Webcasting Transmission License Agreement - Warner Music Group Inc. and ARTISTdirect Inc.
12.2.99
WEBCASTING TRANSMISSION LICENSE AGREEMENT
This Webcasting Transmission License Agreement ("Agreement"), dated as
of December 20, 1999, is made by and between Warner Music Group Inc. with its
principal offices at 75 Rockefeller Plaza, New York, NY 10019, ("Licensor"), and
ARTISTdirect, Inc., with its principal offices at 17835 Ventura Boulevard, Suite
310, Encino, California 91316 ("Licensee").
WHEREAS, Licensee operates the Web Site that digitally transmits sound
recordings to the public;
WHEREAS, Licensee wishes to obtain a license for certain transmissions
of sound recordings on the Web Site;
WHEREAS, Licensee has agreed to pay a royalty and provide certain
additional consideration for such license, and Licensor and Licensee have agreed
upon such consideration and other terms, which are reflected in this Agreement;
NOW, THEREFORE, and in consideration of the mutual promises contained
in this Agreement and for other good and valuable consideration, including the
consideration provided by Licensee in Section 3, the adequacy and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
1.1 "Confidential Information" means information submitted to Licensor
pursuant to Section 5.1, 5.2, 5.3 or 5.4.
1.2 "Excerpt" means a "Sample" (as defined in the Audio Sample License
Agreement between Licensor and Licensee of even date herewith) where no
more than 30 seconds thereof may be accessed by the Web Site User.
1.3 "First Transmission Date" means the date on which the Licensee makes the
first Payable Transmission of a sound recording in the Repertory.
1.4 "License Fee Report" means a report required by Section 5.
1.5 "Payable Transmission" means each instance in which any portion of a
sound recording of a musical work in the Repertory other than an Excerpt
is delivered to a Web Site User via Web Site Transmissions (e.g., the
delivery of any portion of a single track from a compact disc to one
listener).
1
<PAGE> 2
1.6 "Payable Transmission Rate" means the following: [***]*.
1.7 "Repertory" consists of all copyrighted sound recordings, including sound
recordings created during the term of this Agreement, in which Licensor
has or will have during the term of this Agreement the right to license
transmissions. Within sixty (60) days following the date of this
Agreement, Licensor shall provide Licensee with a list of those entities
that own or control sound recordings which Licensor shall have the right
to license to Licensee for transmissions as provided hereunder. Such list
of entities shall be as updated by Licensor from time to time by written
notice from Licensor to Licensee.
1.8 "Sound recordings" means such term as it is defined in Section 17 U.S.C.
Section 101.
1.9 "Territory" means the United States, its territories, commonwealths and
possessions.
1.10 "Web Site" means any Internet site or Internet sites which are: (a) (i)
majority-owned or wholly-owned or controlled by Licensee; and (ii)
wholly-programmed and operated by Licensee; or (b) (i) operated and
managed by Licensee and (ii) subject to comprehensive written web site
agreements between Licensee and recording artists (or such recording
artist's furnishing companies) ("Artists") of the type which Licensee
typically enters into with recording artists as of the date hereof;
provided, that such Artists are recording artists then-currently signed
to exclusive recording agreements with affiliates of Licensor.
1.11 "Web Site Transmissions" means all digital audio transmissions to Web
Site Users from or through the Web Site of stations on the Web Site
created by Web Site Users in accordance with the parameters set out in
Exhibit A ("Web Site User Stations"), and does not include digital audio
transmissions made by any other means.
1.12 "Web Site Users" means all those who access the Web Site solely for
personal consumer use.
2. GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee, during the term of this
Agreement, subject to the limitations set forth below, a limited
nonexclusive license to (a) transmit publicly any or all of the sound
recordings in the Repertory, within the Territory, by means of Web Site
Transmissions and (b) exhibit within the Territory album cover art in
postage stamp size adjacent to artist, album title and sound recording
title information with respect to a sound recording being transmitted
pursuant to this Agreement on the Web Site; provided, in each case, that
(i) Licensee complies with Section 17 U.S.C. 114(d)(2)(c)(i) and Section
17 U.S.C. Section 1101 and all of the terms and conditions of this
Agreement and (ii) the Web Site Transmissions comply with all
non-financial terms negotiated or determined by the Copyright Arbitration
Royalty Panel pursuant to Section 17 U.S.C. Section 114(f). In the event
that compensation system set by the Librarian of Congress pursuant to
Section 17 U.S.C. Section 114(f) would result in double payment to
Licensor with respect to any Web Site Transmissions, then the parties
shall negotiate in good faith an adjustment that will result in the
Licensor only receiving the compensation provided for under this
Agreement with respect to such Web Site Transmissions.
