Law & Music Industry Final Exam

What is the mechanical royalty rate of a song?

$.091 per song

What is the union cost per iTunes digital download?

$0.01

What is the distribution cost per CD?

$0.45 is for warehousing, shipping, handling, and returns handling.

What is the manufacturing cost per CD?

$0.50 is for CD plus packaging, but price varies depending on the artwork.

If a record is sold, with 10 songs on it, how much does the record company pay out?

$1 (or whatever % of retail price) to artist per record, publisher gets 91 cents (9.1 cents per song) per record. That 91 cents is then split between publisher and songwriter. If they are the singer and songwriter the artist would then be making more.

What is the catalogue of recording music? What is the publishing catalogue?

All of the masters that a record company owns. A publishing catalogue is just the songs.

work made for hire

Clause that defines that the label hired the artist to make the song and therefore the label owns it

How do you calculate an artist's royalties?

-(total recoupable costs) + royalties accrued = artist's profits before reserves

What goes into a songwriter deal? Is there anything different about it in Nashville?

1 year with 2 options, write exclusively for the publishing company. In Nashville, the songwriter needs to deliver 12 songs in a year. This sometimes applies to pop songs but they are mainly album based. If there are 3 writers, you only delivered a 1/3 of a song and would need 11 2/3 more songs.

What are some reasons for the music industry decline of 1999?

1. Napster (free music) 2. iTunes - people started paying for singles vs. albums 3. CD saturated catalog - people were replacing vinyl with CDs and people caught up with their collections 4. Piracy/lack of enforcement/MP3 players - Limewire 5. DVD prices plummeted, drawing down CD prices 6. Generational understanding, you could go to the library and download an album for free 7. Record labels got impatient, lack of long view, would drop an artist before an album was released to the public 8. Record companies didn't want to embrace technology and now there is no format to compete, now it is out of their control and streaming companies have the upper hand

Top 10 Music Markets 2019

1. USA 2. Japan 3. UK 4. Germany 5. France 6. South Korea 7. China 8. Australia 9. Canada 10. Brazil

What is the mechanical royalty rate on streaming?

10% of retail

If the song is only controlled, owned, and published by the songwriter...

100% of the mechanical profits go to them

What is a typical manager commission?

15-20% of gross for entertainment business (you are assisting them make all these things possible), 10% if the artist is already established. 25% if you are a big manager

Artist of a higher caliber, such as Luke Bryan, receive a royalty rate of how much?

22% of the wholesale price

What percent of physical goods are a part of the music industry today?

25%

How much of the artist's royalties are put in a reserve?

25% of the royalties accrued (a good lawyer can negotiate 15%), liquidated after 2 years. Only applies to physical goods and not downloads

With the Super Bowl example, what amount did the Fray get from breakage? They had 250,000 of the 2.5M downloads and their royalty rate is 20%.

250,000/2.5M = 10% of equity, $4M X 10% of equity (% of which you constituted to the breakage) X 20% royalty = $80,000 to the Fray

Independent promotion is deemed how much recoupable?

50% recoupable

Music videos are deemed how much recoupable?

50% recoupable

How many companies are in the Sony matrix?

60+

When does a song become public domain in the US?

70 years after the death of the last member of the group

What does a radio or TV station need to play music?

A blanket license that they pay for per year to be able to play all songs within a PROs catalog. Based on the size of the station and the territory (strength of signal). Artists in the US do not get paid for their masters playing on the radio.

Music Modernization Act

A central collection society that collects all streaming revenue and then distribute to artists. Prior to 1972, artists weren't getting paid anything on streaming

What is the creative control clause?

A clause in the contract that does or doesn't exist, all depends on the contract. Does the publisher have full control over when and where the song is used or does the writer need consent for commercial licenses? Sometimes there may be an included list of uses that need explicit consent from the writer.

What is a short form contract?

A contract that can be as little as one page long. There is not enough wording to protect the label and an artist can easily wiggle out of it. The artist can say they were forced or coerced into signing.

What is a business manager?

A glorified accountant

What happens if a managers contract is terminated or ends?

A manager can still get commission. If you did a publishing deal for an artist, then you get a cut for however long that deal is for (forever). There is a sunset clause however to stop the commission at some point, has a gradual decline but could possibly never reach 0%

What are the parts of marketing that are recoupable and non recoupable?

