Update from Beatport on Mechanicals

"Your labels Q4 statements are now available on Baseware. These statement show deductions for the performing rights societies. The information below outlines how and why these royalties are withheld.

Laws and regulations dictated by the performance and mechanical rights societies ("PROs") outside of the United States require that payment for music publishing royalties on downloads be facilitated by the download site.

Up until this time, Beatport has based its handling of music publishing royalties on the laws in the US which allowed payment of music publishing royalties to the record labels and the labels were then to pay the proper music publishers. As Beatport has grown, especially outside the US, Beatport has been required to comply with the systems used in other countries where track downloads are sold.

Having the Labels manage these payments is not acceptable to the PROs.

These payments will be directed to the PRO in the country into which the download was sold. So, for a customer in France, Beatport will direct payment to the French PRO SACEM, for a customer in England, the payment will be directed to the English PRO (MCPS/PRS Alliance) and for a customer in Australia, the payment will be directed to the Australian PRO (AMCOS/APRA) and so on in respect of each country where sales are made.

How does Beatport report to the PROs?

Beatport will submit a list of all sales for a given territory to the appropriate PROs. The PROs will review the list to check which tracks are controlled by members of any PRO and submit an invoice back to Beatport.

If the writer of the track is not a member of any PRO and if the writer has not signed a publishing contract with any music publisher who is a PRO member, then the PRO reviewing the sales information cannot make a claim for the publishing royalties. For such sales, Beatport will pay those monies to the Label controlling that master and it is the Label's responsibility to pay the writers.

How will Beatport report to the labels?

Every quarter, Beatport will withhold a flat 10% of revenues for sales in all territories affected by the PRO's requirements outside of the United States. Beatport will report back actual claims made by the PROs on reported revenues from previous quarters. Any differences between the 10% withheld and the actual fee and volume of sales charged will be either refunded or charged to the label.

For the upcoming payout of label commissions for Q4 2008 at the end of January 2009, Beatport will withhold 10% of sales for Q4 2008. With the payout of Q1 2009 at the end of April 2009, Beatport will be withholding 10% of sales for all territories affected by the PRO's requirements for Q1 2009 and retroactively for Q3 2008. From Q2 2009 onwards, 10% of all sales per quarter will be withheld.

Data to Appear in Baseware

To assist Labels in monitoring these deductions, Baseware will be updated so that the quarterly statements will now have another column that displays the amount deducted for mechanicals. The quarterly statements show every track sold on an individual track basis, so Labels will be able to see how much is deducted for mechanicals for each individual track sold.

Please email your label representative with any questions

Thanks,
Beatport"

FYI: We are now getting in statements from stores and will be processing them over the next 30 days. You will receive your aggregated GrooveSource statements at the end of this month.