iTunes Royalties And Other Things

A friend and I were recently discussing the iTunes business model, and trying to figure out who made what on each song. This was partly prompted by the whole Pepsi free song deal and how that all worked financially, but I digress.

At the time I did a web search and found some information, but wasn’t sure how accurate it was. A recent suit over royalties for Tom Waits early catalog provides some interesting information.

The suit itself is also interesting because it centers on what royalties should be paid to Third Story (the publisher of Wait’s early catalog) for downloaded music.

[...] under the terms of the two contracts, Waits was entitled to royalties of either 25% or 50% from revenues derived from third-party licenses. Third Story maintains that digital music downloads constitute a form of third-party license, and that Waits is entitled to payment at that level.

In 2003-04 royalty statements to Third Story, WMG computed royalties from Waits' digital download sales at the same (and much lower) rate as royalties from the sale of physical product. Under the terms of the '70s Asylum contracts regarding album sales, Waits would be entitled to either 9% or 13% of the 67 cents received by WMG from each 99-cent download.