The Most Important rights and Contractual Relationships in the Music Business: Artist
Revenue Streams
● Recorded Music - sale & exploitation of recorded musical performances to consumers
(e.g. spotify, apple, vinyl) and the licensing of music to this parties (films, commercials)
● Music Publishing - sale & exploitation of the underlying compositions (songs) (e.g.
iTunes, Spotifgy, radio, concert venues), lyric reprints and licensing
● Merchandise - sale of related items (e.g. t-shirts, hoodies)
● Endorsement & Sponsorships - artist affiliation with products and services
● Touring - Live Performances
Pandemic Impact
● Recorded music (streaming) and Music Publishing (streaming) did well, touring was a
disaster.
History of Recorded Music
● The sale and exploitation of records by major labels has traditionally been the engine
that drove the other revenue streams.
● Labels invest in artist development, distribute records, promote songs to radio/streaming
services and build infrastructure to help artists make and market records.
● A successful record fuels revenue growth in publishing, merchandising, touring and
endorsements.
● In exchange, labels often own the copyright in the recorded performances of the artist
● Labels keep the lion’s share of the profits from the records.
Recorded Music Had A Period of Dramatic Decline (Early to Mid 2000s)
● Piracy occurred on a mass scale became incredibly easy and of high quality (Napster)
● A less robust economy
● End of CD replacement style
● Retail outlets disappeared & less floor space for music
● Competition from other entertain media (play station, etc)
Digital Downloads Started Industry Recovery
● iTunes launched in 2001 and consumers began to pay for digital downloads
● Free to consumer, on-demand streaming (Youtube) emerged in 2005
● Digital downloads began to decline due to streaming
Basic Copyright in Recorded Music
● For decades and still today (excluding EDM), the largest initial investment in an artist’s
record comes from record labels
Each Recording Embodies Two Copyrights
● Musical Composition (lyrics and notes)
● Sound Recording (Recorded Performance of Composition)
Composition (Music and Lyrics) Revenue Streams
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Reproduction & Distribution
○ Records (sales & streaming) & Exploitations
○ Synch (film, TV, etc.)
○ Print & lyric videos
Public Performance
○ Grand (musical theatre)
○ Small (concerts, radio, etc.).
Sound Recording: Recorded Performance of Composition Revenue Streams
● Reproduction & Distribution
○ Records (sales & streaming) & Exploitations
○ Synch (film, TV, etc)
● Public Performance (digital/audio)
○ Streaming (e.g., Spotify)
Important: no public performance right in Sound Recordings except audio digital
Artist Ecosystem
● Manager: 15-20% Net vs Gross Exclusions Term Sunset
● Attorney: 5% on all revenue (touring used to be excluded but now more common) or
hourly (retainer) or flat fee (fee based on size of each deal). Terminable at will
● Agent: Book live performances, 10% commission is the max. Short term engagements
and terminable at will. Start at 10% usually gets negotiated down as they get bigger.
● Record Label: Net profits on record revenue and sometimes “360”
● Publishing Company: % of publishing
● Promoter: % of tour
● Merch Company: % of tour
● Business Manager: Collects money, invests money, pays bills, touring expertiseSome
will want a minimum with a maximum. Percentage is usually 5%. Short term
engagements or terminable at will.
● Independents:
○ Publicist
○ Synch
○ Radio
○ Promotion
Important: in a percentage deal, define the basis (e.g., net vs. gross)
Promoter, Publishing Company, Merch Company and Record Label collect the money and then
pay out to the artist.
Managers can have written agreements.
Management Deals
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First thing you negotiate for a management deal is the term. Lots of managers will have at-will
deals.
● Term - years vs album cycle vs. at will
● Commissions - 15-20%
● Basis - when you have a percentage deal, the definition of basis is crucial
○ Gross vs. Net
● Exclusions
○ Revenue streams (e.g. acting)
○ Types of revenue (tour support, recording costs, costs paid to third parties,
collection costs, sound & lights, opening acts) Deducted before Revenue
Commission Applied
● Adjustments (no more than any member etc.)
● Expenses (reimbursed by artist)
● Sunset (post-term)
○ What percentage
○ How Long & final cut off (avoid: double commissions)
○ On what: only records & songs during the term?
■ Tours, merch, sponsorships
Talent Agency Act - Statute that exists only in California, has been used as a weapon by artists
and been used successfully, its the most lethal weapon in an artist's arsenal if they want to fire
their Manager. Only licensed talent agents and procure employment.
● The Act is designed to protect artists from improper representation,
● Regulates licensed talent agents
● Prohibits anyone who is unlicensed from acting in that capacity.
● Definition of acting as agent is “procuring employment” (record contracts are
excluded)
● Consequence is that agreement is void, commissions not paid and, sometimes, return of
commissions having nothing to do with the “unlicensed behavior”
● TAA violations are overseen by the CA Labor Commissioner who has traditionally taken
a very broad view in favor of artists
● Managers believe that the TAA has been abused by talent to deprive managers of
commissions,
● Involved by artists when they want to terminate their manager or used in response to a
lawsuit brought by a manager who is suing an artist for failure to pay commissions.
● If manager has booked a concert date for the artist, they have “procured
employment.”
Two important cases which have limited Labor Commissioner’s broad view
● Marathon Entertainment vs Blasi introduced the idea of severability. - Need multiple
instances and can’t separate the illegal parts from the legal parts of the contract.
● Preston vs Ferrer introduced the concept that the Labor commissioner does not have
exclusive jurisdiction over alleged violations of the Act where the parties agree to
arbitration.
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Jewel Kilcher
● Labor commissioner considered whether it should broaden the exemption to extend
protection towards unlicensed talent agents who work with a transactional attorney.
● Labor Commissioner declined to do so and made the contract void.
Mario Solis v. James E. Blancarte
● Labor Commissioner found that Blancarte was not exempt from the TAA just because he
was an attorney. The contract was void.
17 U.S Code Section 106
Exclusive rights in copyrighted works
Subject to sections 107 through 122, the owner of copyright under this title has the exclusive
rights to do and to authorize any of the following:
● (1) to produce the copyrighted work in copies or phonorecords;
● (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or
other transfer of ownership, or by rental, lease, or lending;
● (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and
motion pictures and other audiovisual works to perform the copyrighted work publicly;
● (6) in the case of sounding records, to perform the copyrighted work publicly by means
of a digital audio transmission.
Important Terms in Partnership/Band Agreements:
● Term
● Revenue Splits
● Control/decision making
● Ownership of the Name
● Termination of the members
● Termination of the partnership
● Addition of members
● Ownership of other assets
● Selection of the team of professionals
● Post-term issues
NOTE: INHERENT CONFLICT OF INTEREST FOR LAWYER
Traditionally record labels provide funding for:
● Recording costs
● Artist advances (money for artists to keep)
● Marketing & Promotion
● Tour support (when an artist earns less than she can make on tour)
Historically the labels participated only in record revenue, then revenues declined and 360 deals
became customary.
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Terms Typically Included in a Recording Contract
● Term: How long? Can it end early?
○ The term is defined by a number of contract periods, the first one the label is
committed too and the rest are optional. Record company has 18 months from
release.
