Music Law – what forms of record contract are there?

Thought this was a great article to include in the blog by Gene Goodsell and Kosta Hountalas
“Music Law” i
is a semi-regular column through the Music Network subscribers service readers receive expert legal – advice from renowned entertainment lawyer Gene Goodsell.

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Q: What forms of record contract are there?

A: “Record contracts are just like – I’m gonna say the word – slavery. I would tell any young artist… don’t sign”.

These pearls of wisdom are from the mouth of one of the most popular and influential artists of our time: the ‘International Lover’ himself, Prince. Citing artistic freedom as the most important right that artists should be fighting for, Prince’s criticism of record labels came during his announcement that he was withdrawing all of his material from every streaming service except for Jay Z’s Tidal. But how much weight should we give to such a bold statement?

In a time where debates rage over the solution to declining record sales, whether major labels or independent labels are the way to go, and how much we should be commercialising what is, in essence, an artistic and traditionally subjective medium of expression, it is worthwhile reviewing some of the types of record contracts out there.

Whilst there is never a ‘one-size-fits-all’ arrangement, the benefits and detriments of each are constantly evolving in line with the evolution of technology, the Internet and social media.

The ‘Exclusive Record Deal’
The oldest and most traditional deal of all. This kind of arrangement is when a record label agrees to front the finances and resources for everything involved in recording and mastering, manufacturing and distribution, and marketing and promotion. The label is also responsible for collecting all payments, and administers royalties to the artist based on how the recordings are used. In return, the artist commits to an exclusivity arrangement by which they only make music for that label, and, in most instances, the label will maintain copyright ownership over the mastered recordings.

These sorts of deals can be game-changers for artists and labels alike, however they come at a cost. The label will be looking at a significant upfront investment and therefore commitment, which will require a reciprocal level of commitment and responsibility on the part of the artist.

In terms of the type of royalties artists can expect from these sorts of arrangements, the high level of risk undertaken by the label in investing and committing to the artist usually means that the label will take a higher percentage of the royalties. The financial upside for the artist, at least in the early stages, is that they won’t have any major outlays. Artists that require a number of musicians, instruments and equipment, or artists that wish to record in a particular studio overseas, or with a particular guest performer or producer may see this sort of deal as an advantage.

From an artistic control perspective, however, these sorts of deals are notorious for the way in which major labels pressure artists into making their music (and sometimes even themselves) more commercially viable. Whilst this may not concern artists who have always made pop or commercial music, this can be a problem for individuals or groups who started off with a certain sound or image only to have it moulded in a way that suits the label.

The ‘Licence Deal’
A record deal that affords the artist more artistic freedom and control is the ‘Licence Deal’. Here, it is the artist’s responsibility to record and master their work, and the costs involved are usually shared between the artist and the label. The masters are then sent to the label, who is tasked with producing, distributing and marketing the artist’s material.

One important difference between the ‘Licence Deal’ and the ‘Exclusive Record Deal’ is that the artist will normally maintain their copyright ownership over their material, but will sign it over on a temporary licence arrangement to the label. The duration of this licence will vary but is typically between three to five years.

Due to the sharing of risk between artist and label, the royalties paid to the artist under this sort of arrangement are slightly higher than those under an ‘Exclusive Record Deal’. One reason for this is that most labels won’t commit to anything until they’ve heard the master recordings; they can accept them, reject them, or ask that they be modified to suit the label’s interests.

These sorts of arrangements may be appealing to artists with low production costs. In an age where Ableton, Fruity Loops and Logic Pro have enabled a generation of technically and musically gifted individuals to produce entire albums on their laptops, the electronically-inclined artist will have less of a need for the traditional funding provided by a label under an ‘exclusive record deal’ arrangement.

The ‘Pressing and Distribution Deal’
One particular label deal that has become more prevalent as technology and the internet have evolved is the ‘Pressing and Distribution’ or the ‘Manufacturing and Distribution’ deal (although in the age of mp3s and online music sales services, there is far less pressing than there used to be).

