A Guide to Music Contracts
- by Michael Easton
- in Contract Guides
- posted 7 March, 2017
The Music Industry is a strange world, with its own unique set of rules, practices and customs. It is fluid and fast moving, populated by some unusual characters, and it seems to anticipate technical and commercial developments that hit other areas of the entertainment industry years or decades later (Napster anyone? Bowie Bonds?).
Dominated in the past by major record labels, commercial radio stations and other corporate gatekeepers, artists now have to deal with (and can take advantage of) cheap technology and a massive proliferation of distribution and promotion channels.
It is easier to navigate this world if you focus on the three elements that generate most of the revenue that drives and sustains it: songs, sound recordings and live performances. As a musician, you can write songs, make records, and perform – this is what you have to sell. With this in mind, let’s consider the three main types of contracts you are likely to encounter in the music industry.
Management Agreements: Ideally, you will start by engaging a good manager – perhaps a veteran with contacts throughout the business and years of experience, or a friend with smarts, passion and energy. Before even thinking about entering into a management agreement, you need to feel comfortable working with this person, and confident that you share a vision for your career.
You may be offered a management agreement by the same company that looks after your recording and song-writing (publishing) – a so-called 360 deal. There can be some advantages in one company handling everything, but also some serious disadvantages in losing the independent viewpoint and checks and balances, that a manager provides.
Management agreements hew to a fairly standard format, but there are a few things to be careful of.
There should be no suggestion that the manager has a right to approve or direct what you do. Remember that the manager is providing their services to you, not the other way around.
While commissions of 20% are standard, we may argue with the manager about how this should be calculated. The contracts often say that the commission will be calculated on ‘Gross Receipts’, but generally certain costs are allowed to be deducted ‘off the top’ before the manager takes their 20%, principally costs incurred in connection with live performances. Where costs are deducted in this way, you are sharing them with the manager – where they are not, you are bearing them by yourself. If you are being managed by your record company or publisher, they should not commission any royalties they pay you.
Post-termination commissions can be contentious. These are peculiar to music management contracts, and are based on the idea that it can take many years for all the work the manager puts into building your career to pay off. Typically for a few years after their term ends, they take a declining cut of revenue from records released and songs written while they were managing you. We can argue with the manager about how much, for how long, and (with the decline of record income) whether other income should be included.
Co-managers may be appointed where you are planning to try and make it in another country. You need the right to approve the co-manager, and it is important that there is a cap on any additional commission that may be charged.
Where you are contracting with a company to provide the services of a manager, you may consider asking for a ‘key person’ clause to make sure that you are entitled to the person services of your chosen manager.
Recording Agreements: Back in the day, musicians dreamed of signing the major label record deal, with big fat advances, and a sure path to stardom. Nowadays, with the recorded music business shrunk and splintered, such deals are rare. Budgets are skinnier, and record labels seek to spread their claims into publishing, performing and other activities. And on the other hand, with recording and distribution facilities made available to almost anyone through the internet and cheap technology, there are now many more paths to glory than the executive lift at a major label.
The essence of any recording agreement is that you are agreeing to provide your exclusive services as a recording artist to the label – you will not let anyone else record you performing. The label will advance funding for the recordings, and will seek to own the copyright – forever. The label is entitled to exploit the recordings as it wishes, but you may have approvals over certain uses (eg film synchronisations, advertisements).
The label will promote the recordings (though they are reluctant to commit to anything in this regard), and pay you either a royalty (based on the PPD or wholesale price of each unit sold) or a share of their profits, after you have paid back your advance through forgone earnings.
The term of a recording agreement is not usually expressed in years, but in ‘album cycles’ which typically last for around two years. You and the label will commit to a certain number of cycles, and the label may have options for additional cycles. Each cycle starts at the beginning of the agreement or when an option is exercised, and ends either when the label exercises and option, or no longer has the right to do so.
It is now rare for a label to be satisfied only with the recording rights. You may be asked to sign a publishing agreement as well, and/or they may seek a share of your income from publishing and performing (arguing that your earnings for these are enhanced by their efforts in promoting your recordings).
Master Licence Agreements are an alternative to Recording Agreements. Here you retain copyright, and simply allow a label to release it for a defined term in a certain territory. Advances will be smaller, but you retain control, and this can be useful where you have different plans for different territories. You may also decide to distribute recordings directly to customers yourself, through platforms such as Bandcamp.
Publishing Agreements: The quiet achiever of the music industry, publishing can be lucrative in the longer term. Unlike recording, you don’t have big costs to recoup. Unlike performing, you don’t have to pay for light shows and publishing rights can work for you while you sleep. You even make money if other people record or perform your songs.
The essence of a publishing agreement is that for a certain term (which can be set in years, or be expressed in album cycles like a recording agreement), you assign copyright in any songs you write to the publisher who exploit and administer them on your behalf, subject to similar approval rights you may have under a recording agreement. Once the term ends, you don’t have to assign new songs to the publisher, but the publisher retains the rights in the songs it does have for a further, usually longer, period. Alternatively, you may enter into a deal where only specific songs are assigned to the publisher.
The publisher collects all the revenue earned, takes out its commission, then pays through the balance to you (subject to recouping your advance).
Why would you sign a publishing agreement? There are three reasons:
Firstly, publishers are the banks of the music industry. They will advance you a lump of money that may be useful to you now to build a studio or fund an overseas tour, against your earnings in the future. In this case you need to assess the cost of the share of royalties you are giving them, against the benefit of the advance – and compare it to other sources of finance that may be available, such as a bank loan.
Secondly, publishers can assume the burden of managing your catalogue – dealing with film synchs, chasing licensees for payment, accounting for your global earnings from record labels and collecting societies.
Thirdly, publishers may assist you with your career as a songwriter. They may run co-writing workshops, pitch your songs to advertisers and production companies, provide a studio for you to make demos, or help you look for a record deal.
Considering these three reasons, it should be apparent that timing is very important. Does the publishing deal you have been offered meet your needs, at whatever point you have reached in your career? Given the potential long term value of publishing rights this is not a decision you should make in haste.
PLEASE NOTE THAT THIS IS GENERAL INFORMATION, NOT LEGAL ADVICE. PLEASE CONTACT ME TO DISCUSS YOUR PARTICULAR SITUATION