○ Option Warning language: if the label forgets about the option, the artist has to
send a notice to the label and the label has to pick up or deny the option.
● Scope: What is covered? Exclusions if exclusive?
○ When your client is entering into an exclusive contract is exclusive, always ask
what exception they might need. Any try to exclude those exceptions from the
scope of the agreement.
○ Typical exceptions to Exclusivity in a Record Contract that can be Negotiated
Upfront
■ Side artist performance (e.g. playing guitar or background vocals without
a “featuring credit”)
■ Producing for other artists
■ Dramatic roles in a movie (acting - but not in a musical film like Elvis)
○ If your client wants to perform in Elv or to perform a song that will appear in a
movie (e.g. James Bond Theme) you will have to negotiate a waiver of exclusivity
from the record company at the time.
■ The label will often insist that they have the right to distribute the song or
the soundtrack album.
● Obligations: What are the obligations of both parties?
○ Artist:
■ Delivery Obligation/Recording Commitment
● Still typically “album” delivery (but that may be changing
● Album - a record having no less than forty (40) minutes of playing
time and which embodies at least eleven (11) masters each
containing a different composition sold in a single package.
● Unless the record company says so, album must have
previously unrecorded compositions, must be a minimum
length per track, must feature all members of the artist and may
not be specialized.
● Delivery standard. This can vary. Some labels insist on a
subjective delivery standard. Most have moved to commercially
and technically satisfactory.
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Label:
■ Two kinds of albums: Committed or firm albums; and optional albums
■ Once a label exercises its option for a contract period, the albums due in
the period become firm. Prior to that, they are optional.
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Pay or play provision: Invoked by an artist when the label won’t allow the
artist to fulfill their delivery obligation. The label must either “play” and
fund the recording or “pay” the artist a negotiated fee. This caps the
label’s damages. (Committed album is not so committed)
Disaster Clause: If an album sells much less than anticipated, an “firmed”
or “committed” album may become optional
Performance triggers or threshold: If an album sells much more than
anticipated, an “optional” album will automatically become “firm” or
“committed”.
● Can negotiate to get this, usually not offered by the record label.
Labels are required to fund the recording of committed albums subject to
the “pay or play”.
A label is obligated to release a delivered album. If the label fails to
release the album within the specific time, the artist can send notice to the
label who will then have another specific time period to release the album.
If they do not then the agreement can be terminated.
Release Obligation
● Major labels will give a US release obligation
● Sometimes an artist can also get a release in certain territories
outside the US. However the remedy for failure to release in these
ex-US territories is not the same. Typically the artist remedy is to
force the label to make a deal with another label to release the
album. And only after a label refuses to release multiple,
consecutive albums in a country, will the artist be entitled to
terminate in that territory only.
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Financial Terms: Who gets paid? How much? When?
Ownership: Who owns the resulting assets?
○ Typical major label recording agreement, the label will own the copyright in the
sound recordings.
Post-term: What happens when the term ends?
Doesn’t Satisfy Delivery Obligation
● A live album doesn’t satisfy an artist’s delivery obligation
● A collaboration doesn’t satisfy an artist’s delivery obligation
● A soundtrack album with other artists doesn’t count
● A holiday doesn’t count
● A mixtape doesn’t satisfy an artist’s delivery obligation
Ownership of copyright in sound recordings
Work for Hire
● Artists are not employees of the record labels. The labels do not want the liability.
● Record contracts state that sound recordings are “works for hire”
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Sounds Recordings are NOT listed as “works for hire” in the Copyright Act
Section 203 of the Copyright Act
Allow an author to terminate a prior transfer of ownership
17. USC 203 deals with post 1978 works
17 U.S.s. 304 deals with pre-1978 works.
Post 1978 = 2013 (35 years)
Pre 1978 = 2028 = (56 years from 1972)
Termination of Transfer of Copyright
● No definitive litigation to date
● Artists send notices and the labels reject them. Renegotiations are the result.
Copyright Summary for Music Copyrights
● Copyrights gives the author a monopoly of limited duration
● Author has a limited period during which the author has exclusive rights (e.g.
reproduction rights, public performance rights)
● Author can grant those rights to a third party (e.g., a record label for mater, a publisher
for compositions)
● Author has an opportunity to terminate the transfer of copyright IF the material is not a
work for hire
● The author or the entity owning the rights will lose rights when the works enter the public
domain.
Seven Year Statute
California Labor Code Section 2855
● A personal services contract in California can’t exceed 7 years.
● 2855 B was added in 1987, an artist can still seek the protection of the statute but have
to provide written notice first
○ Labels have the right to recover damages for breach
○ Artists are liable for damages for undelivered albums.
Financial Terms of Contract
Advances
● Advances are a prepayment of royalties
● Royalties are a per unit payment
● So advances are recoupable from royalties
● A non-recoupable payment is not recovered from royalties
Advances come in many forms
● Advance to the artist
● Recording costs and
● Some recoupable marketing costs
Advances are monies the record label pays to or on behalf of the artist.
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The label’s break-even point (i.e., when the label recovers its costs and becomes profitable) is
not the same as when the artist recoups.
Generally speaking the advances are unreturnable.
Two typical structures in recording contracts which control how the label pays the artist and
recording costs:
1. Advance plus recording costs
a. Example $100,00 advance plus a recording budget with a minimum of $300,000
approved by label
2. Recording Fund (includes recording costs)
a. Example $400,000 recording fund
Note: advances are recording funds are both advances against artist royalties. So both are
recoupable from record royalties
Advance and Recording Fund Calculations
Advance or recording fund for the first album is a fixed negotiated amount
Future advances/funds (for subsequent albums) are based on a formula:
● A percentage of US royalties earned on the prior LP
● In a specified time period with
● A floor and ceiling (and sometimes sub-floors)
The concept is that the royalties on an album are a way to predict the royalties on subsequent
albums. But with a minimum and a maximum.
Fund Reductions
● Late (reduction per month for example)
● Lack of Success (Disaster Clause)
○ Reduction based on record sales below a certain amount
○ Unrecouped balance is above a certain amount
● Both will have a sub-floor (so sufficient money to make an album)
Royalty Calculations
How are royalties calculated?
● Start with a percentage of the price
○ Retail (SRLP) or wholesale (sometimes PPD - purchase price dealer)
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Then ask what rate reductions or deductions exist?
○ Packaging or Container Charge
○ Free Goods (Program and Special)
○ New Media or CD
Note: generally there are more reductions in SRLP deals
Most labels do a wholesale calculation, retail are more complex and less artist friendly.
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Free goods are units given away for free. Can be a royalty rate deduction or a unit reduction,
doesn’t matter as the math is the same.
Royalty Calculations 101
● The calculations above (either % times PPD or % times wholesale with reductions)
determine the basic rate or topline rate
● This is the rate the USNRC (United States Normal Retail Channel Sales). The rate that
applies to sales through normal retail channels of full priced albums in the US.
● The base rate can go up (escalations) based on success.
● The base rate can go down based on the type of sale (mid-price/budget) or if the sale is
outside the US.
Escalations
● The basic or base rate will escalate based on sales
● The escalations will be prospective and on an album-by-album basis.
