Record labels & contracts - Ch 10, 11, 14

Royalty, Discounts

- record companies try to reduce what they pay artists through a variety of techniques - packaging discount - deduct a fee to cover cost of packaging materials. not as common anymore, as high as 25% of retail on CDs - free goods - don't pay royalties for free goods fo physical media or incentives/ quantity discounts - breakage allowance - artist royalty rates may be reduced 15-20% for CD on the assumption physical product might get damaged in this handling. eg. 10% --> 8-8.5%

What's the difference between a recording "budget" & a recording "fund"?

- recording "budget" - artist doesn't get to keep amounts allocated but not spent - commonly structured as a recording "fund" - artist can keep leftover with understanding that it is recoupable

Cross-Collateralization

- recoupment of artist's advance may not be necessary for label to realize satisfactory financial return - at certain level label can keep distribution pipeline filled, helping to pay for operating expenses - record company benefits long before artist's royalty account is recouped - vast majority of recorded music never recoups - record companies almost always include a clause making costs accrued on every project recoupable out of royalties on all contracted projects - eg. Bruce Springsteen - 1st 2 albums unrecouped but 3rd album fully recouped

AFM Health & Welfare Fund/ Pension Fund

- requires employer to pay into AFM H&W fund to locals that have established them or directly to musicians, absent such a plan - and up to 11.99% of gross (scale) wages into the AFM-EP (Employers Pension Fund)

overdubbing

- reuse of recorded performance of voice - either done by mixing live performance with recording or through electronic means - used to change timbre, resonance, or intensity - contractor must monitor - sometimes extensive overdubbing costs more than hiring additional singers

What important developments in music began at the independent level?

- rock & roll in 50s and 60s - punk & modern rock in 70s and 80s - grunge rock, rap, & hip hop in 80s and 90s - DJ- curated electronic dance music in 2000s

SAG-AFTRA code - nonunion recording

- unions remain key players by protecting artists rights - more opportunity for artists who don't want to sign with existing record labels - if people are DIY they rarely meet regulations or scales for themselves - if they sell their masters, they must meet previous obligations

Sound Recording Special Payments Fund Agreement

- when a recording company becomes signatory to AFM sound recording agreement, must simultaneously execute the SRSPF agreement - record companies make direct payments into SRSPF twice each year so money isn't deducted from employee paychecks - average about $0.03 per CD sold, $0.004 per song downloaded, % for streaming - after funds' administrative expenses deducted, remainder paid to musicians who performed on any of recordings covered in past 5 years - scale pay regardless of sales - requires that anybody who owns/ controls record assumes their obligations to AFM

How many records earn their money back? What are the implications for the music industry?

- 1 of 5 records earns its money back - means the music business requires a large investment in production, distribution, & marketing - prod competitors to exploit economies of scale through mergers & acquisitions

How did minimum royalties first become implemented?

- 1974 AFTRA negotiated contract incorporating minimum royalty concept - singers who previously did not receive royalties started receiving additional wages based on recordings sold - contingent scale payments

Special Products (Catalog)

- 2 core responsibilities a. handling incoming requests to license masters of older product b. finding new ways to redesign or repackage music that company has previously released (profitable bc low expense)

The Recording Academy

- National Academy of Recording Arts & Sciences originally, changed in 1957 - Grammy awards - historical preservation, education, recognition of artistic excellence, and advocacy for music industry - 3 levels of membership - voting, associate, and student - voting members are professionally active in creative/ technical side of industry - students may qualified if enrolled full time in educational institution whose students emphasize some aspect of music - sponsors several charitable endeavors - Grammy in the Schools, MusiCares, etc.

What are the three majors?

- Universal (merged with Polygram, acquired EMI's recorded music assets) - Sony (combined with BMG) - Warner Music Group

What were the six majors?

- Warner Music Group - EMI - Sony Music - BMG Music - MCA (Later Universal Music) - PolyGram

Why was the rise of audio streaming so impactful on the music industry?

