed so when they succeed they milk every penny.

      That being said, the deceptive and pred
  • by SuricouRaven (1897204) on Friday February 10, 2012 @09:19AM (#38994149)
    ... when labels argued that there was no right of resale for customers.
    • by Bob9113 (14996) on Friday February 10, 2012 @10:49AM (#38994873) Homepage

      when labels argued that there was no right of resale for customers.

      This lawsuit appears to be discussing the transaction between the record labels and the retailers -- the transaction with which the artist has some concern. The transaction between the retailer and the retail customer is none of Sister Sledge's concern, and a federal district judge has just denied a request to shutter ReDigi on the basis that MP3's may well be traditional property. It is very possible (I would even say almost certain) that the former transaction is a license and the latter transaction is a sale.

      The reason the transaction between the label and the retailers appears to be a license is because the retailer gets a single master and license to duplicate for retail sale. Hence the labels do not incur, and should not be retaining, the cost of reproducing the "records".

      • by Col. Klink (retired) (11632) on Friday February 10, 2012 @11:30AM (#38995321)

        The label/retailer distinction is important, and it looks like the labels are wrong on both sides.

        They claim that they are selling copies to the retailer, and the retailer is then licensing them to the consumer. That seems like an untenable position. Clearly, if they are selling to the retailer, the retailer must be passing the item "sold" to the consumer.

        However, the reverse situation seems far more logical. They are giving a license to the retailer to make as many copies as needed. Each copy is then sold to the consumer.

        If they win against the artists, I don't see how they could possibly win ReDigi. But if they lose to the artists, there's a chance that they could still lose to ReDigi.

  • How... interesting (Score:5, Interesting)

    by Mathinker (909784) on Friday February 10, 2012 @09:19AM (#38994151) Journal

    So, RIAA on one hand pays its artists as if it sells its digital files like CDs, but files legal papers claiming that these files are licensed, not sold (so that the doctrine of first sale will not enable reselling the music [slashdot.org]).

    How typical.

    • by Moonrazor (897598) on Friday February 10, 2012 @09:32AM (#38994235)
      If only there was some group who represented the interests of the artists who could go after these thieves who are stealing money from the mouths of the artists! Some select group who represented all the artists who could enjoin a legal action that would get the money that artists deserve back from the people who are stealing it from them.
      • by Maximum Prophet (716608) on Friday February 10, 2012 @10:54AM (#38994925)
        Well, yeah, if only there were. The RIAA represents "The Industry", i.e. the big players. Yes, they give lip service to being for the artists, but really they represent the interest of the record companies

        Trying to get a group of artists of any type to agree on *lunch* is hard enough. Getting them together to form an organization that would properly represent them would be near impossible. If you did get one started, it would last until the drummers decided to sue the lead singers. (Phil Collins and Don Henley's head would explode at this) There have been attempts, but no group has nearly the clout of the RIAA/MPAA
  • by ragefan (267937) on Friday February 10, 2012 @09:19AM (#38994155)

    I think it is hilarious that the RIAA has convinced artists that it is the file sharers stealing millions from them all while the record labels play their accounting tricks for "recouping" costs.

    • by Jason Levine (196982) on Friday February 10, 2012 @09:35AM (#38994249)

      Not a surprise considering that they are still charging artists for record-era "breakage" fees not only on CDs but on MP3s. Somehow, they figure that 10% of MP3s "break" and thus shouldn't count towards royalties. They love playing the "We're supporting the artists" line publicly while doing all they can to screw the artists behind the scenes.

      • Not a surprise considering that they are still charging artists for record-era "breakage" fees not only on CDs but on MP3s. Somehow, they figure that 10% of MP3s "break" and thus shouldn't count towards royalties. They love playing the "We're supporting the artists" line publicly while doing all they can to screw the artists behind the scenes.

        Welcome to the world of Hollywood accounting - where no matter how much money something takes in it sell loses money. I actually had an accounting prof who specialized in that topic - it's really very fascinating, even if it is accounting. I wish I could use the same for my taxes...