● The base rate will be reduced for non-USNRC net sales:
○ Mid price/budget (price restrictions)
○ Sales ex-US (territory reductions)
○ Non-album sales (configuration reductions) (e.g. single rate is less than album
rate)
○ New artist/development
Streaming
● The royalty rate for any streaming Usages hereunder shall be a percentage of net
receipts equal to the Basic U.S. Rate for the Album on which the applicable Recording
was originally embodied (or, if such recording has not been embodied on an album prior
to its release through streaming usages, the basic U.s. rate for the most recently
released committed album
● Major labels (if an artist has leverage) will agree to share a percentage of “net receipts”
with the artist. Some get 50%
● But be careful, it is most often not “at source”.
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If the artist is signed in the US, this will be 50% of what the US label receives. Their
foreign affiliates will keep a percentage of the revenue. Some companies keep as much
as 60% outside of the US.
Cross-Collateralization
● Artists have one royalty account
● Royalties from all sales and exploitations of all records go into the account
● All advances from all albums are charged against the royalties
● The royalties are cross-collateralized
● If an artist has a widely success album, and there are earned but unpaid royalties
(pipeline royalties), the artists advance for the next album may be immediately recouped
by the pipeline royalties from the prior album.
The artist has one royalty account. Royalties earned from each record can be used to
recover the advances paid for any record.
Proration
● If an artist has a track on a compilation album (e.g. soundtrack), the royalty will be
prorated.
All-in Royalty Raote
The royalty rate is inclusive of all royalty participants. Or an “all-in” rate. Includes:
● Producers
● Duets
● Mixer
● Any third party (not label employees - A&R)
Producer Recoupment
● Producers earn royalties from record one
● Paid retroactive to record one after recoupment of the recordings costs at the artist net
rate.
● Recoupment of recording costs only
○ Producer does not “stand behind” artist advance (in pocket) or marketing costs
● Then producer recoups her advance at producer rate
Producers do not have one account. Producers are not cross-collateralized because they may
not produce another album for the same artist. So if producer produces two albums by the same
artist, producer has two separate accounts and will continue to be paid royalties on the firm
album regardless of the success of the second album.
Royalties & Recoupment
● Artists are paid prospectively after recoupment of all recoupable costs (including artist
advance) at the artist net rate.
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Producers are paid retroactively to record one, if/when the recording costs are recouped
at the artist net rate.
The Producer recouped her producer advance at her producer rate (because it is a
prepayment of her royalties).
Mechanical Royalties
● Record royalties- the royalties the label pays to the performing artist (who signed to the
label) for the sale and exploitation of records
● Mechanical royalties - the royalties paid to the songwriter (could be the performing artist
signed to the label or could be independent songwriters) for the reproduction of the
compositions on sales of records.
● Labels pay both record royalties to the artist who performed on the records and
mechanical royalties to the songwriter/publisher
● The provision in the record contract that governs mechanical royalties is often called the
“controlled composition” or “controlled comp” clause.
Exceptions to 106
There are exceptions to the section 106 exclusive rights. Section 115 is an exception
● Section 115 - an exception to the monopoly an author or songwriter enjoys
● Section 115 provides for compulsory licensing of a song
● Section 115 a person can get a compulsory license to make and distribute phonorecords
once a phonorecord of a work has been distributed to the public in the United States
under authority of the copyright owner, subject to certain terms and conditions of use.
● Section 115 allows “covers” of songs.
Compulsory license can be obtained if:
● Non-dramatic musical work
● Previously recorded
● Previously distributed to the public as phonorecord
● New work doesn’t change the melody or the fundamental nature of the work
● New work is released on phonorecords only (audio-only records so no compulsory
license for audio-visual works)
Result: an artist can record a published song (even if songwriter objects) under a compulsory
license but that cover version can’t be included in a film without the songwriter’s permission
Compulsory rate:
● $0.91 or $0.175/minute for songs over five minutes
● An industry settlement was reached to raise to $0.12.
Controlled Compositions (songs the artist wrote in whole or part) Provisions
● Controlled comp provisions provide for a minimum rate per song and per configuration
for all compositions (controlled and non-controlled compositions). The rate is based on a
percentage of the compulsory rate.
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Example: 75% of the minimum fixed statutory rate (determined when?) up to a maximum
of 11 times the full statutory rate for an album.
Escalations can be negotiation (just like record royalties)
Reduced rate apply for lower priced records (just like record royalties)
No payment on free goods
Non-controlled comp protection always for a higher cap if non-controlled writers won’t accept
reduced rate.
The ones paying the statutory are the ones who want to cover the song.
Mechanical royalties are not subject to recoupment.
Controlled Comp Clauses Digital Exploitations
● The Digital Performance Right In Sound Recordings Act of 1995 (the “APRA”) and
DMCA granted the copyright owners of sound recordings a right of public performance in
their sound recordings by means of a digital audio transmission.
● DPRA also amended section 115 of the Copyright act
If you download it - record company pays 9.1 cents mechanical royalties
If you stream it - spotify pays it
Never Say Never (Deal Points Labels will Negotiate when Necessary)
Territory
● Split territory desks
● Pro (for artists): royalties from the different countries are uncrossed
○ Can lead to people competing.
● Con (for artist): different labels may not work well together
● Who pays cost? Contributions based on market share
○ Have to make sure the two contracts work together. For example if a video for a
song needed to be created, need to determine who will be paying the cost.
Grant of rights
● Contractual revisions (as opposed to termination of transfer of copyright by law)
● Extension if unrecouped (right to repay)
Accounting
● Semi-annual accountancy (June and December)
● Paid within 30-90 of end of period
● So sale in January, paid September 1st
● Label hold reserves. Artist try to cap the amount of reserves, cap how long reserves may
be hold, and force the label to liquidate reserves and pay out the held royalties after a
period of time.
Audits
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Two years to object (from when label is deemed to have sent)
Three years to sue
Label chooses forum
Audit once per year
No contingency basis audits
Label pay audit fees if errors (not always)
Label pay interest if errors (not always)
Creative Controls
Creative controls (with financial implications)
● Making Music
● Images (photos, logos, likeness, etc.)
● Compilations
● Mid-price/budget/premiums/cut-outs
● Licensing (TV, flim, video games)
360 Deals
A participation in non-record revenue
● What does it cover?
● How long?
● What is the compensation?
● How is the financial participation calculated?
● What happens post term?
Territory
● Normally the same as record deal. Argument is label is releasing records and funding
marketing/promotion, etc so should participate in every territory.
● Split-territory deals = another opportunity for arist (may limit 360 to one territory)
Term
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Normally co-terminus
Basic term (if all goes well)
Special Termination (seven-year claim, bankruptcy)
Extended if record deal is extended
Participation: Compensation varies - Active vs. Passive
● Active - the label takes an active role in managing the rights either through deals with
affiliated companies or the label actually performs non-record services themselves
● Passive - A pure financial participation
The Current Range of 360 Participations
● Publishing - active (affiliate will be the publisher) or 0-10%
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Merchandise - active (the label or their affiliate will be the merch company) or passive 025%
Other (acting, fan clubs, endorsements) - 0-25%
Touring - 0-25% Net and/or 1-10% Gross or Adjusted Gross
Key-man
● Very, very rare
● Artist wants to be certain an important executive or combination of executives remain at
the label.
