Just before the Zune was released earlier this month, the news came out that the Big Monopoly behind the player was paying a fee to Universal Music for each unit sold. And it seems that Universal wants to do a similar extortion deal with Apple for the iPod.
Somewhere in the mix, the CEO of Universal said that the company would share half the money collected with their artists.
However, an article at The Register explains why the musicians will probably not see dime one. It all has to do with how they are treated by the big media companies now.
Record companies pay royalties on record sales, and licensing. Generally the royalty for sales of records is 10 to 15 per cent of the retail price, but it can be higher for established stars. Traditionally, the split on licensing is 50-50. Licensing applies to transactions for the use of musical recordings that do not involve sales, such as the use of masters in television and movies.
For digital music distribution, iTunes pays the labels approximately 70 cents.
Although you might think iTunes is a licensing-type deal – because unlike sales to traditional retailers such as Wal-Mart, the labels do not sell individual units to iTunes – they license the catalog. Yet the labels treat income from iTunes as sales. The significance of this is that instead of a fifty per cent spilt, they only pay artists the 10 to 15 per cent royalty. Plus they take standard deductions from this amount including packaging deductions of up to 35 per cent, even though iTunes does not sell packaging with downloads.
Keep all this in mind when big media executives whine about how bad their lot in life is.