Digital Down Low

WITH PHYSICAL ALBUM SALES DECLINING in 2009 for the eighth time in nine years, the writing has been on the wall for nearly a decade.  And if the future of music lies in digital downloads, iTunes and its behemoth 70 percent digital music market is clearly the place to be.  For indie artists, it is crucial that your discography is available for purchase online. Here’s an overview to navigating the world of iTunes, digital downloads, and a few legal considerations along the way.

Step 1:  Get a UPC.  Just like when your albums are sold in stores, you’re first required to get a UPC code, which is used to track purchases of your music.  If you’ve already ordered physical discs through a duplication company, chances are you already have one.  This same code can be used for digital downloads.  If you’re going strictly digital, your online distributor should be able to furnish one for free or a nominal fee.

Step 2:  Choose Your Online Distributor. An online distributor is essentially the middleman required to get your songs on iTunes.  There are currently dozens of distribution companies. You’ll want to go with an online distributor mainly for two reasons: (1) because they’re a one-stop location for multiple online retailers; and (2) because iTunes requires artists – particularly those who are unsigned – to partner with an online distributor, as opposed to direct dealing.   Some of the larger distributors are IODA (Independent Online Distribution Alliance), The Orchard, TuneCore, and CD Baby.

Same as when you put your songs on Facebook or YouTube, you agree to provide the company with “license” – a limited right to sell/distribute your work.  While there are specifics unique to each online distributor (i.e. artwork, music format, upload requirements), here are a few practical business and legal points to look out for.

Exclusivity:  You’ll want to avoid signing up with any distributor who requires your dealings to be “exclusive,” i.e. with their company only.  The good news is, however, that most companies, including the ones listed above, all include non-exclusive language in their “terms and conditions.”  Non-exclusivity allows you more freedom to pick and choose between various distributors or contract with more than one simultaneously.

Costs to Join:  Some distributors (for example, TuneCore) work on an annual fee-based model.  Under this model, you join, pay a fee for each album or single uploaded, and then receive 100% net income from sales. Currently, TuneCore charges $49.99 per album for delivery to iTunes and $1.98 for each additional store. The subsequent yearly fee per album is $19.98.  With each downloaded track sold for 99 cents netting you approximately 66 cents, you’ll need to crunch the numbers to determine how many albums and stores you’ll want to initially add under this model.  Other distributors offer lower upload fees and then take a percentage of all sales made (usually 10%).  Again, depending on how many albums you realistically intend to sell, this may be the better option.

Cancellation:  Online distribution agreements can generally be cancelled at anytime, as fees are paid in advance at the beginning of each year.  However, most companies require cancellation in writing.  Because these distributors set up an account for each artist, they will automatically deduct applicable fees from your sales each year under contract.  Without written cancellation, these companies legally may deduct and/or charge you for all services used, whether or not you’re selling albums.

Step 3: Keep track of your sales. Keeping up on your sales and stores takes diligence.  Make sure to review your online distributor’s accounts, quarterly at minimum.  Bear in mind that it takes some time for sales to register.  Often, when someone buys your music, iTunes or the other stores will not report that sale and the money earned from it until about two months after the original purchase.

Check out to see if any of the service’s “terms and conditions” have been updated or changed.  Most agreements allow the company the right to change terms without providing notice.  This can include annual fees and new available services (for example, many distributors now provide revenue from ring tones, film, and video sales – something you will strongly want to consider).  Also, keep up with new companies your distributor works with (Google is reportedly in “accelerated” talks to get into the digital music market, hoping to introduce an online music storefront to rival iTunes).

Finally, before you put your songs on the market for mass consumption, it is strongly recommended to register your works with the U.S. Copyright Office.  Registration is simple and straightforward (not to mention fairly inexpensive).  You can do it yourself or through the assistance of an attorney.  See www.copyright.gov for FAQs and steps to get started.

Adam Barnosky is an attorney and writer focusing on business development, entertainment law, licensing and civil litigation.  He has worked with musicians, actors, and writers in Boston and New York City. Find him at www.adambarnosky.com.

DISCLAIMER: The information contained in this column is general legal information only and should not be applied to any specific factual situation. Please consult an attorney for all of your important legal considerations.