● Remedy = artist has the ability to terminate.
● Bad for the company
○ This provision gives the artist the ability to terminate if the executive leaves
○ The provision gives the executive tremendous leverage in their employment
negotiations.
Leaving member Provision
● This is a provision that anticipates that the artist may breach their contract because they
break up or a member leaves.
● If the leaving member is triggered, the label will have the option to continue with (1) the
leaving member and/or (2) the remaining members.
● If the label exercises its rights under the leaving member provision to continue with a
leaving member or a remaining member the terms of the original contract will apply
except:
○ Term
■ If there are committed albums that are undelivered, they may be
converted to optional albums
■ The label will get a minimum number of optional albums for the leaving
member/remaining member
○ Royalty rate- may be reduced
○ Funds/advances - may be reduced
○ Unrecouped balance - what happens if the artist is unrecouped when they break
up?
■ The label would want to recover 100% of any unrecouped balance from
each leaving member.
■ The label would want to apply 100% of any royalties to the new advances
paid to or on behalf of each leaving member
■ Most common compromise: each leaving member stands behind a
prorated share of the unrecouped balance and a prorated of the royalties
can be applied to new advances for each member.
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Reunion provision - some record contracts have a provision that if the artist ever
reunites, the original contract will apply again.
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An artist may designate certain members to be “key members” and the leaving member
provision will apply if one of those members leaves
But if a non-key member leaves, leaving member provision is not invoked and the
original contract terms continue
Re-record restriction: The provision that restricts an artist for a period after the term of her
record contract from recording a song that was embodied on a record she delivered during the
term
Record contracts: The record company will typically own the copyright for life of copyright;
however, some record contracts will provide the artist with a contractual right of reversion.
Alternative Record Deals
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Production Company
○ Generally signed when no record deal is available
○ Artist has less leverage may be offered production deal by producer or other third
party
Profit Participation/Joint Venture
○ Artists with lots of leverage; may be offered profit deal by major label
○ Smaller labels
P&D Deals
○ Pressing & distribution. Label will manufacture and distribute and artist keeps the
profit and ownership; less need for major label services
○ Artists with leverage or resources
○ Smaller labels (Concord, Merge, ATO, etc.) may use larger labels for distribution
Production Company Deals
● Independent people or entities (often without distribution or staff)
● Provide assistance to artist:
○ Financial
○ Creative
○ Career guidance
○ Industry contacts
○ Studio time/production service
● Deal Terms
○ Similar to major label recording contracts with notable exceptions
● Term - depends if the production company is obligated to obtain a major label deal.
○ Initial period - during which production Co seeks major deal
■ Termination if no major deal is obtained
○ Extended Period - If major label deal is obtained, the term of production company
deal can be extended to be co-terminus with major deal
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Contract Period(s) - period during which Production Co. exploits independently
(without major label or while seeking)
Advances
○ If major deal is obtained: Percentage; or Guaranteed amount
○ If no major deal: Advance(?), Funding of recording and development costs
Royalty Rate
○ If major deal is obtained: Percentage of what major pays; Guaranteed Royalty for
artist: or Predetermined override for Production Company.
○ If no major deal is obtained: Royalty Rate; or Profit participation
Publishing
○ Co-pub deal; Admin deal; or Get publishing deal (and keep a percentage)
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○ Taking a share (50%); Reduce if major label deal is obtained and wants 360?
Other terms - going to look very similar to major label
○ Ex. Controlled Comp, Pay or play, Work for hire, Leaving Member
Profit Participation Deals
● Artists with leverage get profit deals from major labels. Also indie label furnishing
multiple artists (cross-collateralization)
● Net Profits - Gross receipts received by the label less a distribution fee and deduction of
expenses
● Gross Receipts - does it include monies that are not directly attributable to the
sale/exploitation of specific recordings:
○ Litigation awards/settlements, Equity (Spotify), Advances for overall deals
(Youtube)
● Expenses
○ Actual, out of pocket, third party costs
○ Distribution Fee - actual or additional services fee
○ Advances - off the top or from artist’s share of profits
○ Producer - off the top or from artist’s share of profits
○ Mechanical Royalties - off the top or from artist’s share of profits
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P&D Deals (Pressing & Distribution Deal)
● Who gets them:
○ Artists with established fan base
○ Indie labels/production companies
● What the Distributor/Label Does:
○ Manufacture and distribute
○ Additional services for an additional fees
● Term
○ Years (generally not periods like record deals)
○ Extended if unrecouped advance
● Funding:
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Issues
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Distributing label may provide an advance against anticipate revenue
Distribution fee comes off the top
Inventory risk
Physical distribution (digital distribution must be included)
Music Publishing
Publishing contracts deal with compositions. A songwriter enters into a publishing contract with
a publishing company(sometimes referred to as a publisher). The songwriter agrees to deliver
composition to the publisher and the publisher licenses the composition and pays advances and
royalties.
Publishing Companies
● An author of a composition has exclusive rights in her works
● She can exploit those rights in order to generate revenue
● A songwriter may enter into an agreement with a publisher which allow the publisher to
exploit the rights in compositions written by the songwriter.
Section 115 is an exception to 17 U.S.C Section 106 which grants exclusive rights to the author
of a composition.
Monetizing Section 106 Exclusive RIghts
Reproduce and distribute compositions
● Mechanical Royalties – reproduce song on records
○ Collected by publishers or Harry Fox Agency (non-streaming)
○ Paid by the labels for physical and digital download
○ Paid by the DSPs for streaming
○ Under the MMA, 115 royalties for streaming collected by the MLC (if the DSP
opts in)
● Synchronization Fees – reproduce song in A/V (e.g. film, TV).
○ Collected by publishers
○ Paid by TV, film, ad agencies, video game companies
● Print Music & Lyrics videos – reproduction of lyrics/music
○ Collected by publishers or third party (Alfred or Hal Leonard)
○ Paid by the DSPs or sheet music companies
Perform Publicly compositions
● Public Performance royalties – public performance of songs
○ Collected by ASCAP/BMI/SESAC/GMR
○ Paid by Radio, venues, DSPs, bars & grills
Publisher
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●
●
Songwriters may enter into exclusive publishing contracts with a music publisher. Similar
to performing artists entering into a record contract with a record label.
Music Publishers or Publishers do the following for songwriters:
○ Creative (suggest co-writers)
○ Pitch songs to artists/labels to encourage then to record
○ Pitch songs for synchronization - TV, film, commercials
○ License songs
○ Collect money
○ Sub-publish (global rights)
○ Litigate (protect writers’ rights)
○ Pay advances & royalties
Just like record contracts, publishing contracts are exclusive.
Just like record contract, 100% of revenue from the exploitation of song flows through the
publisher to the songwriter with one important exception.
● Public performance royalties for compositions are collected by US PROs and 50% is
paid directly to songwriters. The remaining 50% is paid to the applicable publisher.