    • Re: (Score:2, Troll)

      by Dunbal (464142) *
      In much the same way that the government has convinced everyone that it's corporations, banks and wall street that are stealing millions from the people.
  • Sister Who?? (Score:2, Interesting)

    If it were Metallica or U2 this legal brawl would be interesting to follow, as both bands have a pile of cash and an army of lawyers ready to take on one of the big record labels, maybe even set a precedent.

    Whatever money these sisters have left over from their drug abuse won't even tickle Warner.

    • I do love how the implication here is that it is money alone that will decide this.
      I think you're right, but it's an interesting commentary on the state of affairs.

      • "The race is not always to the swift, nor the battle to the strong, but that's how the smart money bets."

        - Damon Runyon

        A lawyer once told me that lawsuits are about 90% facts & law and 10% luck. No mater how good your case, there's always a chance you'll lose. That 10% is what keeps the other side going. (SCO was shooting for the 10%)

        • by Rogerborg (306625)

          A lawyer once told me ...

          Bear in mind that lawyers are wrong half the time. On the other hand, they make $500 an hour for running a few searches then copy-and-pasting other peoples' arguments, so it's probably worth picking up a few tips.

          • Bear in mind that lawyers are wrong half the time.

            So true, but I'd love to see a case where the Judge threw both lawyers out of his courtroom for incompetence. (I'm sure it's happened at least once)

      • by dbitter1 (411864)

        Really, the money is always what decides it. There are some views of "civil" society that merely represent rather than spend our money on war equipment, we use that money to elect people to "fight" in court/congress... as opposed to the barbaric society that simply cuts out the middleman, and the rich get to buy the best (and, hence winning) army to go take all the plunder from the losers in that country. Either way, the effect is pretty much the same, after enough time...

    • Ah but don't you think the artist should/have an organization to back them? Surely Metallica and U2 have as much to gain from this suit as the plaintiffs.

      Certainly much like any class action type of suit you would want to have a pitiable plaintiff rather than one with tons of cash and the lifestyle of success.

  • by Cyberllama (113628) on Friday February 10, 2012 @09:35AM (#38994247)

    I thought we the music industry wanted to sue ReDigi into the ground because iTunes purchases were *not* sales but rather just licenses, and so the first sale doctrine didn't apply. So now its a license when that means they can restrict our right to resell our digital purchases when we no longer want them, but it's a sale when it comes to screwing artists out of money. I feel like maybe they're bit a teensy bit hypocritical.

  • by killmenow (184444) on Friday February 10, 2012 @09:36AM (#38994261)
    I sort of feel sorry for the people running these organizations. They have an addiction. To cake. They love cake. They can't get enough of it. But in a way this addiction compels them into a sort of schizophrenia. You see, they want to eat the cake. But they want to still have the cake.

    It's sad really.
    • CEO logic and real-world logic are mutually exclusive.
    • by Dunbal (464142) *
      Change cake to coke and perhaps your example is relevant to the music industry.
    • I don't have my DSM handy right now, but I think the addiction you are referring to is Greed, i.e. the excessive love of money, the root of all evil. (Greed might be a form of Obsessive Compulsive Disorder, but it might also be caused by other disorders. Hm, Financial Dismorphic Disorder, where no matter how much money you have, you think you need more)

      Yes, greed has throughout the centuries compelled people to do unethical things. Nothing new here.
  • by willaien (2494962) on Friday February 10, 2012 @09:39AM (#38994277)

    Boy do these copyright holders like to use specific terms when it benefits them best. Oh, no, you're not buying this, you're just licensing it.

    But, when talking to the authors/musicians, they refer to them as sales. Well, then. We'll see how this goes, damn double standards.

    It's either a sale or a license. If it's a sale, then it is protected by the first sale doctrine and I can sell/give it away so long as I destroy the original copy. Otherwise, it is a license and the songwriters and musicians get a higher share. You can't have it both ways.

    • by Xelios (822510)

      You can't have it both ways.

      Maybe you can, so long as you pay the right people. I guess we'll find out soon enough!

      • Re: (Score:2, Troll)

        by willaien (2494962)

        Oh, right, I forgot: this is the U.S., where your politicians can be bought and paid for.

