ARTICLE:
Why sign a music business contract?
by Ben Challis

General Information:

If you are an artist or a performer, then at some stage in your career you will undoubtedly enter into contracts – whether it is as “simple” as buying a piece of equipment or a musical instrument, or being booked to play at your local pub or club, or engaging a web designer to built your website. Perhaps more significantly you may be asked to sign a formal written agreement with a manager, a music publisher or a record label.  A contact is a legally binding agreement and can be enforced by the courts.

This website does not offer formal legal advice and the information on this website should not be construed as legal advice. If you are entering into an agreement, in particular one which will have a long term impact on your career in the music industry, then it is important that you take proper legal advice from a qualified lawyer who has experience in the music industry and the legal system that applies to the contract. There are the names of some of the United Kingdom specialist lawyers listed on our ‘links’ pages and another good source of information ishttp://www.vocalist.org.uk/music_law.html.

On this website I want to look at three different types of agreement:  recording agreements where a recording artist enters into a contract with a record label to allow the record label to (usually) take ownership of and exploitation rights in the artist’s sound recordings in return for a royalty that is paid to the artist: publishing agreements where a songwriter or songwriters enter into an agreement with a music publisher, usually transferring ownership of any or all of their past, current and future songs to the publisher, so the publisher can exploit on the songwriter’s behalf, paying  the songwriter a share of the revenues received – a royalty; and finally management agreements, where the artist (which may be a solo performer, a duet or a band) enter into an agreement with the manager or a management company to manage their career.

I would also urge all bands to draw up a Band Agreement so everyone knows what the ‘deal’ is between the members of a band. If just one person writes the songs, how will this work? If one member owns a studio, or equipment, or the van, how will this work? If someone created the name or a logo, does the band own the logo? Does the band own its own name? Who runs the accounts? Does everyone share equally? What happens if there are creative or other disagreements? It is dispiriting to see talented artists fall out – and even self implode – for lack of a clear agreement at the beginning of their careers.

As the digital age continues to develop, the traditional business models in the music industry are rapidly changing. I write these notes in 2011 and who knows what a ‘record company’ will look like in ten years time, or how the role of the music publisher will have changed. The internet has wreaked havoc on the record labels’ old business models, but has equally produced an amazing opportunity for musicians to interact directly with fans and distribute the music effectively and efficiently around the World. New players have entered the recording industry including marketing companies, sponsors, live music conglomerates, investment companies and internet companies and new methods of getting music to fans are constantly being explored and launched. With that in mind, there is no longer any such thing as a ‘standard’ deal.

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USEFUL WEBSITES

The British Academy of Songwriters, Composers and Authors: BASCA exists to support and protect the artistic, professional, commercial and copyright interests of songwriters, lyricists and composers of all genres of music and to celebrate and encourage excellence in British music writing. http://www.basca.org.uk/

PRS for Musicwww.prsformusic.com

The Musicians Union: The Musicians’ Union represents over thirty thousand musicians working in all sectors of the music business.  As well as negotiating on behalf of its members with all the major employers in the industry, the MU offers a range of services for professional and student musicians of all ages in the United Kingdom.http://www.musiciansunion.org.uk/

The Music Managers Forum:  The MMF UK is the largest representative body of artist management in the world. The MMF has over 400 members, representing over 1000 of the most successful acts on the planet and their emphasis is on implementing positive actions to assist its members with a keen eye on the ‘next generation’ of entrepreneurs and innovators. www.themmf.net.

Music-law.com: A site offering advice to bands based on US law:  http://www.music-law.com/

The Vocalist: providing information for all musicians – here on the business of music  and contracts in the UKhttp://www.vocalist.org.uk/music_law.html . Also see further material on deals, contracts and copyright athttp://www.musiclawadvice.co.uk/index.htm

The CMU Daily. An excellent source of music business news:  http://thecmuwebsite.com

What are Trade Markshttp://www.ipo.gov.uk/types/tm.htm

A Basic guide to choosing and protecting band names:http://www.vocalist.org.uk/band_name_registration.html