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Types of Publishing Agreements
Inconsistent Terms Are USed To Describe Different Types of Publishing Agreements (From
least to most leverage)
● Songwriter Agreement
○ Artist who has less leverage may be offered songwriter deal
● Co-Publishing Agreement (Most Popular)
○ Songwriter who has increased leverage may be offered co-pub deal
● Administration Agreement/Collection Agreement
○ Songwriter or indie publisher who has more leverage/less need for major
publisher services may be Admin/collections deal by major publisher
Songwriter Agreements
● Scope
○ Grant of ownership to publisher in exchange for publishers services without
contractual reversion
○ Publisher owns the copyright for life of copyright (subject to 203 and 304
statutory termination rights)
● Term
○ Single Song deals (which can cover a song or multiple songs listed in
agreement)
○ Exclusive Term deal (covers all songs written in term)
● Royalties
○ Writer gets paid “writer’s share”
○ Typically 50% of income received by publisher is writers share (except public
performance because writer is paid directly by the PRO). So the publisher in a
songwriter deal keeps 100% of the publishers share of public performance
because 50% is paid directly to the artist.
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Co-Publishing Agreements
● Typically co-ownership
● Writer gets paid the writer’s share and % of the publisher’s share
● Typically writer gets 50% of publisher’s share or 75% of the total income (75/25)
● Publisher may take bigger % of sync income
● Often structured as songwriter contract and co-publishing contract
Administration Agreements
● No copyright ownership granted to publisher
● Songwriter grants a license to the publisher
● Exclusive administration rights grant in exchange for an administration fee. These fees
range from 5-20%
● Advance may be payable.
Collection Agreements
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●
●
Similar to Administration Agreement
NO copyright ownership or transfer
Basic Terms Across all Publishing Contracts
Term
● Can be similar to record contracts (contract periods with delivery obligations)
● Can be term of years or until recouped
● Remember: don’t confuse term of deal with term of ownership
○ Term - the period during which the writer is exclusive and must deliver songs to
the publisher
○ Ownership/retention period - the period during which the publisher has the
exclusive right to exploit the compositions
○ It is more common for a publisher to give a contractual reversion than for a label
to do the same
Repayment
● If the term of a publishing contract (or any contract for that matter) is subject to
recoupment, the artist should always try to negotiate the right to repay the unrecouped
balance and end the term.
● In publishing contracts, this is typically 110% or 115% of the unrecouped balance.
Scope: Exclusive so all songs written during the term.
Advanced Publishing Royalties Flow: Streaming
●
●
●
●
Streaming involves two copyrights
The composition copyright has two rights: reproduction and public performance
DSPs pay both a mechanical royalty (relying on section 115) and a public performance
royalty
DSPs (who rely on MMA) pay the MLC who pays publisher (or independent writers if
they don’t have a publisher.
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Basic Terms Across all Publishing Contracts
● Term - the period during which the writer is exclusive and must deliver songs to the
publisher.
● Ownership/retention period - the period during which the publisher has the exclusive
right to exploit the compositions.
● It is more common for a publisher in a co-publishing agreement to give a contractual
reversion for the compositions than for a label to do the same with recordings.
Publishing Advance
● Non Returnable
● Recovered from royalties payable to writer (like record deal)
● Similar formulas for subsequent periods as record deals
○ (prior earnings formula with min and max maybe less unrecouped with subfloor)
● Publishers may get to hear songs before playing advances after the first contract period
● Generally, the Term or the retention period will extend if unrecouped
● If there are contract periods:
○ Advances will be calculated similar to record deals
○ The first advance will be negotiated and subsequent advances will be based on a
formula of royalty earnings on prior albums
○ There will be a ceiling and a floor (or minimum and maximum)
● If there are no contract periods
○ The advance will be negotiated
○ The advance may be paid over time or when the songwriter delivers a certain
number of songs or becomes recouped.
Publishing Royalties
● The publisher pays the writer the writer’s share and, in co-pub agreements, a
percentage of the publisher’s share of net receipts.
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●
●
All royalties flow through publisher except public performance where 50% is paid directly
to the writer by a performance rights organization (PRO)
Advances are recouped from the songwriter’s royalties.
Reversion
● Songwriter deals less likely to have contractual reversion
● Co-pub deals often have contractual reversion (current trend)
○ Publishers may retain ownership of their share or maintain admin rights of their
share
○ Reversion is often contingent on recoupment. Writer should get right to buy back.
Usually at 110% or 115% of the unrecouped balance.
● Even if writer can’t negotiate overall reversion, writer may obtain reversion if:
○ Songs are not exploited
○ Songs are not generating a minimum level of income
● Admin and collection deals - reversion is inapplicable
Delivery Obligation = MDRC
Delivery Obligation (per contract period)
Minimum Delivery & Release Commitment (MDRC)
The definition of MDRC is crucial. In simplest terms, the writer must deliver a minimum number
of songs that are released for which the writer is paid a minimum rate.
But the details are crucial
● What constitutes Release - digital vs. physical?
● Major Label?
● US release?
● If a writer writes a percentage of a song, does it count?
● Does a song licensed at less than full statutory rate count?
● Even if not physical US release by major, the MDRC is fulfilled if recouped?
MDRC can impact the Term and the Advance
The writer has to satisfy the MDRC to progress the term and to receive her advance.
MDRC Protection
Writer should try to get the following protection:
● If an album does not meet the MDRC because it is not released by a major in the U.S. in
physical format, but the royalties generated recoup the advance, then the MDRC should
be satisfied.
● Obtain protection for a songwriter in a publishing agreement so that the percentage of
co-written songs by that writer will count toward her MDRC.
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Creative Controls
These are all negotiated. Traditionally, publishers grant more approvals to songwriters than
labels do to artists.
●
●
Covers (domestic admin deals & sub-pub deals)
○ More work for the administrator/publisher
○ Higher fee?
○ Longer term?
○ Portion of copyright in cover is transferred?
Expenses that may be deduced before writer is paid
○ Admin Fee
○ Collection Fees (Harry Fox)
○ Actual costs (registration fees, advertising, etc)
○ Attorney Fees (litigation)
Basic Publishing Terms
● Accounting
○ Used to see more quarterly
○ More semi-annual accounting (like record deals)
● Audits
○ Similar to record deals
○ Writer will have a period in which to audit
○ Waiver of right to audit if not done in the period
● Exceptions to Exclusivity
○ Film companies require ownership
Public Performance Royalties
● Writer’s share is Paid DIRECTLY to Writer and Publisher’s Share Goes to Publisher
● For all other publishing revenue, publisher collects and pay “writers” share” to the writer.
Public Performance Revenue Sources
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Licensed and collected by PROs (ASCAP/BMI/SESAC/GMR)
● General Licensing
● Live performances/concerts
● Radio
● Television
● Digital Services
Public Performance
● Public performances have changed
○ Public Performance Revenue has grown as mechanicals have shrunk
○ Public Performance royalties make up a larger percentage of a writer/publisher’s
revenue
○ Used to be harder to collect: bars, TV shows, restaurants, radio stations, etc.
○ Digital performances are easier to track and collect
○ New activity in public performance
■ Publishers wanted to directly license public performance (and not license
through PROs) and
■ New entrant (Global Music Rights
● BMI and ASCAP operate under consent decrees because they operate at significant
market share and could wield market power.
