Analysis of the CD Baby Digital Distribution
Agreement; Part I
By Suzette Becker, MusicDish.com
Preface: My name is Suzette Becker. I am a
New Orleans' entertainment attorney with a national client
base, representing talent, independent labels and publishers
and Internet music companies. Both Derek Sivers of CD Baby
and Moses Avalon are professional acquaintances of mine;
I do not represent either of them. I am speaking on a panel
on Digital Distribution at the Cutting Edge Music Business
Conference in New Orleans on August 15, 2003. After reading
Moses Avalon's critique of the CD Baby Digital Distribution
Contract on August 12th, and fielding questions from an
artist at the conference on the evening of August 14th about
the controversy, I decided to independently analyze the
contract as if I was providing advice to a client and present
it at my panel on the 15th.
Caveat: Since you and I do not have an attorney-client
relationship, you are not to consider this as my providing
legal advice to you. (Nothing personal, I HAVE to say that.)
Below is the analysis:
What is the nature of this agreement? Basically,
it is an agreement between the rights owners of a CD and
CD Baby who will arrange for the CD to be distributed digitally.
CD Baby will not digitally distribute the CD itself but
instead can contract with digital "distributor/retailers"
like iTunes, Rhapsody, eMusic, BuyMusic, MusicNet and PressPlay
(The New Napster) to have the music distributed.
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Generally speaking, because you are not a major label you
cannot go directly to one of those distributor/retailers yourself
so CD Baby acts as an intermediate aggregator to provide you
with access. Essentially you will be contracting with a distributor
who will be contracting with a distributor/retailer. This
is somewhat analogous to "two deep" distribution. Since there
are two levels of distributors (a distributor and a "distributor/retailer"),
both levels of distributors will need to be compensated before
you get your money, but as you will see CD Baby's cut is in
my opinion extremely reasonable.
CDBABY DIGITAL DISTRIBUTION AGREEMENT
This Agreement describes the legal relationship
between you (an individual, representing yourself, or
if applicable, acting as legal representative for a band,
group, company or corporation) and Hit Media, Inc. d/b/a
CD Baby (collectively with our licensees and assignees
referred to in this Agreement as "CD BABY") the owner
and operator of the web pages at "www.cdbaby.com" and
"www.cdbaby.net" (the "CD BABY Site"). Hit Media, Inc.
is a Nevada corporation with offices at 5925 NE 80th Ave,
Portland, OR 97218-2891. You will be referred to as "RIGHTS
HOLDER." Please read this document carefully. By clicking
on the "I AGREE" button, you will become a party to, and
will be bound by this Agreement. If you do not agree with
any of the terms and conditions of this Agreement, click
on the "NO THANKS" button. We may modify this Agreement
from time to time as further described in Section 8 below.
The "Effective Date" of this Agreement is the date on
which RIGHTS HOLDER clicks the "I AGREE" button.
The section identifies the parties. Nothing
sinister should be read into the fact that Hit Media, Inc.
is a Nevada corporation. Just as Delaware has favorable
corporate laws, so does Nevada. Hit Media has every right
to choose its domicile for a multitude of reasons.
Note that RIGHTSHOLDER is your new name
for purposes of this Agreement. Note further that it means
you are representing to CDBABY that you are in fact the
rightful owner of the sound recording masters, the copyrights
to those masters and the owner of the copyright to the
underlying songs or at least the licensee of the compositions,
meaning you must have either a contractual or statutory
mechanical license, so if you are singing someone else's
tunes be aware of this. CDBABY will rely upon your representations.
Clearly I am not crazy about the fact that
CDBABY can modify the agreement at any time, but having
drafted Internet music contracts myself I know that this
is a very desirable right for an Internet music site to
have as this area of music business practices and the law
is in such a state of flux that the contract needs to be
flexible. You have to have a certain amount of trust in
the business practices of CDBABY. (If you don't have that
basic sense of trust then just click the "No Thanks" button
below and choose not to do business with them.) If you don't
like the changes CDBABY makes, you can terminate the contract
by giving them thirty (30) days written notice. I would
like to see the termination procedure outlined more clearly
in the Termination section and not just located in the Definition
of Term.
1. Definitions.
The following terms shall have the following
meanings for purposes of this Agreement:
a. "Digital Master" or "Digital Masters"
means copies of RIGHTS HOLDER Content in digital form,
which CD BABY may sell or authorize Distributors to sell
via permanent digital download, streams or burns, as individual
tracks or as a whole album, pursuant to the terms and
conditions of this Agreement.
First look at the definition in "e" to learn
that Rights Holder's Content "means sound recordings and
underlying musical compositions" that you have provided
to CD Baby to be digitally distributed. Then you can see
that Digital Master is a digital form of the sound recording
and underlying composition that you are authorizing CD Baby
to sell as a download, stream or burn.
b. "Distributor" means any third party,
such as Apple iTunes, that CD Baby may authorize to carry
out the marketing, distribution and sale or other use
of the Digital Masters pursuant to the terms of this Agreement.