What is copyright? http://www.ipo.gov.uk/types/copy.htm

A basic guide to copyright: http://www.vocalist.org.uk/copyright_royalties.html

The Copyright Designs & Patents Act 1988: The primary legislation governing copyright in the United Kingdom.http://www.legislation.gov.uk/ukpga/1988/48/contents

AND IF YOU ARE REALLY INTERESTED

I would recommend Ann Harrison fabulous book Music The Business – The essential guide to the law and the deals. The 4th Edition, Virgin Books.  If you are in the USA you might like to take a look at Legal Aspects of the Music Industry by Richard Schulenberg, published by Billboard Books and for a detailed text on this subject matter look no further thanMusic Business Agreements by Chris Phillips & Nicholas Kanaar, now in its 3rd Edition and published by Sweet & Maxwell.

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RECORDING AGREEMENTS

This is what Californian Senator Kevin Murray says about record labels in a report into US recording industry practices.

“Much like the public generally dislikes politicians, but love their individual representatives, Artists have respect for their record company handlers, but distrust the companies themselves and the system they operate under. They see themselves as victims of an indentured servitude system designed to keep them perpetually indebted to the companies who also own the product of their labor. Some artists expressed gratitude for the initial investments made by the record companies in their talent, but feel cheated by their meagre share of the proceeds when the gamble pays off. One artist’s representative went so far as to accuse the record companies of running a continuing criminal enterprise.

The record companies are genuinely appalled at the accusations and feel that they are the true victims. They are insulted that after making multi-million dollar investments in artists, few of which actually pay off, that they are then held hostage by the successful few. They claim they are forced to pay large advances and otherwise accede to whims of spoiled, pampered artists who make millions, yet whine that they are oppressed. They further complain that artists should be helping fight the real enemy of digital piracy, instead of accusing record companies of thievery.”www.recordingartistcoalition.com

Recording Agreements can be just one page but they are often complex legal documents running to many pages.  There have been numerous legal cases between artistes and their labels over the terms of recording contracts and the courts in the UK in particular have been instrumental in ‘tearing up’ exclusive contracts, in particular where they have found them to be in ‘unreasonable restraint of trade’ or where there has been a lack of independent legal advice and/or an ‘inequality of bargaining power’ in the formation of the contract. Artists who have successfully brought cases include Sir Elton John, The Stone Roses and Holly Johnson from Frankie Goes to Hollywood – and to an extent record contracts have become more reasonable to artists. That said, the fact remains that there are often unreasonable terms and in the digital age some recording industry practices look positively medieval. But it is true that record labels often invest large amounts of money in developing new artists and do need to ‘recoup’ these investments from somewhere – and that recoupment is of course usually from the highly profitable revenues of successful artistes.  The IFPI’s 2010 Digital Music Report explains that music piracy, including peer to peer file swapping and illegal downloading, has significantly reduced record company revenue streams and that this has had a detrimental effect on the investment in new acts and it is clear that labels are not investing as much money in new talent or supporting the range of talent that used to be developed through labels. Whilst the live music industry is now slightly bigger in the UK than the recorded music sector (according to 2009 figures from PRS for Music) the live sector has not become a major investor in new talent.

The issues of perhaps an old fashioned approach to copyright and the need to recoup investment has produced a number of terms in contracts which need to be carefully understood by artistes. As contracts are often lengthy and written in difficult language, an experienced lawyer is a necessity for record deals. What a ‘typical’ recording agreement with a major label will do is exclusively tie the recording artist (all band members, including band members who leave and new members) to the label so they can only record music tracks for that record label. The label will assume ownership of all recordings and will exploit these and from the revenues from sales will pay the artist a royalty. In many cases the label will pay an ‘advance’ to the artist. This is an ‘advance’ against those future royalties – and is paid back or ‘recouped’ from future royalties. So the label may make a cash advance to the band to secure their services and pay advances to pay for things like recordings and promotion videos, but they will always look to recoup all or some of those advances from the artist’s future earnings. If a significant investment is made then the label will seek to tie the recording artist for a substantial period of time – in the past ten album deals (potentially lasting twenty plus years) were not unusual. Now, a typical deal with a record label would be for one album then with the label having the option to require the recording artist to deliver up to five or six more albums. This type of long term agreement prompted Prince to write the word ‘Slave’ across his forehead as a reference to his then long term contract with Warner Music.

