Digital download class-action settlements
The digital download class-action settlements were a series of legal settlements by the world's three major record companies, between 2012 and 2015, which The Hollywood Reporter called an "important chapter in the legal history of the music business."<ref name="auto">Gardner, Eriq (19 March 2015). "Universal Music Settling Big Class Action Lawsuit Over Digital Royalties (Exclusive)". hollywoodreporter.com. Hollywood Reporter. Retrieved 31 December 2023.</ref>
Overview
The class actions emerged in the aftermath of F.B.T. Productions, LLC v. Aftermath Records, a lawsuit that created debate within the music industry about whether digital downloads constituted "sales" of records or "licenses" of master recordings within the meaning of most recording contracts, and how that distinction would affect the royalties paid by record companies to artists.<ref name="auto1">Gardner, Eriq. "Sony Pays $8 Million to Settle Digital Music Class Action Lawsuit". www.hollywoodreporter.com. The Hollywood Reporter. Retrieved 1 February 2024.</ref> Artists and record companies differed on how the F.B.T. ruling would apply, if at all, to other recording contracts.<ref>Manatt, Phelps & Phillips. "Universal Music Group settles with recording artists over digital downloads". www.lexology.com. Lexology. Retrieved 1 February 2024.</ref>
Comparison of the three settlements is difficult, not only because of the ambiguity of the published reports about Sony's settlement discussed below, but because of the differing market shares of the companies,<ref>"Market share of record companies in the United States from 2011 to 2019, by label ownership". www.statista.com. Statista. Retrieved 1 February 2024.</ref> the differences between "claims made" and "common fund" class action settlements,<ref>Cabraser, Elizabeth; Pincus, Andrew. "Claims-Made Class-Action Settlements". judicature.duke.edu. Judicature. Retrieved 1 February 2024.</ref> and the unknown number of artists who opted out of the class settlements and the size of their claims. What is clear, however, is that none of the settlements adopted the premise of the F.B.T. case that download sales should universally be treated contractually as "masters licensed" rather than "records sold."
Sony settlement
Of the four major record companies in existence in 2012, Sony Music was the first to settle. Publicly disclosed terms of the settlement included a fund of $7.95 million to pay past claims and a 3 percent increase in artists’ royalty rates with respect to digital income.<ref name="auto1"/><ref>"Allman Brothers and Cheap Trick possibly have separate digital deals to Sony's proposed class action settlement". archive.completemusicupdate.com. CMU. Retrieved 1 February 2024.</ref> However, published reports differed on how this 3% "bump" was to be calculated. Some characterized this as a 3% increase of the base royalty rate itself (e.g., an artist that previously received a 7% royalty on records sold would now receive a 10% royalty on downloads sold, which woulds translate into an effective 42.8% increase in payments).<ref>Houghton, Bruce. "Sony Settles Allman Brothers Digital Music Lawsuit For $8 Million + 3%, Will Others Follow?". www.hypebot.com. HypeBot. Retrieved 1 February 2024.</ref> Others characterized the 3% as being a percentage of Sony's gross download receipts -- meaning a royalty rate of 7% would increase to just 7.21% (7% X 1.03), and an artist would receive just 3 percent more of the of 70 cents Sony received for 99 cent downloads.<ref>Resnikoff, Paul. "Lawyers Are Getting One-Third of Sony's $8 Million Legacy Artist Settlement". www.digitalmusicnews.com. Digital Music News. Retrieved 1 February 2024.</ref>
Warner settlement
The next to settle was Warner Music Group. Warner agreed to pay $11.5 million in past royalties and, for future royalties, a 5% increase in the base royalty rate, with a minimum 10% royalty and a maximum 14% royalty.<ref>Christman, Ed. "Warner Music Group Submits Class Action Settlement For Digital Royalties Suit". www.billboard.com. Billboard. Retrieved 1 February 2024.</ref>
Universal and EMI/Capitol settlement
The last to settle was Universal Music Group, a settlement that required review of over 11,000 recording contracts, encompassed claims originally made separately against the fourth major record company, EMI/Capitol Records, which Universal had acquired during the pendency of the class actions, and potentially applied to over 7,500 artists. Universal agreed to pay $11.5 million, like Warner, and increase digital download royalties by 10%.<ref name="auto"/><ref>Gardner, Eriq. "Universal Music Agrees to Pay $11.5 Million to Settle Digital Royalties Class Action". www.hollywoodreporter.com. The Hollywood Reporter. Retrieved 1 February 2024.</ref> This 10% was apparently to be applied to download receipts, meaning the royalty rate on downloads would effectively be raised by 10% of the royalty rate itself-- that is, a 7% royalty rate would become 7.7%, not 17%.<ref>Gardner, Eriq. "Universal Music Agrees to Pay $11.5 Million to Settle Digital Royalties Class Action". The Hollywood Reporter. Retrieved 1 February 2024.</ref>
