News & Reviews : Analysis of the CD Baby Digital Distribution Agreement; Part I

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. SoSâ.Sâif 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.

Click here for Part II

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