--------
* Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 3
2.2 Nothing in this Agreement authorizes Licensee to grant to any other
person or entity (including without limitation any Web Site User or any
operator of another Web site), any right to reproduce by any means,
method or process whatsoever, now known or hereafter developed, any of
the sound recordings in the Repertory, including, but not limited to,
transferring or downloading any such sound recordings to a computer hard
drive, or otherwise copying the sound recording onto any other storage
medium.
2.3 Nothing in this Agreement authorizes Licensee to grant to any person or
entity (including without limitation any Web Site User or any operator of
another Web site) any right to transmit publicly, by means of digital
transmission or otherwise, any of the sound recordings in the Repertory.
2.4 The licenses granted in this Agreement extend only to Licensee and the
Web Site. This Agreement grants no rights to Licensee other than those
expressly granted herein. Without limiting the generality of the
foregoing, this Agreement does not grant to Licensee (a) any copyright
interest in any sound recording; (b) any rights outside the Territory;
(c) any trademark rights; or (d) any rights to any endorsement by
Licensor or any other person.
2.5 Licensor represents and warrants to Licensee that it has the rights
necessary to grant the licenses and other rights granted under this
Agreement and will defend, indemnify and hold harmless Licensee its
parent, subsidiaries or affiliates and their directors, officers,
employees and agents from and against any and all claims, actions,
liabilities, losses, damages, costs or expenses (whether direct or
indirect, by contract, in tort, by operation of law or otherwise)
incurred by or asserted or awarded against Licensee arising out of or in
connection with a breach of any representation, warranty or covenant
hereunder or any failure of Licensor to have the rights granted to
Licensee pursuant to this Agreement.
3. LICENSE FEES AND OTHER CONSIDERATION
3.1 For each calendar quarter of the term of this Agreement, Licensee shall
pay Licensor, for the license granted in Section 2.1, an amount equal to
the number of Payable Transmissions during that quarterly period
multiplied by the Payable Transmission Rate.
3.2 Licensee shall pay a finance charge of one and one-half percent (1-1/2%)
per month, or the maximum rate permitted by law, whichever is less, from
the date due, on any required payment that is not made on or before its
due date, without prejudice to any other rights Licensor may have in
connection with such delinquency.
3.3 During the term of this Agreement, Licensee shall, within a reasonable
time after Licensor's written request setting forth the applicable IP
address, provide direct links, from the location on the Web Site where
artist, album title, and sound recording title information for each sound
recording is provided, (which shall be the same location on such Web Site
where Web Site Users access the transmission of such sound recording), to
one or more
3
<PAGE> 4
Web sites that provide for direct sales of substantially all the sound
recordings transmitted by Licensee on the Web Site, except to the extent
that such sales are conducted directly by Licensee from the Web Site. In
addition, at the option of Licensor, Licensee shall, within a reasonable
time after Licensor's written request setting forth the applicable IP
address, provide reasonably prominent "above the fold" direct links from
the location on the Web Site where information regarding a particular
recording artist is provided, (which shall be the same location on such
Web Site where Web Site Users access the transmission of sound
recordings), to a Web site operated by Licensor relating to the relevant
recording artist.
3.4 During the term of this Agreement, Licensee shall post an announcement on
the Web Site, in form and substance satisfactory to Licensor, concerning
the license limitations contained in Sections 2.2, 2.3, and 2.4, and, if
requested by Licensor, include a click wrap agreement in form and
substance satisfactory to Licensor, for acknowledgement by Web Site
Users.
4. TERM
4.1 The term of this Agreement commences on the First Transmission Date and
ends on December 31, 2001, unless earlier terminated pursuant to this
Section 4 or Section 8.
4.2 Either party may terminate this Agreement as to the other party if, at
any time, such other party shall file in any court or agency pursuant to
any statute or regulation of any state or country, a petition in
bankruptcy or insolvency or for reorganization or for an arrangement or
for the appointment of a receiver or trustee of the party or of its
assets, or if such other party proposes a written agreement of
composition or extension of its debts, or if such other party shall be
served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60)
days after the filing thereof, or if such other party shall propose or be
a party to any dissolution or liquidation, or if such other party shall
make an assignment for the benefit of creditors.
4.3 If technology becomes widely available that permits Web Site Users to
create a separate, complete and usable copy of sound recordings
transmitted by Licensee, then Licensee, upon notice from Licensor or
otherwise obtaining information as to the existence of such technology,
shall make all commercial efforts to prevent the use of such technology
by Web Site Users. Licensee shall also implement technical protection
measures, if available, to prevent the use of such technology by Web Site
Users. In the event that such commercial efforts and technical measures
fail to prevent Web Site Users from using such technology, then the
Payable Transmission Rate shall no longer apply and the parties shall
immediately enter into good faith negotiations to determine an
appropriate increased Payable Transmission Rate.