- addresses user desires in a way that has never occurred before - convenience has always been key driver for the mass market - streaming is natural successor to radio in an interactive digital age - based on economic heft & brand strength streaming companies are arguable more important to business than any other category of players

Production Budget Minimums

- advance goes to expenses of making recording - less prominent artists will have a harder time negotiating big-budget commitments - if negotiating with label of limited resources, demand minimum budget commitment to ensure quality - 1/3-1/2 of recording budget released to artist at commencement of recording - balance released following completion & satisfactory delivery of final master

reversion clause

- aka recapture - superstars at contract renewals have negotiating clout to gain control of their back catalog - free to bring back catalog to another label, so incumbent label loses rights to that music - may have clout to force label into a "label services agreement" allowing artists to retain ultimate control of masters

Exclusivity

- almost all recording contracts require exclusivity - if artist also records from time to time in capacity other than solo artist/ featured group (eg. sidemusician) lawyer will push for contract to permit it

independent label

- any label lacking an affiliation with a major - account for majority of records released each year - independents try & fill niches and work with unique artists - eg. alligator, Rounder, & Sub Pop Records

major label

- any label that is owned and/ or distributed by one of the handful of major distribution companies - dominate & employ thousands around the world - account for 3/4 of global music sales by revenue - well funded & sign top artists

Advertising

- arranges paid placements such as TV commercials, magazine ads, & ads on digital media platforms - can work closely with sales & distribution since consumer advertising cost sometimes shared between label & retailer (co-op advertising) - also book trade publication ads that promote elements of labels brand to distributers and retailers

How do variations in recording contract relate to the relationship of the artist & the production company

- artist owns production company - "loan-out" & most of traditional negotiating issues would apply - producer owns production company - variations can e more convoluted as three parties (artist, production company, label) have different incentives & concerns' - production entity has several artists under contract & has all its distributions handled by major label = might not have public-facing brand

Foreign Releases

- artist's lawyer should try to persuade recording company to specify foreign territories in which recording must be released - should try to get label to effect these releases simultaneously or shortly after American release to maximize effectiveness of global promotion - minimizes damage of piracy & imports into territories - major labels have their own foreign operations, but smaller labels work through licensees - important for artist to negotiate carefully how royalties are earned on sales in foreign territories - many labels pay 75% of the US rate, and only 50-65% for lesser world territories - rates at lower end for territories handled by nonaffiliated licensees & artist is entitled to accounting review only after licensee accounts to US label - once a record has been purchased by retailer overseas, can't be returned - US label might still take reserve on foreign sales, bc it would not differentiate sales in terms of general reserve policies

vocal contractors

- artists who perform additional services beyond singing (coaching, arranging logistics, filing work reports with union) - when recording involves 3 or more SAG-AFTRA singers vocal contractor must be present - supervise adherence of producer to terms of code - receives fee per hour or per song, whichever is higher

What are some disadvantages to international operations?

- book revenues in local monies, so are exposed to risk from currency fluctuations - higher operating expenses than the US because each country requires special handling

What are the benefits of independent labels?

- can develop brand name awareness and consumer loyalty that is rare among majors - artists clustered in specific genres - local & regional level - can make connections with radio stations, publicity outlets, & retailers

Accounting & finance

- can require large & sophisticated finance operations - accounting, banking, treasury, corporate finance, financial forecasting - accounting is a foundation - collects money due labels, pays expenses such as taxes, employee payroll, & royalties - artist royalties frequently handled in separate department dedicated to that function - at small labels all these tasks might be performed in a single, integrated department

What are the disadvantages of a major label?

- conservative companies that tend to be slow to catch up with changes in musical tastes - developments in technology lessen scale advantage - concentrate efforts on most popular music with best sales potential

What occurred in the 1970's that began a reshaping of the music industry?

- consolidation into three major recording companies - Warner music purchasing Asylum Records - Sony Corporation buying CBS's Columbia Records - Universal Music acquiring Motown Records

AFM wages

- headlining acts negotiate their own contracts with record labels, but union contracts set a floor for those agreements & nonwage benefits - headlining artists contracted to receive record royalty of at least 3% of suggested retail list price or a substantially equivalent royalty - provides that royalty artists receive 1 session payment for each song recorded on an album - session payment may be part of recording costs that are recouped from artist royalties of headliners

Radio promotion

- heart of record marketing in many genres & encompasses streaming - lobbies for radio airplay & chart placement - some large labels subdivide by genre - works with stations to arrange promotional appearances, interviews, giveaways, contests - similar tasks with streamers

SAG-AFTRA code requirements for masters

- if a record company that has signed a union labor contract acquires a master from a nonsignatory producer, that nonunion producer must retroactively pay up to meet the SAG_AFTRA code in effect at the time the recording was made - ensure no producer is economically motivated to create a master for a nonsignatory as a way of avoiding minimum union payments - when third party acquires master from signatory, must comply with obligations under the code

How have types of record deals changed?

