Getting Paid for Digital Downloads

AFM Seeks to Add Internet Music to SRLA

Volume CIV, No. 4April, 2004

Mikael Elsila

Digital downloads are no longer dirty words around the AFM.

Up until recently, digital downloads were considered the realm of Internet pirates — or music fans too cheap to buy their own records. Local 802 and the AFM had only one position: “Don’t download music — it’s the same as stealing!”

But when Rhapsody, Apple iTunes and other services began selling legal downloads, the AFM needed to create a strategy to address the digital download dilemma.

That strategy is being put to the test right now as the AFM and the record industry negotiate over the issue of digital downloads.

The first round of talks concluded in February; they’ll pick up again in April. They are part of early negotiations towards renewing the Sound Recording Labor Agreement, which expires Jan. 31, 2005.


What is the real issue behind digital downloads?

When studio musicians play union recording dates, they get paid on the spot. That’s usually all of the money they see for that recording session, even if the album goes platinum. That’s true — with one very important exception: the Sound Recording Special Payments Fund.

The Special Payments Fund is a benefit that the union won from the recording industry in the 1950’s.

Basically, here’s how it works.

Let’s say that Clay Aiken has a new CD out on the BMG label. Once BMG sells a certain amount of this CD, and after certain deductions are made, BMG begins to put money into the Special Payments Fund. If the Clay Aiken CD goes multi-platinum, BMG is contributing thousands of dollars into the Special Payments Fund.

Then, each year, the fund pays out a certain percentage to each and every musician who played union recording dates that year. Even if you didn’t play on that particular Clay Aiken CD, you still get to share in the wealth. The more union dates you play, the more you share from the fund.

So if you play on ten different union albums in a given year — and each one of those albums flops — you still earn money from the Special Payments Fund.

In a way, the fund is a way for studio musicians — who normally don’t get royalties — to win back some of the industry’s profits.


The problem is that digital downloads are not currently computed into the Special Payments Fund formula.

This means that if BMG sells 50,000 Clay Aiken downloads online, the label does not have to pay a penny into the Special Payments Fund.

The goal of the AFM in these negotiations is to change this, so that digital downloads count.

“We did not make a proposal to where payments would be made, but certainly we want payments similar to the Special Payments Fund to be made, for all music sold over the Internet,” Bill Dennison, recording vice president, told Allegro.

“It’s clear that the distribution of music in the future is going to be different than it currently is,” Dennison added. “While the sale of CD’s remains important, the sale of music through the Internet is going to be an increasingly important part of the business in the coming years. So discussing and reaching agreement on how and in what form ongoing compensation for digital distribution will take place is extremely important.”


Although digital downloads aren’t currently covered, there is one form of digital music that does compensate musicians: streaming.

Because of the Digital Millennium Copyright Act of 1998, a small payment is made to an AFM/AFTRA fund to compensate studio musicians and non-featured vocalists when their music is streamed by online radio stations or satellite radio providers.

The difference between streaming and downloading is subtle.

Streaming is like holding your mouth over a water faucet. The water is always coming and you have to drink it right away. Similarly, streaming music is heard by the listener in real time.

On the other hand, downloading music is like putting a water jug in front of the faucet. You get to keep the water, or in this case, the music.

Money collected by streaming is distributed through SoundExchange, a performing rights organization administered in part by the AFM and AFTRA.

802 is represented at these negotiations by 802 President David Lennon, Recording Vice President Bill Dennison and Recording Department Supervisor Jay Schaffner.