Collectively, the Major Labels Still License 80% of Downloads Sold In America

That’s according to the fairly massive legal team representing the Temptations, who are now suing Universal Music Group in federal court.

The group is filing against UMG over a number of royalty concerns, and part of a growing class action lawsuit sparked by Eminem’s publishing group, F.B.T. Productions.  “It is estimated that the licensing of master recordings generated $4.6 billion in revenue for record labels in 2010, or roughly 29 percent of their total revenue,” the complaint, filed by Beverly Hills-based firm Kiesel Boucher Larson LLP, alleges.

This isn’t about sweet “My Girl” performances anymore.  The filing was also signed by lawyers at Johnson & Johnson; Pearson Simon Warshaw & Penny, LLP; and Hausfeld LLP, an army of attorneys designed to crush things.  “In the United States, music downloads account for roughly half of record labels’ revenues; revenue from music downloads is expected to surpass revenue from album sales in 2012,” the complaint, filed in the US District Court for Northern California, continued.

That’s less cash than before, but still quite a bit of revenue. But for all the drastic upheavels and disruptive market changes, there’s this:

“Together, the major labels license 80 percent of the music downloads sold by music download providers to end users in the United States.  On information and belief, due to the size of its catalog, UMG controls the greatest number of master recordings, approximately 32 percent…”

That level of dominance also translates into the streaming world, where the story gets even worse.  Just last week, Spotify investor Sean Parker admitted that artists are frequently not getting paid a portion of the upfront advances given to major labels (or, other revenues).  Well, count the Temptations as Exhibit A: the group really has no idea what Spotify is paying UMG, or how much they should be getting paid.

“Some music streaming providers have paid large upfront fees to labels, such as UMG, to acquire rights to large catalogs of music.  Due to non-disclosure agreements signed between music streaming providers and labels, artists (such as the plaintiffs and the class action herein) are not provided with any details about these payments, and there is little transparency about how – and if – that money makes its way to artists.  On information and belief, UMG does not provide appropriate royalty payments to its artists from the licensing income it receives from music streaming providers.”

The complete legal filing is here.

9 Responses

  1. Visitor

    Majors 80% (.8x) of the downloads @ $0.70. Artists get roughly 10 cents per download, or $0.08x. Major label artists get 8% of download revenue.

    Indies 20% (.2x) of downloads @ $0.70. Artists get 50/50 split, or .1x. Indie label artists get 10% of download revenue.

    Indie artists get a higher percentage of download revenue than major label artists.

  2. Visitor

    If the courts rule against the major labels, it would mean BIG losses for them.

    Paying 50% to the artists instead of 12-15%…….ouch for them. Good for the artists.

  3. lmnop

    I’d wager this is much higher than the 80% mentioned. Just look at the iTunes chart and you can see it is all major label releases (and actually resembles radio play at any pop or hip hop station across the U.S.)

  4. Tetris

    If people don’t like the major labels dominating the market, they can simply start buying albums from independent artists and bands. It is very simple, really.

  5. Visitor

    I’ve sat on the sidelines for years watching these ridiculous conversations take place and I just can’t keep my mouth shut any longer.

    “artists are frequently not getting paid a portion of the upfront advances given to major labels”

    Duh! That’s why they are called advances. The service pays an advance to the label to license their content. The service then recoups against the advance and the label pays out to the artists based on their pro-rata share of streams.

    It’s pretty fucking simple. How is the label supposed to pay out advances when they don’t know what content is going to be streamed?

    I get so tired of the whining about the subject of advances when it comes to digital services.

    The service needs content to build their business. The labels (whether they are indie or major) control the content. It costs a fuckload of money to set up a feed to a service, do a backfill, maintain that feed (i.e. metadata updates, takedowns, etc), etc. The advances cover those costs.

    Keep in mind that there are a lot of services launching that want to license content and most of them earn little or no money and are gone before they barely even get off of the ground. The label or distributor gets stuck with the cost of setting up the feed, processing royalty reports (which typically never come in a standard spec and for a streaming service can contain millions of lines of data) and processing payments to labels and artists. And that doesn’t include chasing down many of these deadbeat services for reports and payment and the cost of taking legal action if they go out of business without paying.

    Advances help minimize those costs and that legal exposure. They also ensure that the service has a healthy business model. If a service is serious about making it then they should be willing and able to pony up the $ to license the content. I’m not going to give my content to just any old service so that they can build their business off of the backs of my hard working artists and labels. If they want my content, then they can pay for it. And when the statements start coming in, the artists and labels will get paid based on their pro-rata share of the streams. And if the service goes under without fully recouping the advance? Then we pay out the rest of the $ to the labels based on their pro-rata share as well.

    I’m really glad that people care so much about artists getting paid and that they are reading articles like this so that they have an informed opinion. I just feel like there are a lot of wreckless statements made by people who don’t know the ins and outs of these deals. I know it is hard because most people won’t go on the record about how these deals are structured. I’d just advise that people not put too much weight on information made in the comments section on sites like this. There is a lot of speculation that is just blantantly not true.

    • NathanJE

      Ridiculous argument. The labels basically say we will give you the catalog that include The Temptations and in return you will give us the XX millions of dollars every 2 years. If there weren’t the groups like The Temptations in the first place they couldn’t make said deals. And don’t tell me administrative costs are soaking that up! It’s 7-Figure salaries enjoyed by David Ring that are.

  6. FarePlay

    I have a real problem with sean parker speaking out on behalf of the artist. In fact there’s something smarmy about Spotify’s deal with the record labels and the labels collective 20% ownership of Spotify. Will the artists ever see any part of that 20%? Somehow, I don’t think so.

    The other inescapable impact of Napster and its’ preceding hord of P2P sites is the devaluation of music, film and books. In essence Parker started the ball rolling on a “perfect storm” where ultimately Spotify was able to leverage a lowball deal with the labels, because the record business doesn’t look so great after over a decade of pirate assault and plunder.

    So Sean, you have a lot of cajones even being in the “legitimate” music business, much less standing up for artists’ rights.

    At least in Vegas, the Casinos don’t allow people who have cheated to ever play there again.

    Will Buckley, founder, FarePlay