There have been a number of complaints against the ‘old style’ exclusive recording agreements and I will examine a number of these objections below. It should be said that contracts are changing and in the modern world there are a number of ever evolving new contract models, such as the so called ‘Robbie Williams’ model – a ‘360 degree’ deal covering different sources of revenue including live. Some are far better – but some are potentially far worse. Exclusive record deals are also not the only form of record contract – others include licensing deals, development deals and production deals and new business models.

Ownership

When a songwriter writes an original piece of music or original lyrics, or when a recording artist records a track, they are creating new copyrights. The first owner of the copyright in a song is the ‘author’ and the first owner of a sound recording is the producer – the person who makes the arrangements for the sound recording to be made. However, in the music industry both songwriters (for the copyrights in sounds) and recording artists (for the copyrights in sound recordings and for their performers’ rights) usually transfer ownership of their copyrights to companies who specialise in the exploitation of copyrights – and for sound recordings these are record labels of course.
The most famous UK case that looked at recording industry practices was the ultimately unsuccessful action by George Michael, against his record label Sony, in 1994. George’s lawyer told the court that his client had signed up with a recording company at age 18 and had been a prisoner of that action ever since saying that George’s case about the contract, signed when he was one half of the then unknown Wham! “is about restraint of free trade, an agreement which binds George Michael for the whole of his professional career to terms capable of being worked to his substantial disadvantage. One of the points made in this case was that whilst George Michael was a hugely successful artist who was ‘recouped’ and had therefore paid back all monies he had been advanced to make sound recordings such as Faithand Listen Without Prejudice. Even so, those sound recordings were owned by Sony for the life of copyright and George could never own ‘his’ masters – the ones he paid for.

Royalties and recoupment

Royalty payments are still the basic way in which record labels pay their artist a share of the revenues from the exploitation of their sound recordings although an increasing number of deals, particularly with independent labels, are based on both the artist and the label sharing the profits.

Whilst the quantum of the royalty is important – so is the ‘royalty base’ – what your royalty is paid ON. For example a royalty of 20% paid on 50% of all sales is the same as a royalty of 10% on 100% of all sales – it just sounds better. I make this point because record labels have traditionally used ‘royalty reducers’ to reduce the royalty that the artiste would otherwise get. Typical reducers would include eg a 25% reducer for new technologies, a 30% reducer for packaging and a 10% reducer for breakages. Amazingly some labels have applied both packaging and breakages reducers (which come from the historical fact that some vinyl and shellac LPs used to break in transit) to digital downloads. There is no ‘packaging’ on downloads and they don’t shatter in transit!  George Michael was incensed that by 1994 he was still suffering a 25% reduction in his royalty for CD sales as they were deemed a new technology – as by 1994 CDs were by far the most common form of physical product and hardly a ’new technology’.  Recently artists including Eminen and the Allman Brothers have raised the issue is whether downloads of digital singles and albums are a “sale” or a “license in court in the USA.” This distinction is significant because under the standard recording agreement artists receive 50% of net income from “licenses” after the songwriter is paid, but for “sale” the artist will get a royalty – at best only 10% to 15% of retail, or alternatively, a royalty based on dealer price.

In 2006 the Allman Brothers and a number of other recording artists including Cheap Trick brought a case against Sony BMG Music Entertainment in the United States District Court Southern District of New York and it was fascinating to see how the different parries calculated how the artist’s royalty should be paid. On the sale of 1000 downloads at 0.70c per unit (total income of $700) Sony BMG thought the appropriate payment would be a royalty payment on 85% of all downloads sold after deducting mechanical royalties to the songwriters,   a container charge of 20% and an audiophile reducer for new technology of a further 50%. This gave a total royalty payment of $45.05. The Allman brothers felt they should be paid one half of the income from 100% of all units sold, less just the mechanical royalty payable to songwriters.  This gave a royalty due of by Sony BMG to the Allman Brothers of $315.50 with attorney Brian Caplan saying at the time “Sony Music is presently engaged in a widespread attempt to underpay its recording artists”.