CD Baby is telling you it will make agreements
with "one deep" distributor/retailers. I don't like the
vagueness of the "or other use" language.
c. "Term" means the period beginning on
the Effective Date of this Agreement and ending on the
first day of the second calendar quarter following the
third anniversary of the Effective Date, after which such
Term shall automatically renew for successive one-year
periods. RIGHTS HOLDER may terminate this Agreement at
any time by providing CD BABY with thirty (30) days' written
notice of RIGHTS HOLDER's intention to terminate.
This is too complicated to figure out without
mapping calendar software, if there is such a thing!!!!
I guess CD Baby is trying to achieve some uniformity of
the Term periods for these agreements for their accounting
and I can't blame them. What I think it means is the Term
will be three years plus the time it takes to get from the
calendar date you click on "I agree" to the first day of
April. SoS.Sif I click on "I agree" on August 15, 2003,
the Term will end on April 1, 2007. Then it will renew from
April through March of each year.
d. "Territory" means the Universe.
Worldwide, remember it's the Internet. In
spite of that I have seen "geographical" limitations based
on language. While this works for Japanese, it is harder
to make it work in English.
e. "RIGHTS HOLDER Content" means sound recordings
and underlying musical compositions that RIGHTS HOLDER
has made available to CD Baby either before or during
the Term for sale on the CD Baby Site that Artist has
designated for digital distribution in accordance with
this Agreement. Any sound recordings and the underlying
musical compositions that are provided by or on behalf
of RIGHTS HOLDER to CD BABY must be owned or controlled
by RIGHTS HOLDER and/or have been cleared by RIGHTS HOLDER.
CD Baby is ascertaining that you have rights
to both the sound recording and the underlying compositions.
It is important to recognize that CD Baby and companies
like iTunes are impliedly taking the legal position that
they are distributors. Were they to be legally considered
manufacturers instead of distributors, then consequently
they would obtain the master use licenses and mechanical
licenses themselves, instead this way they can rely on the
record labels to ascertain and secure the rights, then pay
the music publishers and other rights holders.
f. "CD Baby Site" means the retail website
owned by CD BABY at www.cdbaby.com and www.cdbaby.net
where RIGHTS HOLDER has registered to sell CDs through
CD BABY according to the terms thereon. By agreeing to
this Agreement, any sound recordings made available on
the CD Baby Site that Artist designates will be made available
for digital distribution by CD BABY and its Distributors
according to the terms of this Agreement.
g. "Artwork" means album cover artwork and
any other artwork relating to RIGHTS HOLDER Content that
RIGHTS HOLDER provides to CD BABY. Any artwork that is
provided by or on behalf of RIGHTS HOLDER to CD BABY before
or during the Term will be deemed to have been cleared
by RIGHTS HOLDER unless RIGHTS HOLDER promptly notifies
CD BABY in writing to the contrary.
Remember music is not the only type of human
creation that is subject to copyright. Visual artists have
copyrights too. Before uploading cover art, text, artwork,
photographs, etc. make certain you have the right or license
to do so.
2. Authorization.
a. Subject to the terms of this Agreement,
RIGHTS HOLDER hereby appoints CD BABY as RIGHTS HOLDER's
exclusive authorized representative for the sale and other
distribution of Digital Masters. Accordingly, RIGHTS HOLDER
hereby grants an exclusive right to CD BABY, during the
Term, to:
This is an EXCLUSIVE agreement for the sale
and other distribution of the Digital Masters throughout
the world. (Again, "other distribution" should be better
defined.) This could mean you cannot sign up with another
digital distributor like The Orchard or maybe even your
local internet radio station that might be selling downloads,
or for that matter your own site or your friend's site that
is giving downloads and streams away. Let's look at the
definitions: Digital Masters means copies of your sound
recordings and underlying musical compositions in digital
form.
So I have a problem with this and accordingly
"i-v" below as far as the exclusivity nature goes. I would
suggest that this Agreement with CD Baby be EXCLUSIVE vis
a vis the named One Deep distributor/retailers that CD Baby
should name in the agreement and specifically in "vi" so
long as those named distributor/retailers s are actually
making the digital files of Artist available for distribution
and I would give CD Baby the right to amend the names from
time to time. That way you can sell downloads from your
local Internet radio station, your own site, etc. And remember
you always have the right to terminate this agreement upon
30 days notice, but that language needs to made more prominent
as recommended. I do not see where Moses Supposes that CD
Baby keeps the digital distribution rights even after the
contract is terminated. If it were to be pointed out to
me, I would be willing to further comment. In any case,
have no fear that this agreement with CD Baby would prevent
you from signing a major label contract. I'll even wager
that Derek would put that in writing.