Hot Topic: Direct Deals
Major Publishers want to withdraw their digital rights from ASCAP/BMI
● Publishers thought they could better rates from ASCAP/BMI
● Publishers don’t want to pay ASCAP/BMI their admin fee
● Publishers tell pandora that it must enter into direct deals with Publishers (not
ASCAP/BMI)
● Pandora sues and claims violations of consent decree & court agrees
● Publishers must keep all rights with ASCAP/BMI or withdraw all rights (can’t withdraw
just digital rights)
● Publishers have since made direct deals with some digital providers (who need other
rights) (Apple has made direct deals but spotify has not)
Sub-Publishing
● The assignment of sub-licensing of rights of US songwriters or publishers outside of the
US.
● Similar to record labels, the major US publishers will have affiliates outside of the uS.
● Smaller or independent publishers and some songwriters will sub-license their rights.
Sub-Publishing Deals: US publishers/writers deals for ex-US
● Sub-publishing Deals
○ Sub-publisher will perform the licensing and collection duties of the US publisher
or songwriter and charge a fee.
○ 10-50% fee (most are 15-25% range)
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○
○
●
●
●
Higher for covers by local artists (40-50%)
Remember the writers share of public performance is paid directly to the US
PRO.
Mandatory mechanical rights collection societies (like Harry Fox but mandatory)
○ Often government owned or affiliated
○ Percentage of price rather than penny rate (US)
○ The labels and DSPs pay into the collection society
○ Sub-publishers apply to the collection society for compositions they control
Foreign Performance Right societies (Ex. PRS (UK), SACEM (France), JASRAC (JPN)
○ Foreign PROs pay writers share to ASCAP/BMI and sub-publishers collect the
publisher’s share
○ One PRO per country.
Digital Licensing Companies
○ The major US publishers have created joint ventures with the foreign
performance right societies to enable the US publishers to do direct global digital
deals.
○ The US publishers have direct digital deals outside of the US.
Sub-Publisher Deal Terms
● Writers making a deal with US publisher have strong argument for “at source” if US
publisher owns the affiliates outside the US.
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●
●
Writers can try to get US publisher to absorb sub-pub fee as part of the fee the US
publisher takes.
Writers can try to cap the sub-publisher’s fee.
Co-Writers
Songwriting/collaborations = Undivided Interest in a joint work
● Writers can contractually alter the financial arrangement to reflect their contributions
(e.g. one writer gets ⅓ of the financial interest and the other gets ⅔)
● Writers can’t alter the joint liability (but can indemnify one another).
Co-writers should have co-publishing agreements among themselves to address these issues.
● Copyright Ownership
○ Co-own?
○ 100% owned by one but revenue share for another?
● Revenue Share
○ Often follows ownership split, not always
○ Conflict for lawyer representing a band with different interests
○ Ex. lead singer writes songs but grants revenue share or ownership share to
other members
● Administrative Rights
○ Without agreement, each can license
○ Each administers his/her share (split copyright syndrome)
Songwriters Revenues and Parity
A stream on an interactive digital service is both a mechanical royalty (a reproduction) and a
public performance. DSPs must pay mechanical royalties and public performance royalties.
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The mechanical royalty is governed by section 115
The Economics: Tension around Parity
● DSPs pay @15% of revenue to songwriters/publishers
● DSPs pay @55-65% to labels
● Terrestrial radio pays less than 4% to songwriters/publishers and 0% to
performers/labels
This disparity leads to different arguments/actions:
● The music owners argue that DSPs should pay more for music content
● DSPs (especially Spotify) are under pressure to reduce music payments.
● Some argue that the share of DSP revenue paid to the record labels should be reduced
to pay more to the songwriters
● Some argue that major publishers are owned by the same companies that own the
major labels. And, as a result, the labels will not allow a reduction of their revenue to go
to the publishers and songwriters.
● The 115 streaming rate is a percentage of the DSPs revenues less what the DSPs pay
for public performance. This arguably caps public performance license fees.
● There is legislation pending which would require radio to pay a performance royalty for
sound recordings.
Record Contract vs. Publishing Contract
● It is less important now because streaming royalties paid pursuant to section 115 and
controlled comp provisions in post 1995 contracts are unenforceable.
● But if an artist entered into a recording agreement with a Controlled Comp Provision with
a reduced rate and the artist had a publishing with MDRC that required a full rate, the
writer may not meet their MDRC and/or the advance could be reduced.
Merchandise
● Functions of a Merchandise Company
● Similar concept to record and publishing deals: Artist grants exclusive rights to
Merchandise company in exchange for a royalty.
○ Design
○ Manufacture
○ Distribute
○ Litigate
○ Piracy
● Difference: artist owns the merchandise designs and licenses to a merchandise
company.
● So the rights to the merchandise stay with the artist post-term. That is different than
record and publishing deals.
● Tour
● Retail
○ Physical Retail
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○ On-line Retail
Advances in tour merchandise deals may be returnable.
Tour Merchandise
● Term
○ Years or Tour Cycles or Album Cycles
○ Extended if unrecouped
■ Right to repay and terminate
● Royalties - % of Gross (price less taxes and cc fees)
○ US and Canada 20-40% (Escalations possible)
○ Superstars get higher rate or net profits
○ Foreign royalties are is % of US rate or % of net profits. (price less COGS and
taxes)
○ Stadiums & festivals – net profits often
● Advances (prepayment of royalties)
○ Advances can be Returnable and/or interest-bearing if the artist doesn’t meet
Performance minimums
○ This can happen if:
■ The artist fails to play in front of the right # of people
■ Tour is postponed
■ Tour is canceled.
● Performance minimums - play in front of X Qualifying People at Qualifying
Performances.
○ Qualifying Person - a person who pays (gratis tickets don’t count). People at
stadium shows and ex-US shows are discounted.
○ Qualifying Performance - Headlining and/or certain size venue
● Note: if an artist has to return an advance it should be prorata and limited to the
unrecouped balance only.
● Per Head - revenue generated at a show divided by capacity at show.
Hall Fees - fee charged by venue for selling merchandise (25-35%)
Merchandise company does not negotiate the hall fees. The agent does on behalf of the artist.
So to protect themselves, the merch company can negotiate with the artist:
● The excess hall fees reduces artist royalty (e.g. above 30%, then excess comes from
artist)
● Pay the artist a combined hall and Artist Royalty (e.g. 65%)
Alternative Tour Merch Deal
● Tour Supply - sell merchandise to artist at marked up price
● Like P&D deal in records or admin/collections deal in publishing
● Artist gets less service from the merchandise company, keeps the profits but bears the
inventory risk.
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●
Ex. t-shirt costs $6 to manufacture, sells to artist for $8, but if there are too many t-shirts,
the artist is left with the excess inventory.
Tour Merchandise
● Advances (prepayment or royalties)
● Advances can be Returnable and/or interest bearing if the artist doesn’t meet
performance minimums
● This can happen if:
○ The artist fails to play in front of right # of people
○ Tour is postponed
○ Tour is canceled
● Performance minimums: - play in front of X Qualifying People at Qualifying
Performances
● Qualifying Person – a person who pays (gratis tickets don’t count). People at stadium
shows and ex-US shows are discounted
● Qualifying Performance – Headline and/or certain size venue
● NoteL If an artist has to return an advance, it should be prorata and limited to the
unrecouped balance only
● Per Head – revenue generated at a show divided by capacity at show
● Merchandise sales at a show of 1,000 people were $10,000, they earned $10/head. Itb
doesn’t mean everyone spent $10.00, but that is the average.