- in earlier times, record company signed artist, instructed A&R to produce it, end of story - today self-distribution is a viable option - decline in clout of record companies & economic ascendance of other key industry participants (eg. independent producer) has increased number of choices for record contracts

double

- musicians doubling on a second instrument - done because multiple of side musicians pay is 150-200% - specified in contract - typically paid 20-50% extra for first double, and hten 15-20% for each additional double

What must a label do to acquire the goods & services necessary to produce & distribute recorded music?

- negotiate acquisition - some recordings are self-contained groups - side musicians, background vocalists, etc. are often controlled exclusively by terms of applicable union agreements

Advances

- no standard policy, vary based on track record & whether there's a bidding war for talent - labels recoup this money by deducting it off the top of future payments that would otherwise be due the artist - prepayment fo royalties, so heavily dependent on estimate of future sales - if sales are not sufficient to recoup the advance, artist is not obligated to return that portion

CEO/ president

- often strong entrepreneur who started label and who had the vision it reflects - 2 main backgrounds - lawyers - record business relies on contracts & copyrights - producers - adept at selecting music, relating to artists, & handling business functions - know art of deal to negotiate, have organization skills, and good ears

tracking

- overdubbing process causing 1 -4 voices to sound as if many more singers are performing - results in net loss of employment for singers & more work for those on 1 particular project - assesses extra charges for these services - contractor must log events & charge producer form them

Default, Cure

- parties have fundamental disagreement, remedies are available to each side - can either suspend term of agreement or terminate agreement and sue for damages - few courts will tell artist to perform services against artist's will - if label enjoins artist from recording for competitor during dispute - artist has three options - not record at all, attempt to renegotiate the contract, continue recording for company - sometimes label agrees to renegotiate rather than pursuing legal remedies

Film Musicians Secondary Markets Fund

- pays residuals for music used in movies and TV programs - payments to FMSMF reflect relative success of each project - payments based on slice of distributors gross - musicians are also paid for the hours they actually work through upfront session fees

Digital Millenium Copyright Act (DMCA) of 1998

- performers receive share in fees paid by users of sound recording copyright - grown to be more significant in recent years - version in 2015 - incorporated payments for non US streaming on platforms such as Spotify

What is the standard recording artist agreement for royalties & licenses?

- provides for payment to artist at different rates depending on whether record is sold, licensed, given away, or used as promotion - direct sales - provide royalty payment to artist that varies on contract language governing each type of distribution - licenses of sound recordings generate a synch fee - percentage royalty or flat payment which is usually shared with artist on a 50-50 basis after deduction of out-of-pocket or third - licenses for a ringtone - treated as license & pay artist percentage, or treat as royalty and pay reduced royalty

Negotiation process (direct deal)

- record companies are more-conservative becuase of cost of "breaking' new pop artists - begin when label executive sits down to discuss terms of contract with artist's manager/ lawyer - producer/ production company might be a key plaeyr - major terms of deal are determined & lawyers meet to hammer out fine print - typically develops after artist with good management created buzz among industry insiders, concert performnaces, & music fans online - most desirable situation - several companies bid competitively to sign - artist lacks management & legal counsel - labels will insist attorney represent artist - compromise is the key - although member with more clout will have more negotiating power - labels will seek to limit financial risk - artists will seek relatively large signing advance/ recording budget - also gives firm financial incentive to push project

Health benefits & retirement funding according to SAG-AFTRA

- record companies are required to pay on behalf of artists about 12.75% towards this fringe benefit for performers - payment is limited to first $140,000 of gross compensation paid to artist & $180,000 paid to an artist group of three or more by the record company in any calendar year - required with respect to contingent scale payments described above - employers make it directly, not deducted from paychecks - requires to be made on royalties even if they are unrecouped - required to make contribution on behalf of every royalty artist to entitle artist to minimum of individual health insurance if artist enrolls in benefits plan

