Artists Charge Record Company with Underpayment

A group of musicians has filed a class action lawsuit against Sony BMG, which charges that the label is underpaying the artists for music sold online.

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LYNN NEARY, host:

There's a battle over the money that's generated from songs downloaded onto your mp3 player and your cell phone. A group of recording artists have sued their record company over interpretation of royalty agreements signed before the age of digital downloads. The plaintiffs include The Allman Brothers Band and Cheap Trick, to name a couple.

NPR's Felix Contreras has this report.

(Soundbite of song "Grandma Got Run Over by a Reindeer)

Mr. ELMO SHROPSHIRE (Singer): (Singing) Grandma got run over by a reindeer...

FELIX CONTRERAS: Elmo Shropshire gets paid each time Grandma Got Run Over by a Reindeer is sold on a CD, used in a TV commercial, a movie or a compilation, like The Greatest Christmas Novelty CD of All Time, which is where we found it.

Shropshire wrote the song in 1979, performing it as Elmo and Patsy. It became a novelty hit five years later on MTV.

(Soundbite of cell phone ringtone)

And now it's become a popular cell phone ringtone. Here's the problem: Shropshire thinks he should be getting paid more for those ringtone downloads.

When Shropshire signed his record deal with Columbia Records, now a part of Sony BMG, his 1984 contract stipulated his royalties for licensing would be 50 percent. Record companies regularly license or loan their music to commercials, films and compilation producers. The common industry practice now is to consider downloads as sales, which allows for a different royalty formula.

Shropshire is part of a class action lawsuit that aims to answer the question: is a digital download a sale or a license? The potential plaintiffs are all artists who signed a record deal with Columbia records between 1962 and 2001. Entertainment attorney Jay Rosenthal says contracts written before the digital revolution need to be interpreted in new ways.

Mr. JAY ROSENTHAL (Entertainment Attorney): In most instances, the older artists in particular, those contracts were focusing on direct sales. And as we go on into the new music business of the 21st Century, the idea that direct sales are the most important aspect of a contract is being diminished because other ways to sell music are becoming more important.

CONTRERAS: The artists' lawsuit says Sony BMG is merely supplying a digital file to services like Apples iTunes and not selling them a CD, so the transaction should be considered a license.

For example, they argue that Sony BMG does not have to pay the cost normally associated with brick and mortar sales such as manufacturing and shipping. Sony BMG says a sale is a sale, no matter what format, and has asked a court to dismiss the case. It also says the lawsuit is a desperate attempt by the artists to remedy unfavorable contracts.

Entertainment attorney Rosenthal says it's a precedent setting case that could backfire on the artists.

Mr. ROSENTHAL: This is a crapshoot. If in fact the court determines that this is a sale, it will have negative impact on the ability of artists to clarify these issues with their labels and certainly to get another label that's not part of this lawsuit to agree to pay this as a license.

CONTRERAS: The case will take years to work its way through the legal system. Meanwhile, the money at stake continues to grow. According to industry trade groups, over 400 million single tracks were downloaded in 2005 on over 300 legitimate downloading sites - up from 50 just three years ago. In fact, downloads have become so popular that the Recording Industry Association of America now offers gold records for ringtones.

Felix Contreras, NPR News.

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