Under mounting pressure from critics, German music conglomerate Bertelsmann said Tuesday that it would share an estimated $20 million in proceeds from an online copyright-infringement lawsuit with the artists on its record labels.
The move makes Bertelsmann the fifth of the five major record corporations to make public overtures about its plans to account for the tens of millions of dollars obtained from suing controversial Internet firm MP3.com Inc.
The online company agreed last year to pay an estimated $160 million to resolve copyright litigation filed by the record industry. Record labels had alleged the San Diego start-up operated an unauthorized database of 80,000 albums to run its jukebox service.
Bertelsmann, which releases music by acts including Christina Aguilera and Outkast, didn't specify how it would divvy the money.
Bertelsmann could follow the example set by the other record companies and allocate equal shares to its artists, with each receiving a per-album sum. That method, critics said, favors the corporation because the majority of artists are "unrecouped," that is, they owe their labels back advances.
"The devil's in the details," said music attorney Peter Paterno. "My guess is that most of it will go to unrecouped artists and therefore most of it will stay in the company."
Record executives said dividing the money into equal shares is the only fair method for allocating the awards. They also point out that standard record contracts do not require companies to share such legal damages with artists.
But Vivendi Universal's music division, which won a case against MP3.com last year, stunned the record industry when it announced it would split the $53.4-million legal judgment with artists on its labels. After deducting its own legal fees and allocating a share for songwriters, Universal paid its acts about $22 million. Last week the company sent another shock wave through the online world by agreeing to purchase MP3.com for $372 million in cash and stock.
The four other companies--all of which obtained court settlements from MP3.com before Universal announced its plans--had largely been silent on the issue of how they would handle the proceeds until last month. Sony, AOL Time Warner and EMI each said they would share a portion of the money with their artists.
Bertelsmann, however, qualified its plans by saying it would pay artists "in accordance with" their contracts. To some music attorneys and artists' rights advocates, that meant the company wouldn't pay unless an act's contract called for it.
On Tuesday, however, Bob Jamieson, chief executive of Bertelsmann's North American music operation, said the firm would share the settlement with all its artists.