Standard terms

A typical full length exclusive record deal between a recording artist and a major label will contain some or all of the following clauses:

  1. definitions clause – this may well define some fairly critical matters including what the royalty rate is paid onand definitions of what compromises an ‘album’. It may also include royalty reducers – clauses that artificially reduce the artist’s royalty such as packaging deductions and reduced rates for mail order (such as sales on Amazon!).
  2. The recording commitment – this defines the sound recordings the artist has to deliver to the record label, usually in a fixed period of time. This may include options for the record label to tie the artist for future albums and will govern the term of the agreement – how long it might last for.
  3. Release obligations – what the record label has to do for the artist. It is important to secure real and concrete commitments – proper commercial releases at least in key territories. More artist and managers are now saying that if labels don’t exploit recordings then the artist should ‘get back’ the rights.
  4. Advances and royalties – the quantum of advances and royalties, although the actual amount of the advance(s) and the royalty rates may be contained in a schedule.
  5. Accounting – how the label will pay over royalties to the artist. Usually this is quarterly (at the end of March, June, September and December but often there is a substantial delay in making payments – and in the days of computers these are of course quite unjustifiable – but it means that the label has the artists money for months (and sometimes years!) which is attractive to labels.
  6. Recoupment – how any advances – including recording costs, are paid back to the label out of the artist’s royalties.
  7. Specific provisions governing promotional videos, long form  videos and TV recordings and recording costs. This might include TV rights – something not all labels are very good at exploiting. Be careful in what you grant to the record label! You might eb able to do better elsewhere.
  8. Grant of rights: The contract will usually require the artist to transfer and assign ownership of current and future sound recording copyrights to the label. They will then be the owner. Some contracts may go as far as requiring the artist to transfer ownership of their name (or ‘trade mark’, image rights, any copyrights in artwork or a logo and website name to the record label. Be very careful – a number of labels now also look to secure merchandising rights and some would want ALL of the artists various rights – recording rights, music publishing rights, live performances, website and merchandising to name but some, in what have become known as 360 degree deals.
  9. Leaving and joining members – provisions to ensure that both leaving members and joining members are tied to the record agreement. Members are tied ‘jointly and severally’.
  10. Controlled composition clauses: Sometimes labels will ask the artist to grant it advantageous ‘mechanical’ rates where the artist is also a songwriter so the label pays lower royalty rates to the songwriters.
  11. Jurisdiction clause: which law (eg English Law, US law) governs the contract.
  12. In addition there may be one or more schedules which might set out details such as royalty rates for eg CDs, DVDs, downloads, additional royalty reducers, the numbers of free copies a label could give away, financial reserves against returns and audit procedures.

This is not meant to be an exhaustive list and is just a very basic summary of some of the terms that you might find in an exclusive recording Agreement.  You might be interested in two other articles on this site which look at this area. The first is by US attorney Bart Day titled “Net profit deals: not your traditional record deal” (2009) and the second by  UK lawyer Andrew Evans  titled “The doctrine of restraint of trade in relation to music industry agreements” (2003).

This website does not offer formal legal advice and the information on this website should not be construed as legal advice. If you are entering into an agreement, in particular one which will have a long term impact on your career in the music industry, then it is critical that you take proper legal advice from a qualified lawyer who has experience in the music industry and the legal system that applies to the contract.

ZTT -v- Johnson (1990) EIRP 175 (the Holly Johnson case)
Silvertone -v- Mountfield (1993) EMLR 152 (the Stone Roses case)
Panayiotou -v- Sony Music (1994) EMLR 229 (the George Michael case)

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MUSIC PUBLISHING

You should remember that the copyright in a song is quite separate from the copyright in a sound recording.  So if someone records your song, whilst they have a new copyright in the new sound recording, the song is still yours and they will have to pay you to use the song.

Music publishing grew out of the “business of songs” and old style music publishers would work with songwriters, helping them to place their sings with successful recording artistes or in films, shows or on TV programmes.

