Manage for Success: Artist Agreements -- Business Affairs, Part 1 (Newsletter #7, November 2001)

Business Affairs, Part One: Artist Agreements

Business Affairs is a function that is all too frequently neglected by smaller record labels, and often not handled well by large ones. However, dealing with the legal aspects of your business is critical to your success, and that of your artists.

In addition to artist contracts, Business Affairs deals with distributor agreements, mechanical licenses, negotiating for and administrating master use agreements and synchronization licenses, and registration of copyrights. I'll go over these in more detail next month. This issue is about artist agreements.

A crucial factor related to recording artists is how well a label treats its artists. And your relationship with your artists will be influenced very much by the nature of your artist agreement.

Artist contracts have become longer and longer, from a half a dozen pages some years ago, to contracts that are 75 to 100 pages! Many of these contracts place the artist in an adversarial relationship, and many of the standard terms that prevail in the industry may be onerous to the artist. Therefore, I strongly urge you to have your attorney draft contracts that are brief, friendly, and most important, fair to the artist as well as to the label.

You may be aware of a number of issues that have arisen recently between artists and major labels. A statement issued by Courtney Love in the on-line publication, Salon, is particularly pointed. In this lengthy piece Ms. Love details the nature of the problems that she and many other artists are having with the majors.

Her complaints relate not to amounts advanced by the label at the outset, but to what is deducted from royalties before earning dollar one as a result of sales. These deductions include recording, marketing, promotion, and video costs.

Another common artist complaint is the cap many labels place on the payment of mechanical royalties for controlled compositions.

These are works wholly or partially written by the artist and owned or controlled directly or indirectly by him or her, frequently in affiliation with a publishing company. The usual cap is 75 percent of the federally established statutory royalty rate per song (currently 7.55 cents) times ten songs. So the cap would be 75% of 75.5 cents, or 56 cents per unit sold. And if the artist records one or two songs that are not controlled compositions, the excess of any amount above 56 cents might be deducted from the artist's share.

Another artist concern is the "work for hire" clause that's existed for years. As a provision of the contract, labels consider an artist's project as a recording made for hire.

This means that, even though an artist may have delivered a finished master to the label, and may be paying the cost of recording as a charge against royalties, the label -- not the artist -- would own the copyright for a period of 95 years from the date of first publication.

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A word from our sponsor: Contact us if you're having problems running your label. We supply management solutions tailored to your particular needs.

And feel free to email topics for discussion in future newsletters. I welcome your suggestions.

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Another area of artists' concern is long-term contracts and the California "Seven Year statute" which, provided certain minimum funds have been paid annually to the artist, ties the artist to the label for seven years. The California legislature is now reviewing and may eliminate the statute, but perhaps not retroactive to existing agreements.

Also be cautious taking high packaging deductions (typically 25% for CDs) and free goods provisions (as high as 15%.)

In any event, be sure to keep your artist contracts readable and understandable, with language that is neither complicated nor threatening.

Some labels create their own standard contract, including all the boilerplate or fine print in a fixed document, and add a separate terms page with the unique provisions for each specific agreement. Such a standard contract can save a great deal of time as well as legal fees. Once the model contract is written you will only have to change the terms page for each new artist.

I also suggest that, when you send the agreement to your artists, you advise them in a cover letter that they seek legal counsel before signing the agreement. This protects the artists and of course, the label.

Part Two, dealing with Business Affairs will be emailed next month. In the meantime, please feel free to call or email with concerns you have running your label, or topics you'd like covered in future newsletters.

Some resources you might find valuable are:

"This Business of Music -- The Definitive Guide to the Music Industry" by M. William Krasilovsky

"More About this Business of Music" by M. William Krasilovsky and Sidney Shemel

"All You Need to Know About the Music Business" by Donald Passman

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Copyright 2001 Keith Holzman, Solutions Unlimited. All rights reserved