'Digital exploitation' in play in Allman-UMG suit

A ringtone can make a star--or at least a one-hit-wonder--out of a musician, as the likes of T-Pain can attest to. So it should come as no surprise when musicians such as the Allman Brothers Band focus on the profits from ringtone sales, downloaded singles, and other electronic sources of revenue.

The popular group sued UMG Recordings in federal court on Monday, Reuters reported, claiming that it was the victim of "digital exploitation." The band is asking for a larger cut of recordings sold through third parties, demanding at least $13 million, plus additional royalties from CD sales and digital downloads.

The Allman Brothers agreed to a contract with Polydor in 1985, the lawsuit says, calling for the band to get half the profits from record sales by third parties, which would include iTunes. Universal Music Group later bought Polydor and has been in "wanton disregard" of the original contract, the band claims.

At a time when the success of many musicians, R&B and rap artists in particular, depends heavily on digitally downloaded goods, contracts drawn up long before the era of digital music can leave artists dissatisfied with their royalties. Even some contracts agreed upon in recent years edge artists out of most profits earned from digital media, artist representatives say.

"It's an issue for everybody, but the artists aren't going to win it," said Dina LaPolt of LaPolt Law, an entertainment law firm.

At issue, LaPolt said, is whether a digital download of a song should be treated as a sale or a license. "Both of them, under recording agreements, get paid very differently," she said.

In a typical recording agreement, LaPolt said, an artist is usually paid 50 percent of the net profits earned from licensing a song to a third party. If a third party were to use a movie in a song, for instance, it would be granted a license to use the song.

In contrast, an artist typically receives a mere 12 percent of the net profit earned from the sale of a song through a third party, LaPolt said. If a consumer purchases a CD of a single, that's considered a sale of the song.

In older contracts, however, there are no provisions specifying the terms for digital distribution of music.

According to Reuters, the Allman Brothers' lawsuit said: "UMG incurs practically no expenses or risks in connection with the Masters, particularly with respect to licensing other companies such as Apple to create and distribute digital downloads...yet UMG reaps millions of dollars every year from such exploitation."

LaPolt said that "when this first started happening, about three years ago, a bunch of prominent music lawyers sent a letter to the RIAA saying, 'We demand you treat mobile tones as a license rather than a sale."

Since then, the U.S. Copyright Office has issued a preliminary ruling saying compositions embodied on master tones may be subject to a compulsory license. However, LaPolt said, record companies are still paying songwriters just 10 percent of the retail price for master tones, if their contracts predate the ruling.

Record deals drawn up today provide more specific terms for the royalties to be granted from digital downloads, but whether the terms are favorable for the artist often depends of the clout of the musician, LaPolt said. "A lot of us that have multiplatinum clients were able to get some of those points conceded by the labels."

She noted that the Allman Brothers are likely to have less leverage with record companies because they're less active today. Since the songs in question have all been recorded already, record labels "don't really need the artist anymore, so they're just doing what they want" with the songs, she said.

This is not the first time the Allman Brothers have tackled this issue. In 2006, the Allman Brothers and the band Cheap Trick filed suit against Sony BMG over digital-download royalties as well.

That lawsuit was dismissed by a federal judge in June of this year. Attorney Brian Caplan, who is representing the Allman Brothers in that particular case, said the band has filed a motion asking to continue. "The decision had nothing to do with the merits" of the case, he said.

Meanwhile, digital downloads continue to be a significant part of the music industry. There were 220 million ringtone purchases in 2007, bringing in sales of $567 million, according to Nielsen.

The RIAA declined to comment for this article. Representatives for UMG Recordings and for the Allman Brothers could not be reached.

This story has been updated with comments from Dina LaPolt and Brian Caplan.