Record Labels Have Not Shared MP3 Settlements With Artists

As Congress begins to probe the most contentious areas within the debate over digital music, one place to look is the record companies’ bank accounts.

AOL Time Warner, Bertelsmann, EMI and Sony received an estimated $80 million in settlements from Internet company MP3.com between June and August, but none has shared the money with their recording artists, sources said.

The companies sued the San Diego-based start-up for copyright infringement after it created an unauthorized database of 80,000 protected albums.

Executives at the companies said they expect to share the money with artists. But the industry has wrestled with whether the money should be treated as licensing revenue, 50% of which is usually owed to artists, or as royalties, which would mean offering a far smaller percentage.

Vivendi Universal’s Universal Music Group won a $53-million judgment against MP3.com in November and said it would share half with its artists. Standard record contracts do not require companies to share legal awards with artists.

Universal sources said that after deducting legal fees, the artists’ share is about $22 million. That sum was then rationed based on the number of albums each artist had on MP3.com’s database and accounted for in artists’ financial statements sent out Friday.

Warner, Sony and EMI are expected to split the money with their artists. The next question is whether they will ration artists’ share based on how many albums they had in the database, or by using another analysis, such as CD sales.

Music industry attorneys and artists’ managers suggest Universal’s method tilts toward the record companies, which are allowed to recoup their own expenses from sales of an album before the artists are owed royalties.

Because expenses spent on most artists are unrecouped, these attorneys said, the companies benefit from apportioning equal shares to artists who are in debt to them and those whose expenses are paid off.