The SAG-AFTRA National Code of Fair Practice for Sound Recordings

covers all singers on a recording - featured artists, backup vocalists, soloists, full choirs and sound-effects vocalists - excludes voiceover work tangential to regular acting jobs covered by other of the union's contracts - address wage scales, overdubbing, working conditions, reuse payments, and labels contributions to AFTRA's health plan & retirement fund - at the end of session, must file report, which cites record producer's name, hours of recording, names of singers involved, and wages due to them

contingent scale payments

multiples above original recording fee - eg. when recording receives 157,500 in sales units, non-royalty singers receive another payment equal to 50% of minimum union scale for sessions - 15 such contingent scale plateaus, up to as high as 3 million in unit sales - generates payments for 10 years following its initial release, payments limited to sales in US that occur through normal retail channels

Video promotion

promotes video airplay on TV & video streaming

SAG-AFTRA code requirement for when songs are reused

requires record company to get warranty from the new user guaranteeing the singers will receive no less than appropriate scale payment for the new use

Royalties vs. licensing

royalties range from 10-20% licensing deals for same master usually provide more even split between labels and artists - historically applied to transactions without mass duplication costs to labels

SAG-AFTRA Labor Union

the major labels & many independents are part of the hundreds of signatory companies with labor contracts for the services of singers with this union

Copyright Revision Act of 1976

- contained benefit for artists, automatic right of reversion to gain control of sound-recordings & publishing rights for music released in 1978 and on - reversion right arises after 35 years, under certain circumstances, even if not specified in original contracts - first wave of works became eligible in 2013, creating a trickle of transactions resulting in recording artists pulling US rights to their music from their labels - to qualify artists need to have fit the definition of independent contractors whose contracts assigned rights for their music to their labels - label defenses - artists original efforts were nonqualifying work-for-hire, artists' rights are voided because of shared works as artist terminations are legally defective in some manner, or because claims lack jurisdiction in the US - 2016 - court ruled against Duran Duran

Product management

- coordinate & oversee all aspects of a current release - packaging, advertising, tours, publicity, promotion, & sales activities - found in most medium & large record companies

Creative Services

- designing & producing any materials necessary to execute marketing campaign - posters, point-of-purchase materials, ads, graphics for digital, album artwork, window displays

Commitment to Promote

- disagreement over promotion is one of chief causes of artist-label tension - ideally seek label commitment for tour support, a press blitz, independent radio & media promotion, retail in-store promotion, sponsors to help funding marketing, & paid advertising - artists should be careful as often half the money spent on promotion is recouped from artist's royalties

How have changes in recording industry made royalty payments more difficult?

- dramatic changes in distribution technology & preferences for consumption - numerous anomalies - lower percentage royalty for CDs than for the cassette format - for many years royalties were calculated close to suggested retail list price, now uses the wholesale price as benchmark - comparing royalty rate in 2 different contracts (esp from different eras) is very difficult

digital downloads - roylaty artist

- either treated as record sale or a license - depends on whether download is from label's own site or twhether it is licensed to third-party site - license rate historically higher than sale rate - labels discount license rate in those circumstances - promotional downloads are generally free of royalty

Business & legal affairs

- employ staff lawyers to negotiate & draft agreements - eg. artist recording agreements, licenses issued by and to the record company for the use of copyrighted works - aims to minimize litigation, when lawsuits occur labels often farm out litigation to law firms expert in defending/ pressing lawsuits - functions may all reside under a broad administration department with centralized functions like accounting, purchasing, & finance

When do "labels" not have a distinct brand?

- entity that is a production company typically run by entrepreneur - identify, sign, develops talent & lets major label infrastructure handle the rest - legally distinct companies that have taken over much of A&R of record companies

Music Performance Trust Fund

- established in 1948 as a nonprofit public service organization to help keep live music available to the public - AFM negotiated agreements with record companies that return to union musicians via MPTF at least a fraction of income lost through displacement of live performances by recordings - signatory recording companies must enter into a Music Performance Trust Fund Agreement with the AFM - payments made to fund's trustee & based on record sales - requires trustee to use money collected (minus operational expenses) to schedule live music performances by AFM members - administration is shared by each of AFM locals that parcel jobs to their members - cosponsors of concerts generally required - schools, hospitals, etc. - established cultural organizations (symphony orchestra, ballet, etc.) often call on them

A&R Executives

- evaluate & manage creative aspects of music - assists artist in developing particular project/ careers, evaluating suitability of new songs, acting as liaison between artist & label - used to be discovering & signing talent by going to shows, & listening to demo (less common now bc of digital)

What tasks do record companies undergo?

