Now that you have officially had your meetings with a few different representatives from the labels, it is time to begin negotiating the terms of your agreement and/or contract. (assuming that you have got to this point in your talks with the labels because as we all know this step doesn’t always happen after the meetings that we spoken about in the previous article) When it comes to the entertainment and music industries, there are a variety of different contract and agreement types, that all have an incredible amount of intricacies in and attached to them. Each contract is different depending on what type of contract it is, whether you are an artist, producer or writer, depending on if you are signing for publishing or a record deal, if you are signing for a single or album deal, if you are signing a 360 deal, signing with a record company, a production company or a management company, the list goes on. So, let’s first start with a brief description of a few of the different music contracts that can be presented to you:
Record Deal
An artist assigns and transfers ownership in their sound recording copyright(s) to a record label, (usually) in return for an advance and subsequent royalty payments. The record label often agrees to market, promote, and license the recordings to music users such as streaming services and consumers.
Publishing Deal
A songwriter assigns and transfers ownership, or partial ownership, in their compositions to a music publisher (usually) in return for an advance and subsequent royalty payments. The writer, in effect, sells, in whole or in part, their composition(s).
Distribution Deal
An artist gives a company the right to distribute their copyrighted sound recordings for a set amount of time. The company usually collects a fee or takes a percentage of the royalties that the song(s) earns. The artist retains ownership in their recordings.
Administration Deal
A business entity agrees to handle the administrative work needed to license and/or collect royalties for one or a set of copyrighted works for a specified amount of time. The licensor retains ownership in their copyrights.
360 Deal
A 360 deal is found in many of today’s contracts between a record label and a recording artist and refer to the label’s efforts to obtain a share in all other rights and revenue streams related to the artist, in addition to the exclusive recording rights. Additional rights in a 360 deal may include name and likeness rights, touring rights, music publishing rights in songs written by the artist, and more. The 360 trend is not limited to record labels. More and more companies that started off as strictly publishing or management entities are now moving towards a 360 approach in an attempt to become a one-stop-shop for musicians.
Producer Deal
The producer agreement usually occurs between a producer and artist, though sometimes it can form between a label and a producer. The producer can often negotiate up to a 50% fraction of the label’s net receipts for a given sound recording. This negotiation is always based around the producer’s track record and experience with artists.
Co-Writer Agreement
Often, songwriters compose songs in collaboration with other writers. In the absence of a formal written agreement, the law assumes 50/50 ownership in any song known to be co-written. Splits that aren’t 50/50 (or evenly split between all writers, for that matter) must be memorialized in writing in order to be recognized by the law as such.
Master-Use License
A master-use license permits the licensee to use a copyrighted sound recording in a new project. Typically, licensees are seeking to use recordings in audiovisual projects, as a sample in a new audio recording, or for distribution. By obtaining a master-use license, the only rights being granted are to the sound recording. This means that any copyrighted composition embodied in the recording must be licensed separately.
Mechanical License
According to the Harry Fox Agency, a mechanical license grants to the user the rights to reproduce and distribute copyrighted musical compositions on CDs, records, tapes, ringtones, permanent digital downloads (DPDs), interactive streams, and other digital configurations supporting various business models. In exchange for the permission to do so, licensees pay a statutory rate to the copyright owner(s) per reproduction.
Synch License
Synchronization licensing is the process by which production companies of audiovisual works clear the rights for outside music to be used in their productions. Both the sound recording copyright and the underlying composition copyright must be cleared in order to use the work in synchronization. Synchronization licenses (“synch,” for short) refer to the “synchronizing” of a musical work with a visual work. Sync deals give the licensee the right to use a composition copyright and sound recording in an audiovisual work such as a movie, TV show or commercial, video game, or other similar work.
Performance License
An agreement, usually between a performing rights organization (PRO) and a music user in the form of a blanket license, allowing the licensee to publicly perform a composition in exchange for a payment.