In these sorts of arrangements, all the label is responsible for is the physical or digital reproduction and distribution of the artist’s work. The artist foots the bill for all recording and studio expenses, and (usually) the costs involved in promoting and marketing.

Under such a deal, the artist maintains complete artistic control and, importantly, holds onto the copyright over their material. As with the ‘Licence Deal’, these sorts of arrangements would suit artists with low production costs. Alternatively, artists who are simply happy to invest their own time and money into making music without having to compromise their style for a label would probably prefer these sorts of deals. In a time where artists are building up fan bases virtually for free by uploading YouTube videos and creating Facebook fan pages, they rely less on record labels for promotion and marketing and will be less inclined to commit to label arrangements offering these benefits.

Both the ‘Licence Deal’ and the ‘P & D Deal’ are often found in agreements with independent record labels, whose cost-conscious structure and willingness (and often entire mantra) to grant artists more freedom and control are conducive to such arrangements.

The ‘Equity’ or ‘360 Deal’
One of the more contemporary (and, depending on who you speak to, controversial) record deals is the ‘Equity’ or ‘360 Deal’. Born out of the era of online copyright infringement a.k.a. piracy and the resulting decline in record label profits, and as a response to the increasingly commercialised nature of music, the ‘360 Deal’ is a form of ‘partnership’ between the artist and the label.

In return for a substantial upfront investment, the artist agrees to hand over a degree of control to the label over virtually every aspect of the artist’s career. This includes all of the costs included in the aforementioned arrangements regarding recording, producing, distributing, marketing and promoting, as well as merchandise, touring, videos and any other commercial opportunities. It goes without saying that the higher the upfront investment, the greater the label’s vested interest, and therefore the greater control the label has over the artist.

Once again, as with an ‘Exclusive Record Deal’, artistic freedom can be an issue associated with these deals, only this time it is also the freedom to tour, create merchandise and make videos without interference from the label. One interesting and incidental result of ‘360 Deals’ is that they can cut out a lot of the independent middle men; such as booking agents, tour managers, video directors or stylists as selected by the artist. The label will, depending on their investment, have more and more influence on choosing these positions.

In conclusion, there are a lot of other different types of record deals in the market that have not been mentioned here. Some are hybrids of two or more of the above, whilst some may be more specific in their terms and conditions.

Both the artist and the label need to choose carefully and seek the appropriate advice. Do your research. Stay up to date with industry developments. Be bold and explore alternatives.

And, in the immortal words of Shakespeare, “this above all, to thine own self be true.”

Kosta Hountalas works for Goodsell Lawyers, which is the only Australian music and entertainment law firm with an alliance with a leading Hollywood entertainment attorney. Goodsell Lawyers has worked with prominent US booking agents, such as Paradigm in Beverly Hills. It has also worked with artists such as Chingy and T-Pain. Goodsell Lawyers is one of the only music and entertainment law firms in Australia that can offer fixed fees

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As the article said  – be aware and read the fine print – and there are many different deals/contacts out there and many derivatives to the above as well.

For example, in our Sync Stable publishing operation (which is exclusively for taking music into the synch market  – tv, film, ads, etc) we have a non exclusive re-titling contract – which effectively means we only get paid on deals we generate and the artist is entitled to do with their song what they like otherwise (as long as they don’t sign an exclusive with someone else  – but they can sign another non-exclusive or get deals themselves etc  – and we don’t get anything on those).

So best advice – ALWAYS consult someone who knows before signing a contract and for the bigger/binding contracts ALWAYS get your own arts lawyer to look it over and inform you of the ramifications.  Having said that – – if you know the worse case – and are happy with that – and it offers benefits that outweigh any possible negatives – then it is probably right for you (but may not be for someone else).

Anyway hope you found it of interest.

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