- executive office - artist & repertoire - distribution & sales - marketing - special products (catalog) - international department - business and legal affairs - accounting & finance - merchandise - publishing affiliates

cartage

- fees for moving heavy instruments - stipulated in AFM contract - contract has many other provisions on rest, meal breaks, surcharges for work at night/ holidays, special rates for electronic musicians

What are the benefits of a major label?

- financial juggernauts with collection of labels serving different genres & geographies - large cash advances & prestige - security of sufficient funds for marketing - stability of an established companies - can afford to fund more elaborate records with the best producers - well-organized distribution - advantages in scale are profound - longevity - likely to continue distribution of recordings long after first release - typically attracts most high selling artists leaving indie labels going through leftovers

Marketing specializations

- focusing on consumers - divided into many areas of specialization due to being multifaceted - product management - radio promotion - video promotion - publicity - advertising - creative services

Publishing affiliates

- generally own or are affiliated with music publishing companies - tend to have more stable revenue streams - publishing company is expected to show profit from its own operations - may sign artists who are not on record company's roster - very small labels - the publishing company may exist solely to handle publishing of that label

International Department

- global nature so large companies have international departments to oversee foreign sales - typically significant foreign territories will maintain their own A&R operations to sing local talent - total take is impressive

AFM Sound Recording Agreement

- governs wages, benefits, & working conditions for services of musicians working in recording industry in US & Canada - covers movies, TV, online content, radio music, music videos, commercials, records, concerts, & industrial films

Merchandise

- handling artist-related merchandise which is distributed at concert venues & to a lesser extent through retail channels - manufacturing typically outsourced

Term

- in the past, standard length was 1 year with specified number of 1 year options (typically 3-5) to extend - more common to have contract duration tied to delivery of one or more albums & period of evaluation - artist prefers firm three-album contract - even if first album doesn't sell well, parties are bound to each other for 2nd & 3rd release - should label decline to release all album, artist's attorney will try to stipulate the contract provides a sizable penalty - company prefers options - can drop or keep artist - deals can bind artists for up to 7 albums if they choose those options - fairly drawn contracts provide guarantees of artists delivery by certain date & company's release of recordings - now focus is less on the album but on digital-media focus of streamed singles

Publicity

- in-house publicists manage media exposure - labels concentrating more bc it is less expensive than promotion

Distribution/ Sales

- involved with convincing retailers to order & showcase its physical product in stores & get prominent virtual shelf space online - CDs & vinyl records - shipping sufficient quantities is a science (don't want excessive returns from retailers later & at the same time doesn't want shelves to be empty while consumer interest is strong) - physical product distribution is labor intensive & requires warehouse storage, licensing to streamers does not - bigger companies with large catalog of older still selling music have separate people dedicated to handling that

spec session

- kind of nonunion recordings - producers will hire some musicians at below-union rates with the promise to make payment later - "when the recording sells" in an amount equal to AFM scale - other producers pay musicians nothing up front, promising to pay full union scale later when they can raise the money - disapproved of by the AFM - union contract does provide for lower demo scale than its regular recording rates, especially through some AFM locals

Publishing Rights

- label will usually try to persuade them to place composition with publishing company owned/ affiliated with the label - artist-writer may receive additional advances - if publishing wing can't obtain full rights, will probably offer to share publishing revenue in what is known as a copublishing arrangement - controlled composition language

controlled composition language

- label/ production companies seek to pay a reduced mechanical rate, commonly 75% of current statutory rate, for all works owned or controlled by the recording artist - usually specifies the label won't pay more than 10 times (or less) single-composition statutory rate for all cuts combined on an album no matter how many are actually included - could lead to disastrous financial results when artist records both controlled & noncontrolled composition - the cap of 10 x 75% of minimum statutory rate can cause artist's mechanical royalties to e reduced below 75% if label must pay full statutory rate for noncontrolled song - statutory rate is minimum rate in effect at time album was delivered

360 deals

- labels push to handle touring, merchandising, management, publishing rights, & sponsorships to tap other revenue streams (synch fees, acting gigs, etc.) - result in labels coordinating & earning money from wider circle of music career business of their artists - sale of physical recordings no longer provides as much cash - companies argue that these deals are good for artists because they incentivize spending significant development and marketing resources on the artist's behalf so that everyone comes out ahead in the end - deals differ greatly - music companies slice of revenue runs in 10-35% range, different percentages can be attached to different revenue silo

How are independent labels & major labels related?