PRO Affiliation
This is the deal that the songwriter signs when they become a member of a PRO. The agreement lasts for a specified amount of time and is exclusive, meaning that the writer cannot be signed with more than one PRO at a time.
Booking or Performance Deal
This is the agreement entered into by a concert promoter or venue and an artist or the artist’s agent. The artist agent typically has power of attorney, meaning that they can sign the deal that binds the artist to playing at the venue at the specified date and time.
Management or Agent Agreement
An artist signs a contract with a manager or an agent to help them with their business affairs. The managers and agents usually take a percentage (anywhere between 5%-20%) of the musician’s revenue earned from record sales, concerts, etc.
Merchandising Agreement
The musician signs an agreement with a company to produce a specific amount of merchandise.
Work For Hire
A work made for hire occurs when Party A employs Party B to create something, but Party A becomes the legal author of the work. In the eyes of the law, Party B will no longer have any rights to the work whatsoever. While these agreements are more common in film and TV, many publishing deals can have work-for-hire language in them. It is important for the musician to have a clear understanding of whether a deal is work-for-hire before they sign, because signing one of these agreements gives complete ownership of the works subject to it to the employer.
Now, with a basic understanding of the variety of different music contracts that can be offered to you, the next phase of understanding is the language in these contracts. Before even getting to this step I would suggest obtaining legal counsel. (completely independent from the label you are in contract talks with, and separate from anyone else you could possibly be contractually obligated to, as this will ensure that the lawyer is only working for you with your best interests in mind, and not representing you on behalf of a third party) In most cases (unless you have a law degree or a great understanding of contracts and especially music contracts) you will not understand every detail of what you are signing, as well as not have a full grasp on the language used in these contracts. The language is extremely important, as how things are worded in the contract is what the label (and every single person that draws up contracts for any purpose) will use to withhold anything and everything from you. There will be language used to ensure that you as the artist are responsible for certain things, the label will recoup, obtain and receive specific perks, and create a variety of loop holes in favor of the label, thus hamstringing you as the artist when it comes to the money you can make/receive as well as what you have to create and in what time frame in order to meet certain objectives laid out in the contract. It is the responsibility of the legal counsel you retain to read through all of this, help you to understand what everything means and ensure you get the best, most fair deal possible. A favorite quote of mine that relates to this perfectly comes from Joe Budden, “You will always get fucked as an artist in the music industry, you hope they use Vaseline.”
A few standard music contract terms to familiarize yourself with in order to have a better understanding of what your are signing, and what is being presented to you are as follows:
Writer’s Obligation: The term refers to the number of songs a writer should deliver to the publisher.
Assignment of rights: It’s the assignment of copyright of music from the writer or singer to the music publisher. If the copyright is infringed the publisher can take legal action against the writer or singer.
Publisher’s commitment: The commitment of publisher towards the writer or the singer is called publisher’s commitment.
Right to return copyrights: This is the most complex term of the contract, which abides the publisher to give back the copyright in case of commercial failure after a certain period of time.
Advance, royalties, and recoupment: It will set the royalty rate, the quantum of any advances, and the definition of royalty base.
Audit provisions: The audit clause allows the artist to ensure accurate accounting from the end of the publisher.
Jurisdiction: This clause recites the law that governs the contract.
So, now that you have a brief understanding of some terms to look out for in your contracts and what they mean, how do you protect yourself when it comes to these contract negotiations? A few legal tips for your our contract negotiations are as follows.
Get it all written: There would be points that you might consider so insignificant to be on paper. Let me warn you the label is always looking for that loophole. A handshake deal is tempting, but to prevent ugly disputes in the near future avoid verbal promises. Make sure you have every little detail of the contract mentioned on the legal front.
Don’t take legal advice from the opposite party: Musicians are found to be naïve about legal deals, which leads to exploitation of their talent. Even if you trust the person, do not depend on their legal advice. Take your time to understand the terms and conditions then only nod for it.
