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Hey Eminem, blame the system, not Apple

A copyright suit filed by the rap star only points to bigger problems with the music industry that won't be easily solved in the courtroom.

Eminem would be better off tangling with street toughs back on the 8 Mile than mixing it up in court against Apple.

That's the opinion of a half dozen copyright lawyers, including some who represent music artists, when asked about the copyright infringement lawsuit filed last month by Eight Mile Style and Martin Affiliated, the hip-hop star's publishing units.

But Eminem isn't the only star going after Apple. A records check showed that Apple is accused of copyright infringement in two other similar suits: one filed in May by a small label called Dawg Music and another from 2005 by Bridgeport Music, a publishing company with a history of filing such suits. None of the companies involved in the litigation, including Apple, agreed to comment for this story.

Don't expect these lawsuits to go very far. To start, Apple is likely indemnified against such lawsuits, according to copyright attorney Jay Rosenthal. But Rosenthal speculates that the real target of the lawsuits isn't Apple or iTunes. What the musicians and writers really want is to challenge the claim by record labels that they have the right to negotiate Internet sales on their behalf.

"This particular issue is a real sore spot in the industry," said Rosenthal, legal counsel for the Recording Artists' Coalition, a group formed in 1999 by musicians Sheryl Crow and Don Henley. "It's the gorilla in the room, and you're going to start seeing more of these suits as you start to see layoffs and cutbacks."

As compact-disc sales continue to slide, and royalties continue to get squeezed by piracy, more and more performers are growing dissatisfied with the money coming in from digital downloads. Rosenthal predicted that Apple may continue to get drawn into the fray as the music industry tries to prod CEO Steve Jobs to be more flexible with Apple's 99-cent-per-song price.

A growing number of performers, publishers and songwriters want a bigger share of that download revenue and want to see an overhaul of recording and publishing contracts. Among the artists who have expressed anger over their cut of download money are Cheap Trick and The Allman Brothers Band. They jointly filed a lawsuit last year that accused Sony BMG Music Entertainment of shortchanging them on digital-music sales.

"Digital music is going to continue to increase as a percentage of the overall market," said Brian Caplan, the attorney representing the bands against Sony. "As time goes on, I believe recording artists will be able to negotiate higher royalty rates on the downloading process."

"We're getting crushed here...We're losing the canon of American music. I can't tell you how sad I feel when I see talented songwriters selling insurance."
--Rick Carnes, songwriter

But Mark Litvack, an intellectual-property attorney who has worked for Sony, Time Warner and Disney, said artists and publishers have to realize that slowing sales does not give them the right to demand more money. He points out that music labels are getting squeezed by piracy and falling CD sales as well.

"The fact that the artist is unhappy with the economic model isn't legally relevant," Litvack said. "They agreed to a deal to allow labels to distribute music at retail locations. There isn't any difference between the Web and the local record store. I think it's clear the labels have the right to sell over the Web."

"Heartbreak Hotel" for industry
Highly paid musicians won't get much sympathy from most of their fans. But not every performer or writer is living in a palace, argues songwriter Rick Carnes.

Just southwest of downtown Nashville, the much-heralded Music Row is a montage of platinum records, sheet music, cigarette smoke, steel guitars and Jack Daniel's. Music Row, where Carnes came to write music in 1978, is where gospel, country and rock music converge, the home of hundreds of publishing houses and record labels that once churned out some of the world's best loved music. This is where Elvis Presley--who died 30 years ago this week--recorded his first chart-topping single, "Heartbreak Hotel."

Rick Carnes

Music Row is now giving way to "nail shops and hair salons," according to Carnes, 57. He blames piracy, shrinking CD sales, the royalty rates that songwriters and publishers have been locked into for years, and the way revenue from downloads is divvied up.

"It's Armageddon," said Carnes, president of the Songwriters Guild of America, who has written hits for such stars as Garth Brooks, Reba McEntire and Dean Martin.

"We're getting crushed here. The day that hurt the most was driving down Music Row not long ago and seeing all the 'For Sale' signs. We're losing the canon of American music. I can't tell you how sad I feel when I see talented songwriters selling insurance."

By now, anyone following the music industry can practically recite the statistics. According to a report provided by the Recording Industry Association of America, unit sales and revenue from CD sales declined more than 12 percent in 2006. In 2005, they fell 8 percent.

To help the music industry in general, Carnes wants Apple to loosen its grip on download prices. The 99 cents that iTunes charges per song, according to Carnes, isn't enough to go around. And to the specific problems faced by songwriters, performers and publishers, Carnes wants the music labels to raise their royalties.

Royalty vs. license
To understand what artists are upset about, one has to pick through the complex way they are paid. Artists are compensated on a royalty structure for traditional CD sales. When a CD is sold at a retail store, say at a Wal-Mart Stores outlet, the artist receives about 16 cents. The music publisher gets 9.1 cents.

In Cheap Trick's lawsuit, the band alleges that after labels deduct for things like "breakage," the band earns only 4.5 cents on every 99-cent digital download. So what's breakage? The costs incurred by things like damaged CDs, packaging charges and restocking. Of course, there's no such thing as a damaged CD in downloads, making such a charge highly questionable, the band argues.

Some musicians would like download payments to be structured like fees for music that's licensed to movies, television shows, ringtones or commercials. When that happens, the artists and labels split the proceeds from the license after the publisher takes its 9.1 cents. If that structure were to apply to downloads, the artists and labels would split whatever's left after Apple, and the publishers takes their cuts. The assumption is that this would lead to more money going into the pockets of the musicians.

"I represent artists, and you always have disagreements between artists' lawyers over contracts," Rosenthal said. "But I've yet to run into a single artist attorney who thinks any differently about this. We all agree that when it comes to iTunes' sales, revenue should be split between the artist and label 50-50."

In the meantime, there is some reason for hope, according to Carnes. He notes that Apple, in a partnership with EMI, has agreed to sell unprotected MP3 files for 30 cents more than the standard 99-cent price. He's also seeing a little money from ringtones. Still, he says he no longer writes music for recording artists. He has turned to writing jingles for commercials.

"It's really funny how everyone thinks that only rich labels are getting hurt," Carnes said. "The labels are the last to get hurt. The first are the very poorest: artists and songwriters, and they'll be the first ones out of the business."