A court has ordered Eminem’s label Universal, to cough up 50% of their revenue from digital sales of his recordings to his former production company FBT Productions. As often happens, FBT Productions had signed Eminem to a deal in 1995 when he was unheard of, then he was bought out of his contract by Universal. As part of the deal, FBT Recordings secured a 12% royalty on “records sold”. As this was in the pre-digital download era, the royalty rate for downloads was very unclear in the contracts, considering the technology was in its infancy. FBT recordings went to court arguing that the digital sales were not “records sold” but were in effect a licensing of master recordings – which they felt entitled them to 50% of after tax income on the recordings. This was rejected by a court initially, but now the US 9th circuit court of appeals has ruled that the contracts were ambiguous and sent it back to another court for further deliberation.
The effect of this ruling could be widespread in the industry. Lawyers, artists and record companies couldn’t have imagined digital technology when contracts were being drawn up 15 or 20 years ago. Indeed the industry tried to ignore it and buried their collective heads in the sand for many years while they attempted to control it to their advantage – largely in vain. As a result of this ruling and a similar one in a case brought by Pink Floyd earlier this year, labels could be exposed to claims by artists totaling tens if not hundreds of millions of dollars. It’s yet another nail in the traditional music business’ coffin.