Retail Merch
● Retail merch (physical stores excluding venues)
○ Retail sales (merch company sells directly to retailer and pays artist royalty)
○ Licensing
● Royalties for Retail – % of whole sale (less taxes, returns, marketing, etc.)
○ Speciality Store – Hot topic (15-40%)
○ Mid-Tier – JC Penny’s (% of specialty rate)
○ Mass Merchants – Walmart (lower % of specialty rate)
○ Speciality items (% of regular rate – less than mass) Because there is a higher
cost and risk
● Licensing
○ There are some items which the merchandise company does not manufacture or
sell directly
○ Merch company licenses the rights to a third party
○ Merch company keeps a % of what they receive from the third party and remits
the remainder to the artist
○ Licensing deals may last longer than the artist’s deal with the merchandise
company
On-line Merch Sales
Two types of online stores:
● Third party sites (like physical retail) (e.g. Amazon)
○ Merch company sells the merch to the third party at a wholesale price
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●
○ Just like physical retail stores
○ Artist paid royalty of wholesale less taxes, etc
Direct sites by merch company (through artist site or merch site) = higher royalty or % of
profits
○ Wholesale or actual price to customer
○ Shipping & handling margin?
○ Net profit deals shift inventory risk
Other Merch Terms
Creative Controls – Does artist get approval over:
● Designs
● Likeness
● Quality of materials
● Categories of merchandise
● Sub-licensees (remember for licensing of items that merch company doesn’t directly
manufacture)
End of Term or Post Term
● Extension/repayment if unrecouped
● Inventory - merch company will want to dump. Artists can seek protection:
○ Merch company can’t manufacture merch at the end of the deal or during the sell
off period
○ Artist can buy back – cost plus %
○ Approval over discounting – prevent deep discounting (dumping)
● Merch company’s sell off period should be non-exclusive
Of the deals we have discussed where there is a transfer of rights (record and publishing),
merchandise deals tend to have the shortest terms:
● So merchandise companies try to protect themselves with a first look/match provision
● They have the first right to negotiate with the artist for the next merchandise cycle
(exclusive) and the right to match other offers that the artist gets
Whenever there is an exclusive grant of rights, the artist must think about exclusions to that
exclusivity (promotional merch, 360 deals)
Endorsement Deals
Many types of Endorsement & Licensing Deals
There are as many types of deals as there are artists and products
● Straight Endorsement – Cover Girl endorsed by Gwen Stefani or Pepsi endorsed by
Beyonce
● Trademark License – Glow by J Lo
● Artist created and owned brands – Pleasing by Harry Styles
● Artist with corporate roles (Trent Reznor and Beats)
Straight Endorsement Deals
More straight forward than trademark deal
● Term - a term to use assets (12-18 months)
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●
●
●
●
Territory – where can assets be used
Compensation – flat fee (usually)
Artist obligations – photo shoot, television shows, meet and greets, song(?), appear with
the product (e.g. wear clothes, drink pepsi, etc), social networks
Exclusivity – no competing products during term
Trademark License Deals
● Term
○ Contract Periods (Initial Period plus Options Periods)
○ Usually longer than straight endorsement deal
● Compensation
○ Royalty – wholesale or suggested retail
○ Advance – prepayment of royalties
○ Guarantee – money guaranteed during the term (the difference between an
advance and guarantee is timing)
○ Flat fee – non-recoupable money
○ Equity
● Exclusivity
○ Category of products
○ Exceptions for TV, film and festivals
● Creative Controls
○ Product
○ Marketing
○ Use of artist’s name, likeness and trademarks
● Business Controls
○ Price
○ Retail/Exclusivity
● Duties of Artist
○ Market and promote
○ # of days of service (press, photo sessions, performances, TV, meet and greets,
etc).
○ Autographed product
○ Social media (twitter, facebook, etc).
● Duties of Company
○ Manufacture
○ Market
○ Exclusivity
○ Account (and with accounting comes audits)
○ Insurance
● Morals Clause
○ Conviction of felony or crime of moral turpitude
○ Test positive for illegal substance
○ Disaparages company
● Termination
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●
●
○ Breach of morals clause
○ Death or disability
○ Breaches exclusivity
Remedies
○ Pay back money (morals clause)
○ Company can continue to use IP (death or disability)
Post Term
○ Inventory
○ Exclusivity
Artist Owned Products
● Artist has more control
● Artist owns the product (instead of receiving a flat fee or percentage while the product
exists)
● Artist takes the risk and needs to invest (or seek investment)
Third Party Licensing Film/TV Synchronization
● Pre-existing music
○ Composition & Sound Recording (famous)
○ Music libraries – provided a cheaper, often “sound alike” music for TV, Film, etc
● Original (newly created music)
○ Compositions & Sound recordings
○ Orchestral Score
Film/TV Synchronization Contract Terms
● Perpetual
○ Sometimes less but with options for more
○ Example: festival license with an option for broader distribution
● Worldwide
○ Sometimes less but with options for more
○ Example: US license but option for additional territories
● Forms of exploitation were delineated at one point (e.g. theatrical and home video
devices
○ All Media Now Known or hereafter devised
● Compensation
● Existing Songs (downward pressure on music pricing
○ Use in film (end-title, opening sequence, amount used, etc)
○ Single tie-in
○ Budget of film (tiered pricing – depends on box office or & of theaters)
● New Recordings – depends on status of artist and scope of use
○ Publishing – studios try to own publishing for new songs
■ Animated vs. Live Action (often studio gets their uses and label gets
some uses and the rest are frozen)
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■
●
●
Composers for film and TV, the studios own but give the writer the writer’s
share of public performance
Background music licenses
○ Music libraries
Composers
○ Fees depend on
■ Film budget
■ Composer Status
○ Royalties for soundtrack album
■ Producer
■ Conductor
■ Recoupment of conversion costs (but may be subject to studio’s
recoupment)
○ Studios own the Publishing – give writer’s share of public performance to
composer
○ Netflix – trying to buy out composers so no ongoing public performance fees
payable to writer.
Video Games Similar to Film (with some nuances)
● Types of Use
○ Background music
○ Music based games (Guitar Hero, Just Dance)
○ Digital Downloads (Guitar Hero vs. Call of Duty)
○ Score
● Scope of Use
○ All rights
○ Limited Rights
■ Term (surprisingly not always perpetual for music licenses)
■ Territory
■ Media
■ All Media Now Known or hereafter devised
■ Soundtrack album (rare)
● Compensation
○ Pre-existing music license, new music & score used as background in games is a
flat fee (no royalty participation)
○ Music Based games (royalty $0.015-0.08/per side and % of net receipts for
downloads)
Role of the Agent
● Procures Employment (books tours, live performances, etc.)
● Agent’s importance has grown as tour revenue as a percentage of the artist’s income
has grown
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●
Provides career advice (examples) that take into account perception and artist
development:
○ Which venues?
