A suit filed by Tom Waits' Third Story Music against Warner Music Group seeks to set the record straight on whether a label that provides recordings for digital downloads is licensing masters or selli


NEW YORK -- A suit filed by Tom Waits' Third Story Music against Warner Music Group seeks to set the record straight on whether a label that provides recordings for digital downloads is licensing masters or selling records.

The complaint, filed May 31 in the U.S. District Court in Los Angeles by law firm Cohen and Cohen, says that Waits' company provided seven albums of the singer/songwriter's music to WMG's former labels Asylum and Elektra/Asylum. WMG also released three Waits anthologies.

It alleges that WMG has taken the position that offering music through digital downloads represents a sale. As a result, it is paying Waits' company 9% (on earlier recordings) and 13% (on later recordings) of the 67 cents per download WMG received from Apple Computer for iTunes single downloads. For album downloads, this results in a 30%-40% decrease in royalties to Waits, the complaint says.

Third Story claims it is entitled to 25% of the money WMG received for downloads on earlier recordings and 50% for later recordings under the licensing provisions of Waits' recording agreements.

Contracts typically provide that artists will be paid a royalty based on either the wholesale or retail price for "records" sold and a share of the fee received for "masters" that have been licensed to third parties.

Most artists' lawyers claim that providing recordings to online services for downloading is akin to licensing. Yet most labels treat it as a sale, paying less of the amount received to artists.

Some industry lawyers have said that if downloading is found to be a licensing activity, labels will not be financially able to pay half of all money received to artists -- especially as digital deliveries increase and CD sales fall. Such a shift in the business model could see labels renegotiating artists' deals or refusing to provide certain recordings for digital delivery.

The suit also seeks an unspecified amount of underpaid royalties should the court determine that downloads fall under the definition of a license.

WMG declined to comment on the suit.

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