Don’t settle for accountants and standard lawyers: Music law is an exclusive arena which needs specialization on its own. If you seek legal advice, better go for the experts. Do not settle just for accountants and standard lawyers as music laws can be difficult to understand. Choose an advisor who understands the laws well and looks into every little detail for loopholes. Make an easy way out: A contract should bind both parties with a fair exchange of benefits. If the one party doesn’t live to its obligation, you should have a clear way out of your deal. To make the deal safer and beneficial it’s imperative to add a release commitment in the contract.
Music contracts include a ton of different clauses that are put in place to ensure the artist is contractually obligated to the record label they are signing with, where the music can be released, specific objectives the artist must meet (in regard to the releasing of their music, a time frame to release that music, and the amount of sales they need to hit for each single/album) how long the artist is signed to the label, and different aspects of what the label can do with the artist if certain obstacles arise, or if the artist doesn’t meet certain objectives. These clauses are mostly in favor of the labels, and as you hear a lot of artists say, “Hold them hostage” when it comes to releasing music, and being able to do certain things in regard to their music. As an artist, be sure that you know what the different clauses are in your contract, as these different clauses, and the language used in these clauses makes a vital difference in what you can release, how you can release it, how long you have to release it, how long you are obligated to the label you are signing with and different standards you must meet in order to proceed to the next step. Think of some of these (in sports terms) like incentives that are given to athletes in their contracts. If you are a quarterback, you must throw for x amount of yards, x amount of touchdowns, x amount of interceptions, have x completion percentage, and so on. If you meet these goals, you will receive a specific contractual benefit, if you don’t the team has the legal right to withhold that benefit. As an artist if you don’t reach certain sales goals, then you may not get the budget or resources for your second release. If you don’t turn in a project with the correct amount of songs, it may not count as a project in terms of your contract. If you are tied to a label for a five album deal and each album must have at least 12 songs, and you decide to release a mixtape with only six songs, this may not count as an album, even if the label receives a profit from the mixtape release. Labels will use these clauses and loopholes in language to keep you under contract for as long as they can in order to obtain as much financial profit from you as an artist as they can. Below are a few contract clauses to understand and be on the look out for.
Term and Duration
The term of a contract is the amount of time over which the agreement lasts. In music contracts, the term can vary by the type of agreement. For example, an exclusive songwriting deal with a music publisher could be for one year with the option to extend through several more, while a record deal could be phrased in terms of album cycles. It is important to note that the term is binding and if, for example, the clause says that the agreement lasts until December 31st at 11:59 pm, then that timing must be adhered to strictly. Legal disputes arise when parties seek to grant the rights to their works to other entities before the term of the current agreement ends.
Exclusivity
An exclusivity clause prevents you from obtaining an agreement with a similar promise from an outside entity. For example, record, publishing, distribution, and PRO deals are all exclusive because they involve the licensing of exclusive rights. The companies stipulate that, for the duration of the agreement, they are the sole entities allowed to exploit whatever rights granted to them by the musician in the contract.
Territory
The territory of a contract refers to the legal jurisdictions where the provisions of the contract can be applicable. In the case of licensing agreements, the territory can apply to the geographic areas where the licensing will be done. For example, a singer-songwriter could have a digital distribution agreement with a record label covering the whole world, and also have an affiliation with SoundExchange solely covering the United States.
Grant of Rights
In any license agreement (master, mechanical, performance, synch, etc), the grant of rights clause enables the licensee to use a copyrighted work in some capacity. Under copyright law, any of the six exclusive rights in a copyrighted work may be owned and licensed separately. For example, a PRO may have the exclusive right to perform a work while a distributor may have the exclusive right to distribute it. This is separate from a transfer of ownership in a copyright. An assignment or transfer of copyright involves the author offering up ownership (and all of the exclusive rights entailed) to another entity. A licensing deal (i.e. PRO affiliation) is not the same as transferring ownership in perpetuity (i.e. selling a catalogue to a music publisher). This is a critical component to look for in any clause detailing the grant or licensing of copyrights.
