Federal ruling on Eminem could change online royalty system

Eminem was in the news over the weekend, but it wasn’t just because of his two sold-out shows with Jay-Z in Detroit.

The rapper also made headlines because of a federal court ruling in California related to the online music business.

The court ruled that Eminem and his production company rightfully deserve three times the royalties they’ve been receiving from track sales and ringtones from online music services like iTunes.

That could mean tens of millions more dollars in Eminem’s pockets. The popular rapper has already sold six million-plus downloads this year, on which he’ s now due more royalties.

The defendant, Universal Music Group, will be petitioning for another hearing. FBT Productions, a Ferndale, Michigan-based production company, filed the suit against Universal. FBT also shares Eminem’s contract with Universal.

“It puts Eminem in a position he should have been in to begin with, which is to receive a larger portion of the download royalties,” FBT’s Joel Martin told the Detroit Free Press.

Gary Stiffelman, an attorney in Los Angeles who has had Michael Jackson and Eminem as his clients said the ruling could forever change the online music business.

“If downloads are the way of the future, this is going to have massive implications,” said Stiffelman. “It changes the playing field.”

While only Eminem and FBT were named in the suit, the decision could impact other artists as well – and even deals that were made prior to the digital age in music could be affected. Indeed, older artists could potentially damage the profitability of the record companies as they file claims, thanks to the Eminem ruling.

Most new artists have specific provisions in their contacts that deal with compensation for downloads.

Now the power the record companies used to have over the music industry will begin to fade even faster. More artists will be able to file suits and demand more royalties for their work.

Universal has said publicly that this decision does not set any kind of precedent. But it is asking for a rehearing because it knows it could be the first of many nails in the coffin for the giant record companies that used to lord over the music business.

While iTunes and its many competitors have taken a large share of the music market, some big names have resisted the urge to allow their music to be sold online – mostly because these artists believed that the royalties they would be paid  were unfairly low.

With the economics of online music distribution changing, it is probably only a matter of time before the few holdouts negotiate deals which make their catalogs available for download online.