Manage for Success: Your Best Friend, Newsletter 54, October 2005
"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully, and who have indicated their desire to receive it. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.
Copyright 2005 by Keith Holzman, Solutions Unlimited. All rights reserved.
Who is your best business friend? The answer follows.
A regular "Manage for Success" reader recently asked "When should a new label expect the lawsuits to start coming? Who will seek to sue me and why? How may I stop or delay being sued?"
It just happens that "Professional Advice" was a subject discussed in a recent class I taught at UCLA Extension. In addition, my guest this past week was Paul Menes, a prominent Los Angeles music business attorney. This was one of the subjects he addressed.
The answer to the first question is that you never really know when your label might be the subject of a lawsuit. In most cases a fledgling label is not likely to be sued because there are insufficient assets to make it worthwhile to a would-be litigant. There's just not enough cash or anything of material value. An exception to this occurs if a label infringes upon a third party's copyright or trademark -- then a rights holder pretty much has to sue to defend its property.
It's only when a label starts to be successful and financially well-off that it's in a position to be the plausible object of a suit -- frivolous or legitimate. So, in answer to the second question, the suit could come from anywhere -- a disgruntled artist or his management, a licensor, licensee, or a publisher claiming copyright infringement or other unlicensed use of a property. And even though the suit may not be valid, a label would still have to fight it to protect itself.
The answer to the third question -- and this is the point that Paul emphasized in his talk to my students -- is that one of your friendly music business attorney's most vital jobs is to keep you out of trouble, and thus the object of such suits.
Your lawyer will do this in a number of ways.
The first is that he'll try see to it that you, as a label owner or executive, are properly protected from liability. He may suggest you set up your label as an LLC, a sub-chapter S, or possibly even a sub-chapter C corporation. And if you're also involved in a partnership, the role and responsibility of each partner should be clearly stated in writing.
He'll also try to keep you from picking a label name or trademark that might infringe on something already in existence.
Third, in drafting your label's standard artist agreement, your attorney will attempt to see that there are no loopholes or pitfalls that put the label in an unstable or unclear position. The contract needs to be so straightforward that there are no ambiguities. The responsibilities of the label and the artists must be clearly stated in all respects, particularly in regard to such items as territories involved, the length of a deal, options, when a recording needs to be delivered, advances and budgets, ownership of masters, work for hire, possible publishing involvement, royalty points, any deductions from royalties, returns, and most important to artists -- when they'll receive money.
In addition to an attorney, there are other professionals who can be considerably helpful to a record label. One is a certified public accountant. The second is a management consultant with substantial music industry experience, such as myself. With over forty years as a senior music business executive, there are few situations and challenges I haven't met and mastered. So call or email me if you've got a problem that needs to be solved, or if you need welcome advice and a friendly ear.
Fourth, your lawyer should read and comment on -- or better still negotiate -- all agreements or contracts that your label is involved in. This is particularly important if you're new to the music business and have little negotiating experience.
One advantage in having your lawyer negotiate a deal is that there's always an opportunity for him to buy some time by saying to an opposing party "I have to talk to my client about that" rather than commit you to something you might not want.
Another point is that music business attorneys are frequently among the first people to hear about exciting new talent. Thus your lawyer may in a position to turn you on to possible new artist signings.
If you're a start-up, and don't already have an attorney, then it's vital that acquiring one be one of the first items of business you attend to. Talk to your network and other label heads to find out whom they recommend. Once you've drafted a "short list" you should interview all candidates. Don't be afraid to discuss all aspects of the relationship. Ask about their business philosophy, approach to artist deals and contracts, and possibly most important -- their fees.
Some lawyers bill by the hour, although this is becoming less common, some on contingency or a percentage of sales, others by the project -- such as the writing of a standard agreement, and many on a negotiated monthly retainer.
Compatibility is also extremely important. You'll be spending a lot of time with your attorney -- if only on the phone -- and therefore personal chemistry becomes an important factor.
Once you've considered all the above, it becomes quite clear that a highly qualified music business attorney can be your best friend.
Until next month,
Keith Holzman -- Solutions Unlimited
Helping Record Labels Manage for Success.
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Copyright 2005 by Keith Holzman, Solutions Unlimited. All rights reserved