Termination Rights
Pursuant to the Copyright Act of 1976, authors of copyrighted works have the right to terminate outside ownership in their works and have their copyrights reverted back to them after 35 years. Termination rights, however, are subject to many conditions and notification must be given well in advance. More information can be found here, on the Copyright Office’s website.
Advance
Both record labels and publishers often give musicians they sign to their rosters a sum of money in advance of the musician creating any exploitable works. These advances are recoupable, meaning that the company earns back the money through the royalties garnered by the licensing of future works. In both types of contracts, advances are often subject to a myriad of different conditions, and as this is a main initial source of income for the musician, it is important to know exactly what those conditions are before signing.
Royalty Rate
In a recording contract, an artist’s royalty rate is negotiable, albeit relatively standardized in the industry. The rate is usually somewhere between 7%-25%. In addition, there are other types of royalties that the licensing of compositions and sound recordings can earn, mechanical and performance being primary examples. Mechanical royalty rates are set by the government, and performance royalties are calculated differently by the PROs and are based complicated methodology.
Controlled Composition
A controlled composition clause affects the mechanical royalties paid on a composition that is written or co-written by the recording artist. The controlled composition clause in a recording contract places a limit on how much the label is required to pay for songs in which the artist is also the songwriter. Only parties that agree to this stipulation are subject to it. For example, if an artist-writer co-writes a song, the other writers would not be bound to the same clause unless the co-writers explicitly agreed to such.
Key Man
This section of a contract gives a party the ability to terminate a contract if a particular person, or “key man,” no longer works for the other party.
Most Favored Nations (MFN)
The MFN clause in a music industry contract specifies that one party must give the other party equal or better terms than the ones they have with any outside party.
Release Commitment
The artist should aim to secure a positive release commitment from the label, coupled with a minimum marketing spend to support the release. Should the label fail to release your record, you should be able to terminate the deal, and/or buy back your recordings, so they can be licensed to another label, or perhaps self-released.
Producer Royalty
The artist is further expected to pay the producer royalty from their own royalty share. For example, a producer is paid a three percent royalty and the artist 15 percent, the artist will end up with an actual rate before deductions of 12 percent. Don’t forget that the artist still has to pay their manager a percentage of earnings, recoup advances and, in the case of a band, possibly split royalty income five ways. The producer, however, will be earning a healthy three percent from the very first record sold. It’s important not to allow the record company to recoup from the artist’s royalty-income advances paid to the producer.
Secondary Income
A well-negotiated deal will ensure that the artist is entitled to a 50:50 share of any secondary income earned by the label. This could be in the form of advances paid by overseas labels licensing your record, income from compilations, or sync fees that are paid when a sound recording is used in a film or TV commercial or on a computer game. Synchronization exposure can sometimes provide a much-needed boost, taking the artist’s career to the next level.
Promotion
In order to raise the profile of a release, the artist will have to undertake some domestic and international promotional work. The record company will deploy an army of radio, press, and new media marketeers to talk up your record. The considerable cost this may incur should not be recoupable from artist royalties. After all, the record label benefits whenever the record sells, and promotion is a reasonable overhead of their business. And, of course, with a likely earnings ratio of 3:1 in the label’s favor, they’re going to break even a lot quicker than any artist can recoup.
Artist Warranties
The artist will have to promise the label that they will perform their duties to the best of their ability, and that they are free to enter the agreement — ie. not currently signed to another record label. More specifically, they’ll have to promise to attend interviews and undertake personal appearances and all other reasonable promotional duties. Costs incurred in connection with the latter (for example, travel and accommodation) should be borne by the label. The artist will also have to warrant that they haven’t breached copyright in another person’s work in making their record. The label should be notified of any uncleared samples and all session musician consents must be obtained before the label will accept the record.