A music video and tour support are recoupable while billboards, blimps, ads are non recoupable

What is the commitment with a publishing deal?

A singer-songwriter signs for 3 albums. If purely a writer then the term is 3 years, options. The copyright is transferred to the publishers and the songs remain in their catalogue after your term is up. The publishing company is committed to paying royalties to the songwriter. There is a legal reversion that a songwriter can get their music back after 35 years (10 years before and 2 years after) with a 5-year window to register with the Copyright Office communicate that you want your rights back. The reversion time can be negotiated.

What is a form contract?

A template to start a contract and blanks need to be filled in

What is the manager contract length?

A term of 2 years, if there is a record deal it is 5 years. If you want to renegotiate/extend you can add an amendment to renew a deal. Hitting sales points, threshold, or booking a major tour can also extend the contract.

Who is in charge of the recording costs?

A&R administration

If a contract ends between the artist and the record label, when does an album come back into their ownership?

Albums come back to an artist 10-15 years after the last album of the contract was submitted to the record company.

What is the "long tail?"

Albums during the catalogue years is going to fund the next release with 1 1/2 years

Ancillary Rights

Allows the label to find opportunities for deals for the artist, e.g. perfume line, advertisement deals with a different company. An artist can agree and the label gets a percentage or an artist can refuse the deal but then they cannot go out and secure the same deal, or similar deal, for themselves for the Term of the contract.

What is a draw?

An advance paid monthly but set yearly, you don't get paid royalties until the draw is recouped.

What is a personal manager?

An adviser and a confidant, career guide for the artist, and the artist's liason

How does an album end up in a catalogue?

An album has at least been out for 18 months and the record company is no longer working on a single from the record (promoting it)

What does an artist relinquish when they sign a contract?

An artist relinquishes copyright and other proprietary rights to the label

Who can be a manager?

Anyone can be a manager, there is no school, no license to be one

Who can do a live performance?

Anyone can on a song that has been released at least once, if it is broadcast live no license is necessary. Only becomes a problem when it's recorded

Who do managers need to work with?

Artist, record company (A&R, press, marketing, promotion), producer (and their manager), sponsors, endorsements, publisher, lawyer, accountant, tour manager (tour employees, bus, catering, lodging, transportation), agent

What is considered an album?

At least 40 min. in playing time and has a minimum of 8 sides

When does copyright begin?

At the moment of creation, the songwriter who creates the song by putting it to paper or recording it in anyway owns the song. There is a tangible product and therefore copyright begins. This does not mean you have PROOF of Copyright, that needs to be established with the gov't

Can you negotiate out of a 360 deal?

Baby artists get this immediately but superstars can deny this

Why do songwriters do deals with publishing companies?

Because they don't have the resources to exploit or do administrative work for the copyright. Publisher will collect all the money for you.

Why might you sign with a major publishing company?

Because you will be "paid from the source," since they are worldwide so a country won't take a percentage out of your international publishing share

What are some concerns with payment to artists for iTunes and streaming services?

Before every CD in a store is unique and there was a limit. With iTunes and Spotify the inventory is unlimited and copies are being generated from the same master recording. This means that theoretically, the song is being licensed not sold. For a sale, an artist gets their royalty rate but for a license, they get 50%. Artists should be getting more.

What does a booking agent do?

Books the gigs, finds sponsors

What are the percentages of streaming revenue in other countries?

China gets half from streaming, Germany gets 40% from streaming, Japan gets 30% from streaming.

Uncut means...

Compositions that have not be recorded yet

What are some variable costs?

Cost dependent on how many records are sold. Distribution, manufacturing, artist royalty, mechanical royalty, union dues

DMCA (Digital Millennium Copyright Act)

Created in 1998, modifies the US Copyright Act of 1976 and sets up rules that companies can operate under in the digital world and how money is paid. This allows you to run your business without needing consent. The safe harbor rules include: 1. Non-interactive (if you choose what you listen to it's too much) 2. Ethereal - you cannot store it, disappears after you listen to it 3. If you enter an artist's name or song name, the service can't come back and play more than 4 songs by the same artist in 3 hours and not 3 of the same artist's songs in a row. Not 3 from the same album in 3 hours and no more than 2 in a row.