    • by CastrTroy (595695)
      Well, they could have it both ways. It all depends on what the contract says. My guess is that they keep on using the same old contracts from before they had digital sales. They may not even technically allowed to do digital sales because it doesn't really fall into either category. A physical sale implies that they are creating discs/tapes and selling them. A digital sale obviously doesn't fall into that category. On the other hand, a license is usually something reserved for letting others perform yo
  • I can't see courts finding that a sale via. iTunes is for the purpose of duplication rather than for the purpose of listening. 2 years ago the store hit the 10billion mark for songs sold. Has there ever even been a single one whose intent was redistribution?

    I can understand that artists don't like the small fraction of revenue they get from digital music sales. It is very frustrating for a still successful artists, that the label makes lots of money long after there are no promotional costs. But this l

    • by willaien (2494962)

      Yes, but iTunes is doing the duplication. They give a master to iTunes, which then proceeds to make copies for each customer. Technically, it could fall under license rather than sale terms.

      • by jbolden (176878)

        Oh I see. And then they argue that the 30% that iTunes pays the label was the sales cost and.... Gotcha. OK that makes some sense. BTW you have that the other way around. It is falling under license you are arguing it could technically fall under sale.

        To be honest though I see iTunes as the store under this model getting the album/song on consignment. iTunes is the channel it isn't providing the channel.

  • This could go badly for the record companies on both fronts.

    They are apparently licensing their content to iTunes - providing a master for duplication by a distributor - which could lead to them paying higher fees to the artists. At the same time, however, iTunes may be selling individual copies to their users, which may fall under first dale doctrine and allow resale of the "permanent digital downloads" - as is the case under consideration with reDigi.

    • If it's decided at all, it will be bad for the record companies. So far, they maintained that sales are a license when it suits them, and a sale also if that's better for them. (I imagine a single purchase has multiple licenses and sales)

      It's time for the legislature to actually work this out. Given the current state of things, I don't expect anything to happen on that front, so companies and artists will try new business models, then let the courts decide if those are going to work. If Sister Sledge
  • Wasn't there another case recently where the record companies were arguing that they were licenses and so MP3s cannot be re-sold? I have little doubt they know clearly what they are doing. They are simply very willing to lie, cheat and misrepresent at each and every opportunity to benefit themselves and they do so without shame or remorse.

    As soon as we can separate these people from the politicians (I'm looking at you Occupy) we might finally be able to call these jack-holes before congress and get the re

  • by Pope (17780)

    Digital format counts as licensing, since there's no physical media to distribute. Therefore, there is no "first sale doctrine" when applied to digital formats. Don't like it? Stick to physical media.

  • by AdrianKemp (1988748) on Friday February 10, 2012 @10:18AM (#38994585)

    but can we please leave the absolutely needless apple bashing out of completely unrelated article headlines?

    They aren't suing over iTunes, they are suing over them being defrauded by their label. Apple nor iTunes has anything to do with the suit except as a delivery vector.

    For fucks sake the actual reason for the suit (the label) doesn't even appear in the headline.

  • Get rid of the middleman. Now.
  • Pretty numbers (Score:4, Interesting)

    by sgt scrub (869860) <saintium@@@yahoo...com> on Friday February 10, 2012 @11:54AM (#38995567)

    If an artist asks people down loading songs from their website to pay $1.00 and only 7% of the people pay, they make more than if they were in bed with a label.

  • One of the things that pisses me off the most about these fuckers is that their answer to the "Are you selling this to me or licensing this to me?" question always seems to be whichever one means they get paid again (or in this case, whichever one means they get to not pay someone else).

    Your CD got scratched? Oooh, sorry, we sold you that music. Buy another copy.

    You want to resell that legal MP3? Nope, that's a nontransferable license, no can do. (IIRC, this is currently being battled out in the courts.)

    You think we owe you more in royalties? Nah, we sold those songs instead of licensing them. You mad, bro?

    The sooner these dinosaurs get done in by their own greed, the better.

    ~Philly

Every young man should have a hobby: learning how to handle money is the best one. -- Jack Hurley

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