○ What acts does the artist play with?
○ How many tickets? Undersell or risk not sell out?
○ Ticket Price?
○ Headline? Vs. opening/support?
○ What date do tickets go on sale?
○ What slot at festival?
○ Television – Kimmel vs. Fallon? Ellen vs. SN?
○ What night in which city?
Promoters
● Promoters role:
○ Puts on the show & takes certain liabilities
○ Publicizes the show
○ Pays guarantee
● Most independent promoters have been acquired by Live Nation and AEG. Live Nation
and AEG promote global tours
● Independent Promoters
○ Independents left in a few markets
○ Specialty promotions (Casinos, state fairs)
● Private Events (no promoter)
○ Be especially careful about insurance liability
National & Global Deals with Promoter
● National tours and global tours started @ 10 years ago. Given the consolidation, there is
no real alternative (except for heritage artists who play casinos and state fairs, etc.).
● National and global deals are cross-collateralized
○ Artist may be able to “uncross” territories
● Promoter pays a guarantee or advance upfront which artists use to stage a tour
(rehearsals, production)
● The guarantee is recovered from the pot or the revenues from the tour
● Some monies (e.g. merch, VIP tickets) may be excluded from the pot.
Promotor Deals
Two Types of Deals with Promoters
● Guarantee
○ Guaranteed amount of money against a percentage of the net
○ Typical net split is 90/10 (but can vary)
○ Guarantee is recovered from a specified number of tour dates
● Earn Out
○ Artist gets an advance and remains in deal until the artist “earns out” from the
artist’s share of the net split
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○
○
Recovery is not limited to one tour or specified number of tour dates
Approvals become important creatively and financially.
Calculation of Net Split
In both Guarantee and Earnout deals, you have to calculate the split between the promoter and
the artist.
Here is a calculation of a 90/10 split:
● Ticket price x seats = Revenue (less facility and ticket fees)
○ (VIP tickets & merchandise included? That’s negotiated)
● Then deduct promoter costs
● Apply split (e.g. 90% to artist and 10% to promoter)
● Artist pays artist’s costs from their share
● Artist also pays commission from their share
Remember: there are “rebates” or “inside deals” or insides where the promoter is receiving
money (e.g. annual rebate from a local advertiser, etc.)
Tour Costs
● Promoter Costs – “cost of the show at the venue”
○ Advertising
○ Rent for the building
○ Venue staff & stage crew
○ Rental of basic equipment
○ Insurance
○ Catering
○ Transportation to show
● Artist Costs – “cost between shows”
○ Crew and band salaries
○ Food (not at venue)
○ Transportation between shows
○ Hotel
○ Special stage, sound & lights
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●
Note: $1 of savings is worth more to an artist than $1 of revenue
Secondary Ticketing
● The secondary ticketing takes money from the artists
● Tickets are sold via a third-party platform (who takes no risk) and keeps 10-12%
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●
●
Fans pay an increased price – based on the market. But artists make nothing from the
increased price.
Industry needs dynamic ticket pricing.
2022 Consumption Methods
● Free Access (supported by advertising)
○ Interactive
■ Examples: Youtube, Spotify basic, Soundcloud
○ Non-interactive (but really limited interactivity)
■ Example: Pandora [acquired by SiriusXM]
● Pay for Access (paid subscription services)
○ Examples: Spotify premium, Apple Music, Amazon Music Unlimited and Prime
Music, Youtube Premium, Tidal, Soundcloud Pro, Deezer premium, Sirius XM
● Pay for Purchase (physical and digital
○ Examples: Target, Amoeba, Amazon
Digital Millennium Copyright Act (DMCA): Amended Title 17 of U.S.C
Copyright law clearly had not kept pace with technology. That led to the DMCA signed into law
by President Clinton in 1998
● Two primary purposes:
○ Extend the reach of copyright law into the digital age
○ A balancing or rights and responsibilities between the ISP and content owner so
that innocent ISPs were not liable for the passive storage and retransmission of
infringing content uploaded by a user if the ISP complied with certain
prerequisites
● ISPs who are gateways to the Internet can avail themselves of the safe harbor provision
of the DMCA. 17 U.S.C. Section 512
Safe Harbor: Protect ISPs from Liability for Infringing Content on their platform/services
For an entity to qualify under the DMCA for “safe harbor” the following requirements must be
met:
● They do not receive direct financial benefit from the infringing activity;
● They are not aware of the presence of infringing activity or know facts or circumstances
that would make the infringing activity apparent (“red flag”);
● Upon receiving notice from the copyright owner, they act quickly to remove the
material
● They must adhere to a policy for termination of service for repeat infringers.
The DMCA puts the burden of policing the infringement of copyrighted material on the content
owners.
DMCA other Important Provisions
Remember: traditionally, no public performance right in sound recordings
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In 1995, Congress enacted the Digital Performance RIght in Sound Recordings Act
(DPRSRA) to fill the void in legislation for the protection of copyrighted works that are
digitally transmitted.
In 1998, (DMCA) Congress amended several aspects of the statute to provide for and
clarify the treatment of different types of digital audio transmissions.
The end result: in exchange for the public performance right for sound recordings, the
labels didn’t object to a compulsory license for sound recordings for “non-interactive
services”
DMCA Section 114 - Compulsory License for Non-Interactive, Audio Digital Services
● Under Section 112 and 114 of the Copyright Act, an entity who operates a noninteractive, digital, audio service can get a compulsory license for the sound recordings.
● A service can qualify for the statutory DMCA rate – which is lower than on-demand
streaming rates that interactive streaming companies (e.g. Spotify) pay if complaint:\
○ Limit number of tracks by artist
○ Non-interactive (not on-demand, only skip a certain number of songs)
● Sirius XM and Pandora Classic are both beneficiaries of section 112 and 114 and pay a
statutory rate for the public performance of sound recordings
Pay for Purchase (physical and digital
● There is a reproduction right for the sound recording and the composition
● Labels get paid a wholesale price for reproduction of sound recordings & pay for the
performing artist record royalties
● Labels pay mechanical royalties to songwriter/publishers for the reproduction of
compositions
Free Access Models – Interactive
Interactive, Audio-Visual DMCA Digital Service (ad-supported)(Youtube)
● There is a reproduction right for the sound recording and the composition and a public
performance for the composition
● Youtube can avail itself of “safe harbor” which informs the deals that the labels,
publishers and PROs have made with Youtube
● Two kinds of videos: premium content (label generated videos) & UGC (user generated
content)
● CPMS (or the dollar figure which advertisers will pay per 1,000 views) are much higher
for premium content
● These deals provide a percentage of ad revenue (40-55%) is paid to content owners
(with no per stream minimums)
Free Access Models - Non-Interactive Audio, Digital Service
● Examples: Pandora, iHeart Radio (digital), SiriusXM
● There is a public performance right for the sound recording and the composition
● Compulsory license & rates created under DMCA for the sound recordings.
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ASCAP/BMI operate pursuant to consent decree so can’t refuse a license, but operate at
over 40% market share
SESAC/FMR and the publishers (if they can withdraw their digital rights) are in unique
bargaining positions.
Different rates for different services.
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