European Copyright Extension

Created in 2011, effective 11/62, all music reverts to the public 50 years after it was created. Extended from 50 to 70 years after November 1962 releases. The extra 20 years, the record company has to pay 20% of the gross during that extra period (side artists get this).

When should there be a manager contract?

Definitely after 6 months you should make it legal with the artist

What is the top catalogue song of the century?

Don't Stop Believin

What does RIAA consider the equivalent of paid streams to an album?

Every 1,500 streams is equal to an album download.

What does RIAA consider the equivalent of paid streams to a download?

Every 150 streams is equal to 1 download (single sale).

What is the benefit of a long form recording contract for a label?

Every contingency is covered and they typically go the labels way.

What is the variable P&L for the international affiliate?

Ex. Swedish Affiliate: Wholesale ($9) - manufacturing ($.50) - mechanical ($1) - warehousing ($.45) - licensing fee ($3) = $4.05

How do you calculate the recoupable costs?

Find the percent of each cost that is recoupable and then add them all together to get the total recoupable 5 costs

What is the first draft of a contract called?

First pass

Can a songwriter's lyrics be changed?

First use of a song needs to be approved by the songwriter, small tweaks are fine but a complete change of lyrics needs approval.

What are some market drivers to increase catalogue sales?

Gets songs in films, TV, Broadway, anniversary press release, death, live performance, hologram performance if the artist has passed, repackage/have a Greatest Hits album, new record, book, record covers, scandal, remix

What does $0.05 per CD go towards?

The union if the record company is a union signatory.

Contract Period Option

Gives the record company the option for another record, up to 7 additional on top of the 1st record. If the 1st album doesn't perform well, then the label doesn't exercise the option & the term of the contract is over

When does an artist get their advance?

Half right away and the other half the day of delivery

California Minimum

If a CA resident, or someone recorded in CA, an artist has to be paid at least $9,000 a year. If an artist sends in a notice that this has not occurred, then their contract can be legally terminated. Clause was added after Pearl Jam sued for not receiving the minimum and terminated their contract.

What is an "option warning?"

If the Major has not exercised their option then the artist can send a message warning the Major that the Term is over. The Major has 10 days to respond back if they want to continue working with the artist.

What is the issue with ringtones?

If you can prove your music was used as an "edit" you would then need to give consent, sue for infringement, and could get licenses (aka 50% over royalty rate). Contracts say you can't edit songs and artists should be compensated. Ringtones are excerpts of songs but arguably there is an edit, with a fade in and out.

What happens if you are DMCA compliant?

If you comply to all the rules, you remain in safe harbor and do not need to ask for permission, no one can say no to you

What is the issue with premiums?

If your music is used as a premium, the artist needs to provide consent. How to tell if something is a premium: When the perceived value of the music is perceived as less valuable than the product. Ex. buy a Happy Meal and get a free download, you pay for the meal with the added bonus of the music (the food is perceived as more valuable)

What was the highest point in the recording industry? What is revenue today?

In 1999 when revenue was $26.2B, but with inflation it is really $52B. Lowest point was 2013 but we are currently on the upswing at $17.1B

How do the streaming services with DMCA pay the record labels?

In advance for future plays, whatever amount is not used is breakage.

Controlled Composition Clause

In the artist contract that says the record company can pay less mechanical royalties to songwriters (usually 75% of the statutory rate) of what is owed. 10 song cap as per the industry standard

Why does the international affiliate pay a licensing fee to the other country to release an artist's album?

It is for the "honor" of releasing the artist's album. There was no risk for Sweden to create the American artist's album, so the fee is like paying the affiliate for their troubles when making the record.

What does a band have an agreement for?

It is internally done so there are no problems when decisions need to be made. How should money be split? Should founding members make more? How are decisions made? Democracy or the leader decides? If only a few members write should the other members get part of the publishing? (Non-writers can if the agreement says so, maybe part of the co-publishing share.)

What music markets dominate?

Local markets dominate. 54% of US music is American.

Are managers exclusive?

Managers are not but an artist is exclusive to one manager. Superstars may ask for exclusivity in return though.

