Internet Downloads Test Music Industry

Volume CIII, No. 3March, 2003

Mikael Elsila

As President Moriarity pointed out in his December column, it’s still too soon to tell whether the Internet will be a good or bad thing for musicians. However, one thing is sure: the only constant is rapid change.

Napster, the bankrupt Web site that popularized “music sharing” or what’s now called peer-to-peer (P2P) technology, was bought by Roxio, a software maker, last November. The deal was worth around $5.3 million.

It’s unclear what Roxio will do with the defunct Napster site. But several recording labels and movie studios have sued a similar site called over copyright infringement.

Like Napster, Kazaa allows users to share files with each other, like sharing your CD or movie collection over the Internet. The AFM and many musicians are against these kinds of sites, asserting that the sites allow pirating or stealing.

A U.S. district judge allowed the recording industry to sue Kazaa – even though it is based in Australia and incorporated in the South Pacific. Kazaa has countersued, accusing the industry of copyright misuse, monopolization and deceptive acts and practices.

The plaintiffs include BMG, EMI, Sony, Universal and Warner.

Meanwhile, what happens if you download music legally over the Internet?

In response to sites like Napster and Kazaa, recording labels are starting to sell albums and singles as legal downloads. Bertlesmann, AOL Time Warner and EMI invested in these kinds of legal download sites last year, and now retailers are doing the same.

Best Buy, Hastings, Tower, Trans World, Virgin and Wherehouse are forming a service called Echo to sell downloads over the Internet. Wal-Mart’s music distributor just purchased some of the assets of Liquid Audio, another music download service. The idea is to sell first-run albums as legal downloads on Wal-Mart’s site. Columbia has publicly supported this; it is trying to get retailers like Wal-Mart, Best Buy and Circuit City to sell its music online.

The good news for musicians is that when a consumer downloads an entire album legally over the Internet, it triggers a sale for the record company. These sales count towards the label’s responsibility to the Sound Recording Special Payments Fund.

However, what happens if a consumer downloads a single track – not an entire album – which may turn out to be much more common? The answer is unclear since this is new territory for the AFM’s Sound Recording Agreement.


Recording musicians should have received checks from the Special Payments Funds last summer. There are two SPF’s: the Sound Recording SPF and the Film Fund. The following is an overview of the Sound Recording SPF. (For more information about the Film Fund, see the February Allegro.)

First, remember that Special Payments are not royalties. If you played on a union album and it hits platinum, you do not receive more money (unless you are a royalty artist). You are paid for your work at the time of the session.

However, the SPF is an additional payment that you receive based on the total number of union sessions you’ve recorded in a given year. And these payments continue for five years.

Here’s how you receive Special Payments. Let’s say you earned $10,000 in union recording work in 2002.

In 2003, you should receive a check from the Sound Recording SPF for 10 percent of $10,000, or $1,000.

In 2004, you should receive a check for 8 percent of $10,000, or $800.

In 2005, you should receive a check for 6 percent of $10,000, or $600.

In 2006, you should receive a check for 4 percent of $10,000, or $400.

In 2007, you should receive a check for 2 percent of $10,000, or $200.

This is only a rough guide, since actual distributions are based on total contributions by union labels, divided by “hits,” which are sessions on which a musician played that were actual filed with an AFM local.

The money for the Sound Recording SPF comes from the union record labels. These labels pay about three cents a unit (i.e. a CD or cassette sale) for all units sold over the first 50,000. The rise of big nonunion labels like Zomba/Jive threatened the fund because the label’s revenue from big sellers like Britney Spears and ‘N Sync didn’t get added to the fund. This is because Zomba/Jive wasn’t a union signatory and didn’t have to pay Special Payments.

Special Payments are more democratic than royalties. With Special Payments, it doesn’t matter if the album you worked on is a hit or a flop. You get paid based on the total amount of union work you did, not on how the album sells. Also, there are no hidden deductions, like the kind royalty artists face (many royalty artists never see a dime of royalty!) Unlike royalties, Special Payments are guaranteed. It’s one of the best union benefits for recording musicians.