In the UK there have been relatively few cases before the courts looking at music publishing but the first major music industry case in 1974 was about music publishing. The case of A Schroeder Music Publishing Company Limited –v- Macaulay involved a young and unknown song writer who entered into an agreement for his exclusive services with a publishing company for five years. It was the publisher’s standard form agreement. The song writer assigned over his entire worldwide copyright for each of the original songs written at any time during the agreement. The publisher paid £50.00 as a general advance against royalties and when the first £50.00 was recouped from royalties they would advance a further £50.00 to be recouped from royalties. If the total royalties advanced equalled or exceeded £5,000.00 then the agreement was automatically extended for a further five year period. Other terms included the provision that the publisher could terminate the agreement by giving one months written notice but the song writer was unable to terminate in such a way.  Of particular importance was the fact that the publishers were under no obligation to publish any of the songs and were merely obliged to pay royalties and to make modest advances against them (taken from Andrew Evan’s essay).  When the courts finally looked at the Agreement they found that it was contrary to public policy as an “unreasonable restraint of trade”.  The restrictions on the songwriter contained in the agreement were not fair and reasonable, there was a lack of obligation on the part of the publishers with total commitment from the song writer. The publishers were not required to publish any compositions and the song writer could earn nothing if the works were not published. One of the judges, Lord Justice Diplock said that the agreement was “a take it or leave it” contract. It had not been the subject of negotiation between the parties or approved over the years by way of negotiation.  The contract was found to be void.

In the aftermath of this decision, music publishing contracts rapidly improved, as did royalty rates. A modern day publishing agreement will still exclusively bind the songwriter to the music publisher, usually with a split of revenues in the region of 70%-80% of net income received by the publisher payable to the songwriter, and 30-20% retained by the publisher. There are also usually (but not always) restrictions on what can be deducted before this split takes place, to prevent the publisher unfairly reducing the income ‘pot’ before the division tales place. Songwriters usually look for a division based on ‘at source’ revenue – the total revenues generated in any country less only VAT (or similar) and any levies from a local collection society (see below) and monies payable to co-writers.

Songwriters are also in a better position if they are members of the Performing Right Society (PRS for Music), the UK’s collection society for songwriters and music publishers. In particular 50% of a songwriter’s income from performance of their songs (on the radio, television, in nightclubs, live) must be paid directly by the PRS to the songwriter with t he balance will be collected by the publisher and the relevant percentage paid over to the songwriter as a royalty. Each country has its own collection society including ASCAP and BMI in the USA, JASRAC (Japan), GEMA (Germany) and SACEM (France). See www.prsformusic.com.

Standard terms

A typical full length exclusive music publishing agreement between a songwriter and a major music publisher will contain some or all of the following clauses:

  1. definitions clause: This might in particular define how ‘at source’ revenue are arrived at, and might define a ‘composition’ and define the Copyright Designs and Patents Act 1988, the most important piece of legislation in the UK concerning copyright.
  2. The writer’s obligations – potentially the number of songs the writer must deliver to the publisher in any contract period.
  3. An assignment of rights (copyrights) from the writer to the music publisher. They publisher may have additional rights eg the right to be able to bring legal actions in the name of the songwriter if the copyright in the song is infringed. A territory will be defined – where the contract applies. These are usually worldwide.
  4. The publisher’s commitment – what the publisher will do for the writer. As a minimum they MUST register all songs with relevant collection societies and agree to account diligently and on time. There will probably be a broader commitment (using ‘reasonable endeavours’) to exploit the songs.
  5. Right to return copyrights. The may be a provision that if the publisher fails to get any commercial use of the songs then the rights might be returned to the writer after a period of time. Publishers don’t like doing this and these clauses are often complex.
  6. Term and options – this clause will govern the length of the contract. Remember if the deal is exclusive, then during the term the songwriter cannot write for any other publisher or entity.
  7. Advances, royalties and recoupment. This will set out the quantum of any advances and the royalty rate and define the royalty base. Recoupment will allow the publisher to recoup any advances from royalties otherwise payable to the songwriter.
  8. Audit provisions: allowing the artist to audit the publisher to ensure accurate accounting.
  9. Jurisdiction clause: which laws (eg English Law, US law) governs the contract.