Fiduciary rights

Managers, lawyers, and accountants. Mandate that you need to always legally act in the client's best interest; based on trust & candor. The manager contract holds managers to this standard

What costs don't apply to an iTunes digital download?

Manufacturing and distribution costs do not apply.

What are the major income streams for publishers?

Mechanicals, performance royalties, synch licenses, and print

What is one nickname for Nashville?

Music City

What are the two sets of recorded music?

New releases (less than 18 months from release) and the rest is catalogue

Most Favored Nations

No one is getting paid more than you, everyone gets equal pay. The Beatles are one of the few to get away with this

Do un-recouped artists have to pay back the record company?

No they don't

Do you need a lawyer to read and negotiate a contract?

No, probably they should read before you sign though

What are some fixed costs?

One time cost, regardless of sales: marketing, music video, recording costs (come out of artist royalties), advance

What are some commissionable things for a manager?

Opening acts, tour is negotiable (excludes fixd costs such as lighting and sound). Artist recording fund and video advance cannot be touched. Artist day job cannot be touched.

What is different about recording contracts outside of the US, Canada, Australia, and the UK?

Other countries don't use a P&L, they also do deals based on singles not albums.

Who collects performance royalties?

PROs (performance royalty organizations) such as ASCAP, SEASAC, and BMI work with publishers and writers (who join one of the three) to collect these royalties on behalf of the artists. Quarter cut checks to the writers/publishers with 5% condition. 50% to the writer directly and 50% to publisher (publisher will distribute their check accordingly if co-pub deal)

What are mechanical royalties?

Paid by the record company to the publisher (or a company that represents publishers like Harry Fox Agency) for the right to use the publisher's physical property (i.e. CDs and downloads). Name comes from the player piano rolls. Starting point is 9.1 cents to the publisher per song w/ 10 song cap, streaming is 10% of wholesale

If an artist wants to switch genres what can a label do?

Pay the artist less because that is not what the label signed the artist to do and the switch can affect sales so the label is taking the risk.

Why did record companies allow iTunes access to their entire catalogs?

People are afraid to say no in the record business, Apple would pay record company's right before the fiscal year to make the record company meet their bottom line, which kept them happy

The record label holds the right in what?

Perpetuity in the territory, "territory" is the universe except Pluto (created from Duran Duran contract)

Japan & Germany are dominated by what revenue stream?

Physical

Rerecording Restriction

Protects the label's masters. The artist is not allowed to replicate a master that the record label they left owns. An artist can rerecord either 2 years after the Term or 5 years after the Delivery of the album the track is on.

When there are two songwriters what happens in a co-publishing deal?

Publisher keeps 25%, songwriter share is split in half so each songwriter gets 37.5%. If each songwriter has a separate publishing company, that share is split in half as well.

What is the rate for print to the writer?

Publisher pays the writer 10% of retail sales price (potentially wholesale) for the privilege of reproducing it physically or digitally.

What can be copyrightable separately from the music/melody?

Rap beats can be separate copyrights, drum beats in rock cannot since it's part of the melody

Cut means...

Record

How does the songwriter get paid fairly by the PRO?

Since the PROs cannot track everytime something is played, the writer gets paid based on a percentage. A manager could also log it and report it to the PRO

What are the recoupable costs?

Recording costs, artist advances, video costs, indie promo, tour support, excess packaging, and excess web costs.

What are recoupable costs?

Recoupable costs are "debited" to an artist's royalty account, and revenues are "credited" to an artist's royalty account. The record label will only be entitled to deduct the recoupable costs from the band's future artist royalties and if the future royalties are insufficient, then the label will suffer the financial consequences.

Hold means...

Reserve a song, no commitment

What was the original publishing revenue stream?

Sheet music, print

What are some contract issues?

Song vs. License, Ringtones (Edits), and Premiums

Who always gets paid when a song is played on terrestrial radio?

Songwriters and publishers

Mechanical royalties are split between who?

Songwriters and the publishing company

Historically, who gets what percentage of a song?

Songwriters get 50%, publishers get 50%

Pepsi/Sony Super Bowl 2006

Sony partnered with Pepsi + Amazon Music with the idea that if you have 5 bottle caps you could redeem them for a Sony song download. Redemptions were valued at $.40 cents. $5 million was paid to Sony in advance against redemptions. At the end of the redemption period there were 2.5M redemptions, meaning revenue was only $1M. The breakage was $4M for Sony.

