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Sony BMG In Digital Music Trouble

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The Allman Brother Band and Cheap Trick have hit Sony BMG with a federal lawsuit accusing it of cheating the bands out of royalties.

Only a few months removed from the PR nightmare Sony BMG created for itself with the placement of rootkit software on music CDs as part of a DRM package, the music label again finds itself the target of lawsuits.

This time, it is a pair of older bands that have taken issue with Sony BMG. Since both Cheap Trick and the Allman Brothers signed contracts many years ahead of the invention of the World Wide Web, let alone digital music, those bands lose royalties to the label due to calculations of the cost of packaging, the Wall Street Journal reported.

The Allman Brothers claim they are being paid only a seventh of what they should receive, since modern bands with newer contracts account for digital downloads in their negotiations. An attorney for the bands, Brian Caplan, noted in the article that Sony BMG reduces royalty payments based on factors like packaging costs and breakage during shipping.

Neither of those physical factors apply to the digital realm, however. Taking iTunes sales as an example, the Allmans make $45.05 on each 1,000 songs sold under the current contract. That comes to over $24,000 when taking Nielsen SoundScan data of 538,000 Allmans songs sold as downloads since mid-2002.

A major label like Sony BMG likely receives 80 cents of every 99 cent download. Out of that 80 cents, 4.5 cents goes to the Allmans based on their existing terms.

Until recently, the music labels have been fighting publicly with Apple CEO Steve Jobs to offer variable pricing for songs instead of keeping the existing single price model. It’s pretty obvious why.

If the band’s work was treated as a license for each download, the calculation increases to $315.50 for those 1,000 songs, or almost $170,000. This compensation would be at a much higher rate than what bands receive under current digital royalty terms according to the report.

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David Utter is a staff writer for WebProNews covering technology and business.

Sony BMG In Digital Music Trouble
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