- many independents become so successful they are ultimately bought out & absorbed by major labels - majors can operate separate distribution organizations geared to handle music that sells in relatively small volumes from third-part indie labels (profit centers, leverage existing capabilities and infrastructure)

Video Rights

- many labels demand exclusive services of contract artists for performances on videos & DVDs, offering to share potential income from distributors - charge to artist's recording royalty account all or part of video production costs - contract includes agreement on following issues 1. videos, are categorized as either promotional or revenue-generating commercial videos 2. label usually makes the decision on whether to create videos, so generally pays for production costs of video & controls distribution. video costs are recouped from royalties on video revenues. most recording contracts provide for recoupment of balance from artist's general audio royalty account, typically at rate of 50% 3. if artist owns/ controls any of compositions used, will be expected to waive licensing fees & royalties on that material, provided video is for promotional purposes if only. otherwise artist can argue for synch fees & mechanical royalties 4. artist should seek reasonable co-control over selection of directors, personell, budget, & storyline 5. if label refuses to produce video, artist may try to reserve right to produce video at artist's own expense. artist needs contractual commitment the labels will provide easy access to creative elements

How are royalty artists paid?

- may be given a recording fund or other advance to cover production costs - will earn royalties based on unit sales after production costs have been recouped - AFM & SAG- AFTRA requires to pay royalty artist up to three times minimum scale

overtracking

- multiple tracking - when singers record additional tracks, paid for the session as if each over tracking were an additional song - often 50% on top of original fee

Why does recorded music dominate the art and business of music?

- music can't be distributed until it's recorded - lives & fortunes of composers, performers, publishers, agents, & merchants rise & fall with sale & licensing of recorded music - if recordings can be successfully monetized, all other sectors of the business prosper

AFM Sound Recording Agreement policing master transactions

- music prepared for recording must be handled exclusively by arrangers, orchestrators, & copyists who are AFM members - labels under union contract are prohibited from using acquired masters unless music was recorded under AFM contract & scale wages were paid, or musicians have been paid equivalent wages & record company makes required contribution to the AFM pension fund - company may satisfy obligation by securing a representation of warranty from the seller or licensor of the acquired master that the requirements of the AFM have been met

Right to Audit

- royalty statements issued semiannually - parties usually agree that artist may audit the books of the label (after proper written notice) - most states, right to audit inferred by court even if it isn't in the contract - labels write in very restricted audit clause to avoid a much broader one being imposed later by court - one common restriction is to specify expiration of audit rights of recording artists, such as for period of 3 years - most experience auditors work by the hour, so they are expensive - artist's lawyer seeks provision that requires recording company to pay entire cost of examination of amount found to be owed exceeds 10% of amount actually paid - discovery of royalties owed is regular occurrence

Sound Recording Labor Agreement

- services of instrumentalists, conductors, arrangers, orchestrators, & copyists - approximately every 3 years AFMM negotiates a successor agreement with recording industry representatives - current contract is AFM Sound Recording Agreement

soloists "stepping out"

- session performers getting boosts in their hourly recording minimum pay for their step out as well as their downstream contingent scale compensation

Do singers receive payments (royalties) for digital media?

- since 2008 singers receive extra payments in digital media - over time stretched to downloads and streaming - digital uses earn singers small percentage of revenue directly generated by works - music videos also paid as percentage of applicable receipts from sales - 1 rate for first 10 years from release & different percentage for an additional 5 years

specialty labels

- some of most successful labels - eg. Nonesuch, Deutsche, Odyssey (classical music) - some release records privately to locate buyers of their sometimes-esoteric products - some specialty labels limit to specific demographic markets - one of most successful types sells gospel music - successful because they don't compete directly with mainstream music or rely on traditional & expensive forms of production

Assignment

- specify terms under which label might assign contract to another entity - contract is assigned - new label inherits all recordings & artists services signed to previous label - smaller record companies often change ownership, leadership, or direction --> can result in label assigning contract rights to successor company - artist's attorney tires to limit label's right to assignment to the sale of company's total business or assets - right for labels to transfer rights to existing masters i permitted, while right to require artist to record for another company can be restricted to another affiliated entity

Most Favored Nations

- tailored to conflicting concerns - contractual promise that if another similar party gets better deal terms later, then the same benefit is automatically extended to any contracts with applicable MFN clauses - seek MFNs in case industry norms improve in the future - labels don't want to offer but try to squeeze out their own benefits with MFN deal terms - will claim in negotiations that they can't extend some sweeteners because MFN clauses in other contracts will trigger ruinous revisions across business