Who collects money from neighboring rights?

SoundExchange

US Copyright of 1976

Starting 1/1/78, everything after that date after 35 years, whether it's the artist or publisher, can get their work back. You send a notice to the US Copyright Authority and the record company to get your masters and publishing rights back. The notice can be send 10 years early and 2 years late. Only applies if the artist is American or recorded in America. It is a protected right.

Neighboring rights applies to what type of radio?

Terrestrial radio

What is an administrative deal?

That the writer retains ownership, a new type of publishing deal that's popular at Kobalt

What are performance royalties?

The actual performance of a song on the radio, TV, in concert/live, or a jukebox in a club

What is breakage?

The amount that the label gets to keep in-pocket if an advance is not entirely used. The label is not required to but they can share the equity with the artist. Percentage of equity (their share that they contributed to) X artist royalty rate = amount artist gets of breakage.

What is the artist advance for?

The amount the artist is paid to deliver the album (incentive)

What is the wholesale price?

The amount the record store pays the record company.

Deliver, delivery, delivered

The artist has to deliver a record to the label that they think is commercially sound. Needs to be "first class" and something just as good as their previous work. Needs to be the same style and genre unless the label agrees to otherwise.

How is the affiliate's licensing fee distributed?

The artist royalty rate, taken from the wholesale price, and the union fee of $.05 are subtracted from the all-in fee of $3. Whatever remains, the "net pressing fee," is given back to the repertoire owner. All-in fee is lower for streams

How does an artist know about their finances coming in and out of the record label?

The company has to account to the artist for all royalties. There is a semiannual statement sent to the artist and says how much is recouped and unrecouped. There is a right to disagree.

Who is the repertoire owner?

The country that signed the artist to a contract

Who controls the use of a song?

The first use of a song is controlled by the publishing company and the songwriter, you can hold on to a song for as long as you want until you find the right artist to record it. The second person that wants to cut it, you have little to no control but you can always say NO. Consent is valuable in negotiating

Who pays for the recording fund?

The label always does. If the artist delivers an album under budget, then they get to keep the difference. An incentive to spend less money.

Pay or Play Clause

The label can exercise their way out of a record deal. The label needs to pay the artist how much the company has to terminate, which is often zero (amount of Recording Fund) - (the actual recording costs of the last two records)

What is the life of a copyright in America?

The life of the last surviving creator plus 70 years and then it becomes public domain. Send the paperwork in 35 years after creation to revert song back to the songwriter.

What is the life of a copyright in Mexico?

The life of the last surviving writer plus 100 years.

Term

The period defined in the contract of how long the artist has to deliver records. Contract starts on the date on the contract until 7 months after the record's release, but no later than 12 months after.

What is a co-publishing deal?

The publisher's share is split in half between themselves and the songwriter. Songwriter now has 75% and publisher gets 25%.

Who has a say in exercising the option of another album?

The record label

term

The record label has an album in perpetuity, they own the rights forever

If someone is kicked out or leaving the band, what happens to the band name?

The remaining members continue using the name and the leaving member is not allowed to use the name commercially or use a name that sounds similar or are derivative.

What are the reserves for?

The reserves are needed because all physical records are returnable by the record store to the record company.

What are neighboring rights?

The right to publicly perform or broadcast a sound recording. Money is paid to the owner of the copyright, the label and the artist. Label is paid 50%, artist 45%, and side artist 5%

What are sync licenses?

The right to use music when synchronizing to a visual, such as TV, film, commercials, video games, ringtones, radio commercials. There is a large monetary opportunity here. A sync from a publishing company gets you the song, one from the record company gets you the recording, typically they are priced equally. 50-50 between artist and label for master.

What are the Group provisions?

The right, not the obligation, to sign members after a band member leaves a group to go solo. If they were coming from a band of 4, then the solo artist would get 25% of the advance that was on their band's contract and the band now gets 75%. Contract stays the same so whatever amount of options were left they still need to fulfill. This protects the label's investment.

What happens when a label goes bankrupt?

The rights are up for grabs for other labels and contracts are no longer valid

What are "schedule A" songs?