i. reproduce and convert RIGHTS HOLDER Content
delivered by RIGHTS HOLDER into Digital Masters;
ii. perform and make thirty (30) second
clips of the RIGHTS HOLDER Content available by streaming
("Clips") to promote the sale and distribution of applicable
Digital Masters;
iii. promote, sell, distribute, and electronically
fulfill and deliver Digital Masters, as individual tracks
or entire albums, and associated metadata to purchasers
who may use such Digital Masters in accordance with usage
rules similar to those set forth in Exhibit A;
iv. display and electronically fulfill and
deliver Artwork for personal use solely in conjunction
with the applicable purchased Digital Master;
v. use RIGHTS HOLDER Content, Artwork and
metadata as may be reasonably necessary or desirable for
CD BABY to exercise CD BABY's rights under the terms of
this Agreement; and
vi. authorize or appoint any Distributors
to perform the activities in (i)-(v)above.
b. CD BABY shall also be authorized, if
required by a Distributor, to provide one compact disc
of RIGHTS HOLDER Content to Distributors free of charge,
and no payment to RIGHTS HOLDER shall be required under
this or any other agreement or understanding. CD BABY
and its Distributors shall not be authorized to exploit
RIGHTS HOLDER Content or Artwork in any manner or form
not expressly authorized herein. Nothing herein shall
obligate CD BABY or any Distributor to actually exercise
any rights granted under this Agreement.
No problem with b. above but note that just
because you submit your CD for digital distribution, does
not mean it will be offered for distribution. That is a
chance you take. I don't know why Moses is supposing that
CD Baby could sell the actual CDs to brick and mortar stores.
If it is in this paragraph 2, I don't see it.
3. RIGHTS HOLDER Obligations.
. RIGHTS HOLDER shall obtain and pay for
any necessary clearances and licenses in the Territory
for all RIGHTS HOLDER Content and Artwork. Specifically,
RIGHTS HOLDER shall be responsible for and timely pay
(i) any royalties and other income due to artists, authors,
co-authors, copyright owners, co-copyright owners, producers
and other record royalty participants from sales or other
uses of Digital Masters, (ii) all mechanical royalties
payable to publishers and/or authors or co-authors of
copyrighted musical compositions embodied in Digital Masters
from sales or other uses of Digital Masters, (iii) all
payments that may be required under collective bargaining
agreements applicable to RIGHTS HOLDER or third parties
other than CD BABY, and (iv) any other royalties, fees
and/or sums payable with respect to the RIGHTS HOLDER
Content, Artwork, metadata and other materials provided
by RIGHTS HOLDER to CD BABY.
This is the same thing we addressed above
in the Identification of parties initial paragraph. Clearing
all rights is your responsibility, as it should be even
if this was a physical CD distribution. Musing: What about
the responsibility for compensation for public performance
royalties that the societies might claim for streaming and/or
downloading? This is an example of how unsettled this area
is and why CD Baby needs the right to amend this Agreement.
a. If there is a change of circumstance
during the Term as a result of which RIGHTS HOLDER reasonably
believes that it does not have, or no longer has, the
rights necessary to authorize CD BABY and any Distributors
to use any RIGHTS HOLDER Content or Artwork as provided
for herein, or RIGHTS HOLDER reasonably believes that
CD BABY's or its Distributors" continued sale or other
use of any RIGHTS HOLDER Content or Artwork will substantially
harm RIGHTS HOLDER's relations, or violates the terms
of any of RIGHTS HOLDER's agreements, with any applicable
copyright owner, artist, producer or distributor, then
RIGHTS HOLDER shall have the right to withdraw, upon written
notice to CD BABY, authorization for the sale or other
use of such RIGHTS HOLDER Content or Artwork.
Following such withdrawal, CD BABY shall
cease to offer such RIGHTS HOLDER Content or Artwork for
sale or other use or cause such cessation as soon as is
commercially feasible after CD BABY's receipt of such
notice of withdrawal, and RIGHTS HOLDER shall use commercially
reasonable efforts to clear such withdrawn RIGHTS HOLDER
Content or Artwork and shall promptly notify CD BABY if
and when such RIGHTS HOLDER Content has been cleared and
is again authorized for use or sale by CD BABY and its
Distributors. RIGHTS HOLDER shall not withdraw RIGHTS
HOLDER Content if such RIGHTS HOLDER Content is being
made available or is intended to be made available by
RIGHTS HOLDER to any other provider of digital downloads,
streams or burns.
Once again, be certain that you have cleared
the rights and are authorized to enter into this agreement.
If you realize that you have not obtained the proper licenses,
for goodness sakes, alert CD Baby immediately so you can
stop the infringement. Moses Supposes that there is a bias
against urban music. Unfair hurl. What there would be a
"bias" against, if there is any "bias" at all, is a "bias"
against copyright infringement regardless of the genre of
music. The last sentence is there just to dissuade you from
jumping ship to a competitor of CD Baby's. Since you can
terminate with 30 days notice for any reason, it really
has no bite.
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