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Thursday, February 26, 2009, 07:00 am PT (10:00 am ET)

Eminem takes record label to court over iTunes royalties

Hip hop mogul Eminem this week became the first artist to take a legal stand against record labels over royalties for tracks sold through digital download services like Apple's iTunes, an increasing source of tension between the two sides now that a significant percent of music sales are being made online.

The lawsuit, filed in a Los Angeles court two years ago by the rapper's production company F.B.T., is unusual in that it has actually made its way to trial, reports The Wrap. At issue is whether musicians should be entitled to a larger share of digital download revenues given that much of the overhead in promoting and distributing songs online falls on service providers like Apple, not the labels.

Richard S. Busch, an attorney for the Eminem camp, reportedly spent most of the second day of the trial pounding a former Universal commerce executive with questions over exactly what costs the labels incur when selling music tracks online, which does away with the need for jewel cases, CD duplication, sales teams, and in-store displays.

“Universal provided two digital files to the download companies – a master recording and a metadata guide setting forth a procedure for getting the music on their system,” Busch said. “With the digital download agreements, Universal has no manufacturing costs connected with that, correct?”


"Generally, that’s true," the former executive responded. "But it has costs. You don’t call them manufacturing costs the way that term has been used traditionally. Manufacturing costs are for physical costs, and that has gone away."

Busch then posed the question of whether service providers like Apple also pay the labels a fee for the digital files they eventually turn around and sell to consumers over services like iTunes, to which the Universal witness responded by saying, "We asked them to pay a service charge for that, but we didn’t always manage to collect it…"

Costs related to sales of digital music files aren't the only source of contention between the two sides in the ongoing trial. Eminem and F.B.T. are also questioning whether the transfer of an artist's music to service providers constitutes a licensing agreement or a distribution deal.

Under most contracts with their labels, artists receive around 20 cents — or less than 30 percent — of the approximate 70 cents Apple pays labels for the sale of each 99 cent song sold, under the assumption that such sales are part of a distribution deal. But Eminem's attorneys are arguing that since digital sales differ from traditional record store sales in that the music content has long been licensed with restrictions, artists should see a 50-50 split, or about 35 cents a song, per their existing agreements.

Eminem


In recent years, Eminem has been relentless in his efforts to protect what he believes is rightfully his. In 2004, the Detroit-based rapper sued Apple over its unauthorized use of his song "Lose Yourself" in a TV commercial for the iTunes music store. He again sued the iTunes operator in 2007, alleging that his music was converted to digital form and sold through the service without his blessing.

The first suit was later settled out of court for an undisclosed financial sum.