Digital Distribution Common Terminology

The terms below are the general definitions used by the majority of digital distribution companies. There is no guarantee that the company you select will use the terms in the exact same way. Closely read the relevant paragraphs and surrounding information to ensure that you are protecting your copyright and money. This section was written by TMO legal intern Emily Burrows during the summer of 2009.

Disclaimer: The Texas Music Office does not intend for this advice to provide or replace professional legal advice in any way. These suggestions are only intended to provide a short-answer reference guide to the basic legal and business practices associated with the music industry. In your own interest, consult with an attorney before entering into any contractual agreement or taking any action against copyright infringement.

Amended Terms:

Many distribution companies reserve the right to amend (change) their terms of service at any time. Some will notify you by email or other means, while others will not directly notify you of changes. They will simply change the date on the terms of service and it is your responsibility to ensure that you are aware of any relevant changes. If changes occur and you do not request termination of your service (usually within 30 days), you have agreed to the new terms of service.

Damages:

Most distribution companies directly protect themselves from paying you damages for anything they potentially did wrong. These damages could include loss of profits or damage to your computer if the website has a virus or malfunctions.

Governing Law:

Many agreements include the state or country whose law will apply in the event of a dispute between you and the distribution company. Most state that even if the distribution company is the side that has failed to follow the contract, you must still go to court in the state of their choosing. Although litigation is not generally common with these types of agreements, keep in mind the expense of traveling and hiring an out of state attorney.

Gross vs. Net Profits:

Gross – the entire profit; you will receive the full proceeds of sales made by retailers. This is most often seen in agreements where you pay a monthly or one-time fee for the distribution service.

Net – part of the profit; you will receive the amount left after deductions are made from the proceeds of sales made by retailers. This is most often seen in agreements that charge you a per-song fee.

Indemnity:

You must pay the distribution company (and often the retailers) for any losses they may face as a result of being in a contract with you. For example, if you do not actually own the content you license for sale and the true owner sues the distribution company, you will have to reimburse the distribution company for any damages they have to pay to the owner. Also, you often agree to not add the company as a party in the event you are directly sued.

Non-Exclusive License:

The company holds a license for your work, but they do not hold exclusive control over your content. You may distribute your work on your own, such as at shows or through your website. You could even use multiple digital distribution companies. However, this is not recommended. For instance, if both companies distribute to iTunes, iTunes will only post one version of your song. You will be forced to pay both companies for one song. Some companies require that you notify them if you enter a record deal because most record deals are exclusive agreements.

Royalty-Free:

You, the licensor/content creator, keep the copyright of your work. You are licensing the distribution company to use your work for distribution, for which you pay a fee. Royalty-free means that you cannot collect further royalties from the distribution company, or the retailers, for using your content.

Termination:

Distribution companies vary on their terms for ending an agreement. For some sites you are committed to paying for a month or a year. Others allow you to cancel the agreement, in writing, thirty days before you wish to end the agreement. Many companies allow themselves the option to terminate the agreement at any time.

Third-Party Royalties:

You, as the content owner, are required to pay any royalties to individuals who have contributed to your work. This includes musicians, producers and songwriters who collaborated on your work and entered into a deal with you to receive a percentage of future revenues. This also includes the owner of any “samples” you use in your content.

UPC/ISRC Codes:

Most digital distribution sites require you own or purchase UPC and ISRC codes for each track. UPC’s (Universal Product Code) are the barcode you see on almost any item you purchase in a store. You can purchase these codes at a number of sites online. ISRC’s (International Standard Recording Code) are similar to UPCs but are specifically for sound and music video recordings. Check the guidelines for the distribution site you are interested in before purchasing either code.

User Content (recordings, work, etc.):

Generally includes, but is not limited to, your song, sample, art work, images, biographical information, lyrics, charts, videos, liner notes, and graphics.