This is not meant to be an exhaustive list and is just a very basic summary of some of the terms that you might find in an exclusive songwriting agreement with a major music publisher.   We would also advise band members to very clearly agree who writes any song. There is a useful set of frequently asked questions on the Music Publishers Association website at http://www.mpaonline.org.uk/FAQ . There is an article on this website by Ben Challis looking at music sampling titled ‘The Song Remains The Same’ written in 2003 but updated to include more recent cases on music sampling from around the world.

This website does not offer formal legal advice and the information on this website should not be construed as legal advice. If you are entering into an agreement, in particular one which will have a long term impact on your career in the music industry, then it is critical that you take proper legal advice from a qualified lawyer who has experience in the music industry and the legal system that applies to the contract

A. Schroeder Music Publishing Company Limited –v- Macaulay (formerly Instone) (1974) 1 WLR

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MANAGEMENT AGREEMENTS

This may well be the first business relationship an artist has in the music industry – although that is not to say that all managers come with a music industry background – many managers start out as the band’s best friend, the studio manager, the van driver or even the band’s lawyer!

Management Agreements tend to be far simpler than exclusive songwriting and exclusive recording  agreements – but again they can be long term agreements which might have a significant impact on an artist’s career and earnings. The agreements are often drafted as quite short ‘letters’ from the band to the manager. But these agreements are based ontrust.

In the ‘rock and roll’ years back in the 50s and 60s, managers often took up to 50% (yes, half!) of an artist’s income. More typically now they work on a commission of around 20% of income, although some managers work on a fee basis.
Managers owe their clients a ‘fiduciary duty’ which means that they MUST act in the best interests of their clients. This can be tricky when a band falls out – who does the manager owe the duty of care to? And it can also be difficult when a manager manages more than one band. But in general terms a manager can manage more than one band but they must not have conflict of interests, must act in good faith and must provide a competent service.

A typical exclusive management agreement between a band (or solo artist) and manager (or a management company) will contain some or all of the following clauses.

  1. The appointment of the manager – and this may be limited by territory – and may be limited by activities eg for the band as musicians, not in private projects or eg as actors, or authors. You may well wish to tie in a named individual, a ‘key man’ if you are contracting with a company. If you want your manager to sign agreements on your behalf, particularly ‘one off’ appearance agreements – or restrict their authority, then this must be made clear.
  2. The term of the appointment. A starting point might be three years BUT subject to the right of the band to terminate if eg the manager does not achieve any real commercial success in the first eighteen months.
  3. The manager’s obligations: These are often quite vague but would include provisions on acting in good faith, keeping the band properly informed, accounting on time, etc.
  4. The band may be asked to make certain band warranties – not least that they don’t have another manager, that they will turn up when instructed, actively work to promote their careers.
  5. There will be accounting and audit provisions: Who looks after the bank account, who signs cheques, how often the band members (and manager) get paid out of revenues.
  6. The manager will usually be entitled to draw commission or fees. The band need to know both what the rate will be and on what basis – usually commission is levied on gross recording income (including advances) received for sound recording and music publishing deals, but on net income from live work. The manager may also be entitled to so called sunset income – a “post term” commission payable to the manager even once the manager no longer works for the band – although only payable from projects the manager worked on.  In two different cases involving Seal and Joan Armatrading, these provisions have held to be valid by the courts in the UK, but they must be reasonable and the artist must have received independent legal advice.
  7. How expenses are paid.
  8. Termination– for example if the manager is no longer fully available, or is convicted of a crime of dishonest, or made a bankrupt.
  9. Provisions allowing a manager to manage other bands.
  10. Jurisdiction clause: which laws (eg English Law, US law) governs the contract.

This is not meant to be an exhaustive list and is just a very basic summary of some of the terms that you might find in an exclusive management agreement.

This website does not offer formal legal advice and the information on this website should not be construed as legal advice. If you are entering into an agreement, in particular one which will have a long term impact on your career in the music industry, then it is critical that you take proper legal advice from a qualified lawyer who has experience in the music industry and the legal system that applies to the contract.