4.4 Licensor may terminate this Agreement if Licensee transmits sound
recordings using multicast technology and fails to maintain a control
connection or other mechanism with Web Site Users that permits Licensee
to count reliably the number of Payable Transmissions so that Licensor
may reliably audit such count pursuant to Section 6.
4
<PAGE> 5
5. LICENSE FEE REPORTS
5.1 Licensee shall submit a quarterly License Fee Report to Licensor for each
quarterly period during the term of this Agreement, by the twentieth day
of the following quarter. Licensee and Licensor shall mutually agree upon
a form of License Fee Report within sixty (60) days following the date of
this Agreement. Such License Fee Report shall provide reasonably detailed
information as to the number of Payable Transmissions during such
quarterly period and shall be certified to be accurate by an officer of
Licensee.
5.2 During the term of this Agreement, Licensee shall provide Licensor with
weekly reports, by the tenth day after the end of each week, regarding
the sound recordings accessed by Web Sites Users during the preceding
week. Such reports shall be in a form to be mutually agreed upon by
Licensor and Licensee within sixty (60) days following the date of this
Agreement. Such reports shall include information as to use by title;
artist; album; label; catalogue number; UPC Code (by December 31, 1999);
release date; ISRC code (when available); number of playing dates and
times of transmission; duration of sound recording; and such additional
information as Licensor reasonably requests; provided that such requests
shall not be effective in less than sixty (60) days from the date of the
request. In the event Licensee incurs additional actual out-of-pocket
costs as a result of furnishing such additional information, such
reasonable costs will be deducted from license fees payable for the
relevant period(s).
5.3 During the term of this Agreement, Licensee agrees to submit such
additional information as may be required under applicable rules and
regulations of the Copyright Office, including without limitation 37
C.F.R. Section 201.36.
6. VERIFICATION OF LICENSE FEE REPORTS AND OTHER REPORTS
6.1 Licensor shall have the right to examine Licensee's books and records,
and Licensee agrees to obtain for Licensor the right to examine the books
and records of any partner in, or co-publisher of, the Web Site, in order
to verify any report required by this Agreement. Licensor may exercise
this right no more than once per calendar year. Licensor shall give
Licensee thirty (30) days' notice of its intention to conduct an
examination. Licensee agrees to furnish all pertinent books and records,
including electronic records, to Licensor's authorized representatives,
during customary business hours. Such books and records shall be kept by
Licensee in accordance with Generally Accepted Accounting Principles and
shall be retained for at least three (3) years following expiration of
the term of this Agreement. Notwithstanding the foregoing, Licensee shall
not be required to provide Licensor with the access provided in this
Section 6.1 if in the preceding twelve (12) months the Licensee's
independent auditor has completed and signed an audit report for an audit
that addresses all of the information that would have been requested by
and made available to Licensor, in which event Licensee shall provide to
Licensor the audit report, work papers and other information provided to
such auditor.
6.2 Licensee agrees to provide a third-party Section selected by Licensor
(unless Licensee identifies a conflict of interest or other material fact
that should disqualify the contractor)
5
<PAGE> 6
with such reasonable additional information and reasonable access to
Licensee's premises and equipment, and to cooperate with such contractor
in making any inquiries of Licensee and third parties who provided
products or services to Licensee, as shall reasonably be required for
Licensor to verify the accuracy and completeness of the Licensee Fee
Reports provided under Section 5, including without limitation Sections
5.1 and 5.2.
6.3 Expenses for any examination conducted by Licensor under Sections 6.1 and
6.2 shall be paid by Licensor unless such examination results in a
determination by the auditor conducting such examination that Licensee's
actual payments for the period examined were more than [***]* below the
payments required under this Agreement, in which case Licensee shall pay
the costs of the audit.
6.4 The exercise by Licensor of any rights under this Section 6 shall not
prejudice any other rights or remedies of Licensor, including any other
rights of Licensor to dispute any amounts owed to Licensor under this
Agreement.
7 CONFIDENTIALITY
7.1 Licensor shall provide access to Confidential Information only to its own
employees, employees of its constituent companies and to an independent
and qualified auditor retained by Licensor with respect to the
verification of license fee payments.
7.2 Licensor shall not disclose or make any use of the Confidential
Information except as permitted in Section 7.1 or as required by law. In
the event Licensor believes it may be obligated by law to disclose any
Confidential Information, it shall advise Licensee and cooperate with
Licensee in seeking to limit the scope of such disclosure and making such
disclosure subject to a protective order or similar device designed to
maintain the confidentiality of the Confidential Information. Licensor
shall implement procedures designed to safeguard all Confidential
Information.