The issues

- term - territory - exclusivity - royalties, advances - production budget minimums - creative control - commitment to promote - cross-collateralization - ownership of masters - publishing rights, controlled compositions - most favored nations - video rights - foreign releases - assignment - right to audit - default, cure - royalty discounts

Creative Control

- track record & bargaining power of artist determines amount of control artist has over issues like song selection, choice of producer, & style of album graphic art - labels usually want new artists to collaborate with producers with good track records - usually end up with mutual agreement "in the event of a dispute final decision goes to ___" - "technically and commercially satisfactory" - sometimes will negotiate for removal of commercially

Recording Industry Association of America (RIAA)

- trade group representing the labels that account for lion's share of sales - certify best-selling records - Gold Awards when selling 500,000 units - Platinum award for 1 million - Multi-platinum for 2 million - Diamond award for 10 million - lobbies governments for label-friendly regulations, represents industry consumers, collects industry statistics, advocates for freedom of expression, & battles online piracy and counterfeiting - most prominent force in labels drive to curb unauthorized use of IP such as music

AFM - Nonunion recording

- tried for decades to maintain union shops (requiring all employees to be in a union) with uneven results - Taft Hartley & right-to-work laws makes maintenance difficult - attempts to unionize professional symphony orchestra recording & most popular music recording - union control less strong in gospel, christian, jazz, & country fields - AFM locals sometimes implement PR campaigns & membership drives to attract young players with reduced fees & dues - typically musicians discover that working under the protection of AFM offers financial advantages

Royalties

- typically 13-17% of wholesale price, essentially amount paid to label by other parties for exploitation of master - superstars known to get as high as 18-20% - applied to both streams and physical media, with some exceptions - royalty rates for singles traditionally have been 75% of album rate for physical CDs and vinyl - streaming & downloading don't have same costs, so shouldn't have to accept discount - for unknown artist, sometimes labels will start low and escalate rate - all-in royalty deal - cost of paying producer's royalty will be deducted from artist's royalty

Ownership of Masters

- typically label controls crucial distribution rights for masters - artists attorneys often try to negotiate automatic transfer of sound-recording ownership to their clients once the contract expires - record companies resist since old recordings can have considerable residual value - standard practice is for labels to insist on distribution control of all recordings for the full length of their copyright

What are important variables to consider in 360 deals?

- under what circumstances percentage that goes to music company is calculated from artist's gross or net receipts - often its net (favorable to artist) but can have adjustments - key battleground is defining excludable expenses, such as professional fees - most intense for whether recording artist will place publishing rights in 360 deals - can be designed as traditional recording contract or concert promotion alliance but give company partner option to convert to 360 arrangement based on certain criteria (gross sales)

Types of record deals

1. direct deal - label signs artist, has one of its producers handle project in-house. artist gets royalties, staff producer receives salary & maybe royalty override (modest royalty), label pays all costs pursuant to a budget, may or may not pay advances . increasingly rare as there is no intermediary between artist & label 2. label already has artist under contract. retains independent producer to deliver a master. assigns production budget to producer, may pay production fee upfront (typically advance on royalties). producer gets royalty of 2-5% based on wholesale price of records & on prior success/ negotiating strength. 3. label signs master lease deal with production company to which artist is signed. production company pays all recording costs, receives royalties from label. label may/ may not pay advance to production in form of reimbursement of recording cost. attractiveness is that budget overruns on recording costs aren't labels' responsibility. artist/ producer tires to limit label distribution rights by time & geographic territory

Types of 360 deals

1. music company receives percentage of artist's income streams, with artist remaining in charge of selecting vendors, such as promoters and agents, to handle concert tours 2. true partnership with the artist - goes beyond basic revenue sharing. music outfit directly handles many non recording activities & both parties have to agree on major decisions.

SAG-AFTRA Classifications of Employment

1. soloists or duos 2. group singers 3. classical recordings 4. soloists "stepping out" of a group 5. actors, comedians, narrators, and announcers 6. singers who record original cast albums 7. sounds effects artists

Executive Officers

chairman, chief executive officer, president, general manager, chief operating officer, chief financial officer

the Music Modernization Act

codified what had been commonplace for royalty payment, setting a formal procedure for artist's letter of direction to SoundExchange to result in payment of digital performance royalties to producers, engineers, and mixers