The songs that were written before the writer was signed to a publishing company. Clause that is added saying the publishing company now owns them in perpetuity.

What is live performance considered?

The use of a song by a business, stadium, club, arena, clothing store, bar, wherever music is played. This is not easily monitored so they need performance licenses based on the size of the venue.

What happens if a label doesn't do anything for an artist for a year?

Then the artist is free of their contract, this protects the artist

Where are the DMCA fees going towards?

There is a registration fee that goes towards the US Copyright Office each year, $500 per station or 100+ for $50,000. The record label, or rights holder, gets paid per stream. If the service has no subscription, $.0017 per play. For subscription services, $.0023 per play.

What are some commission restrictions for a manager?

There is space to carve out certain areas from commission; i.e. if someone is an author before you become their manager, there can be a clause added saying that money earned from their author career cannot be touched. Thresholds can be added into clauses in the event your efforts 2x or 3x what their earning potential from that avenue is

At what point can you release another album after the first is released?

There needs to be a 7 month period between release dates.

What do publishers pitch and to who?

They "plug" songs to artists, music supervisors, record labels, A&R

When looking at a contract, what do capitalized letters mean?

They are used to define terms, you need to look elsewhere to find the definitions

What can an experienced record business attorney do for an artist?

They can ask for the same deal they negotiated with a previous artist rather than start fresh with a form contract.

How does a songwriter get signed?

They need a repertoire, have some demos to show a publishing company

How are managers initially paid?

They work on commission, their work is an investment of time and a risk for their finances in the beginning

When a store plays music from a streaming platform who would they need to pay to play music?

They would need to get a license from the PRO and most likely also pay the streaming platform.

What is publishing?

To make a song public and distribute it to the public, also relates to: 1. *Control of the Song* - exploitation through various income streams (I.e. radio, commercial, film, video game) 2. *Administration Side* - copyrighted and protected, proof of ownership or "deed" to the song

What are 100% recoupable?

Tour support, Artist advances, Excess web costs, Recording costs, Excess packaging/art

How many Spotify streams does it take to equal a single iTunes download?

Typically 500, but it is between 200-1000

What are the 5 countries that do not recognize neighboring rights?

US, China, Rwanda, Iran, and North Korea (uncle ron is calling north korea)

How many days does a record label have to exercise an option after a Term ends?

Up to 10 days after the contract period

How do you calculate the recording company's profits?

Variable profits + recoupment - total costs = record company profits

Sub-Publishing Deal

When the publisher will sign you for the world BUT will sub-contract the record out to strong publishers in other parts of the world. UK affiliate will take 15-25% off the top and send the rest to the US, which is split 75/25 in a co-pub deal.

Notice of Compulsory Mechanical License

When there is a 2nd cut of a song there needs to be: 1. Notice of Intent 2. No changes, if there are it becomes a derivative work 3. Statutory rate must be paid 4. No dramatic works

What is the split for songwriters if there is more than one?

Without an explicit contract, it is assumed shares between songwriters are evenly split. This can be negotiated in the collaboration agreement.

What is going on with global music revenue?

Year over year there is an increase, album revenue is down. Music is diversifying and a wider array of music, so not everyone listens to the same albums or the same artists

Can more than one person own a copyright to a song?

Yes you can split a copyright and co-own something.

Can a songwriter act as their own publisher?

Yes, if they have created a tangible work they have the right to act as the "publisher" and can exploit/sell the song anyway they like.

Why is being dropped by a label not a complete loss?

You are better off than when you were signed, you still have an audience and you have your contacts

What does a manager need to do with a band?

You aren't just signing the band, but all the individual band members. If one breaks off you are still their manager but you can agree to release them if you choose.

How long do you have to collect your neighboring rights?

You have 5-7 years to go back or you lose it

European Union "Article 13"

YouTube in Europe is now legally responsible for policing and checking that the content being uploaded isn't a copyright infringement. They will get in big trouble if something slips, so every video needs to be checked. The video may be taken down in Europe but it is still up everywhere else in the world. You are always allowed to do a cover.

If the retail price of an iTunes stream is $0.99 and the wholesale price is $0.70, what happens to the $0.19?

iTunes gets to keep it.

In-pocket advance

non-refundable, if the album is a flop then the label loses