7.3 Except as may be required by any law, statute, or governmental rule or
regulation, neither party shall provide this Agreement, or disclose any
of the terms and rates contained in this Agreement, to any person or
entity without the prior written consent of the other party.
7.4 Neither party shall issue any press release or make any other public
statement regarding this Agreement or the transactions contemplated
herein without the prior written consent of the other party.
8. BREACH OR DEFAULT
If either party fails to perform any of the material terms or conditions
required of it by this Agreement, the non-breaching party may, at its option,
give the breaching party notice to cure
--------
* Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE> 7
such material breach or default. Such notice shall describe the nature of such
breach. If the breaching party does not cure within ten (10) business days of
any such notice, any further notice from the non-breaching party, and any
further transmissions shall be fully subject to the copyright owners' rights
under Section 17 U.S.C. Section 106(6), and the remedies in Section 17 U.S.C.
Section 501 et seq. No waiver by the breaching party of full performance by the
non-breaching party in any one or more instances shall be a waiver of the right
to require full and complete performance of this Agreement thereafter or of the
right to terminate this Agreement in accordance with this Section 8.
9. NOTICES
All notices and other communications between the parties hereto shall be in
writing and deemed received (i) when delivered in person; (ii) upon confirmed
transmission by facsimile device; or (iii) five (5) days after deposited in U.S.
mails, postage prepaid, certified or registered mail, addressed to the other
party at the address set forth below (or such other address as such other party
may supply by written notice):
Licensee: Chief Financial Officer
ARTISTdirect, Inc.
17835 Ventura Boulevard
Suite 310
Encino, California 91316
with a copy to:
Lenard & Gonzalez LLP
1900 Avenue of the Stars
25th Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
Licensor: Warner Music Group Inc.
75 Rockefeller Plaza
New York, New York 10019
Attn: General Counsel
10. MISCELLANEOUS
10.1 This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York (without giving effect to conflicts of
law principles thereof).
10.2 The remedies provided herein shall be cumulative and shall not preclude
assertion by any party hereto of any other rights or the seeking of any
other remedies against the other party
7
<PAGE> 8
hereto. No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver
of such right, power or privilege. No single or partial exercise of any
right, power or privilege granted under this Agreement shall preclude any
other or further exercise thereof or the exercise of any other right,
power or privilege.
10.3 Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but
if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.4 This Agreement may be modified or amended only by a writing signed by
Licensor and Licensee.
10.5 This Agreement expresses the entire understanding of the parties and
supersedes all prior and contemporaneous agreements and undertakings of
the parties with respect to the subject matter hereof.
10.6 Except as otherwise provided in Section 6.3, each party will pay all of
its own expenses, including attorneys' fees incurred in connection with
the negotiation of this Agreement, and the performance of its obligations
hereunder.
10.7 Licensor and Licensee agree that all obligations of clearance, payment or
attribution to third parties, if any, including music publishers to the
extent necessary, union funds and performing rights societies, shall be
solely the responsibility of Licensee, including but not limited to
payment for use of the musical compositions embodied in sound recordings,
if any, and for any liabilities associated with such use.
10.8 This Agreement may be executed in counterparts and by facsimile
signature, each of which shall be deemed to be an original but which
taken together shall constitute one agreement.
10.9 Except as otherwise expressly provided herein, this Agreement and the
rights hereunder shall not be assignable or transferable by either party
without the prior written consent of the other party; provided, however,
that either party hereto may assign its rights to any parent or
subsidiary, or any entity that acquires substantially all of the stock or
assets of such party in which case such assignee shall assume all
obligations and rights of such party under this Agreement.
10.10 This Agreement shall not be construed to create a partnership, joint
venture, agency or other legal relationship between the parties, or to
form any other legal entity.
10.11 The titles used in this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
WARNER MUSIC GROUP INC. ARTISTdirect, INC.
By: /s/ PAUL VIDICH By: /s/ MARC GEIGER
--------------------------- --------------------------
Title: Executive Vice President Title: CEO
9
<PAGE> 10
EXHIBIT A
OPERATING RESTRICTIONS
The following parameters shall apply to transmissions licensed pursuant to this
Agreement:
1. The Web Site Transmissions shall be streamed only and shall be streamed
[***]*.
2. Except as may be mutually agreed between Licensor and Licensee in writing,
the Web Site Transmissions shall comport with such parameters so that they would
be subject to statutory licensing pursuant to Paragraph 2, Subsection d, Section
114 of title 17, United States Code (the "Digital Millennium Copyright Act").
END OF EXHIBIT
--------
* Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
10