Tour Support
Tour support paid by the label to get the artist on the road is recoupable, so it’s best to agree a limit on spend for obvious reasons.
Leaving Members
In the case of a group signed to a label, usually the company will reserve the right to terminate the contract should a key member of the band decide to leave. The label may also try to obtain a clause allowing them to sign any leaving member as a solo artist and if the group break up before releasing a record, but after spending their advance, they’ll probably be sued for breach of contract and return of the monies they’ve received. Care should be taken not to allow the label to recoup advances paid to leaving members for solo releases against the remaining members’ royalties.
Re-recording Restrictions
Another protection the label will ask for is a re-record restriction. This prevents the artist from re-recording their music on another label for a certain number of years following expiry of the contract. Any restriction you agree should apply for a maximum of five years following the end of the contract, and should only ever cover records actually released.
Controlled Compositions
If the artist is also a songwriter and the label are releasing your music in the USA, you’ll have to deal with the thorny issue of how your mechanical royalties are paid. Essentially, mechanicals are royalties paid to songwriters when their compositions are reproduced on sound carriers for sale: CDs, vinyl, DVDs, and so on. These are quite separate from public performance royalties, which performers and composers are entitled to when their works are broadcast on radio or TV.
Accounting
The artist only receives a royalty cheque once they’ve recouped. However, the label should still be sending royalty statements to the artist twice a year, detailing all relevant territories, tracks and earnings. For major labels, accounting normally happens 90 days following the end of the June and December periods, ie. in September and March.
Termination
The contract should anticipate scenarios that could give the parties the right to terminate the agreement. There should be safeguards where the label goes into liquidation, or fails to release the record, or where either side is in breach of contract. If the record company does go into liquidation, you should be able to terminate the agreement and get the rights in your recordings back. Otherwise your copyrights could become the property of third-party creditors fighting over the remains of the now-defunct label. A similar provision, but much harder to obtain, is to allow the artist the right of termination where the label is sold, merged, or taken over. Don’t forget: the label is still obliged to continuing paying the artist on all recordings sold, even after termination.
There is a lot of information, clauses, terms, language and understanding that goes in and is need when conducting contract negotiations. Understanding that what I have presented you with above is only the tip of the iceberg, it is important to fully understand (or as much as you can) everything that is in the contract you are signing. There is nothing worse than signing a contract only to realize after your first big release (or any release for that matter) that you are not fully getting what you feel you earned or are owed by the label because of the terms, language and clauses in your contract that you didn’t know were there. Take it from Meg Thee Stallion, her initial production deal with 1501 wasn’t great, was in favor of the label (as it normally is when it comes to a new, unproven artist that the label has to develop) and when her first single made her an international star, she was losing a certain amount of money to her label based on the fact she didn’t know everything that was in her contract. (which she admitted during a radio interview) Lil Yachty was the same way, during an appearance on, “Everyday Struggle,” he clearly stated that he didn’t read or know what was in the first contract he signed. In the case of Meg, not only was she contractually obligated to her production company 1501, but then entered into a management deal with Roc Nation, meaning that now not only is she giving part of her money to 1501 (plus what she owed them in back pay for all the development they did with her that they as the production company paid for) but also is giving a percentage to the management team at Roc Nation, all before she is getting any of the money she is earning from her music. Be careful what deals you are getting into as an artist, especially as you begin to become a bigger act. As your rise begins, more and more people will want to attach themselves to you in some way, shape and form to achieve a financial gain from your hard work, whether they are doing anything or not. Obtaining legal counsel is the number one priority before beginning any type of talks when it comes to contracts. Have an attorney present and read over every detail in your contract, explaining it to you so you understand what you are signing, and what is expected of you. There is nothing worse then doing years of hard work to finally reach the point you were aiming for the entire time, to get completely screwed by what you thought were people who had your best interest in mind, when in reality they were only looking at you as a paycheck, because you didn’t read your contract.
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