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Agreements in the Music Industry
Musicians, performers, producers, managers and companies in
the music industry will seek to promote their business or
music career in a variety of ways. Both parties to an agreement
should understand the terms on which they are contracting.
An agreement may regulate the parties' behaviour for a considerable
period of time and the effects of a bad deal can be disastrous
for one party or another. For this reason all contracting
parties are well advised to obtain professional advice and
guidance before signing up to any contract
The commentary below is not intended to be an exhaustive
summary of issues to consider in key music industry contracts.
It does however highlight some of the important issues in
the context of recording, publishing and production deals
along with the administration of groups or bands and a consideration
of the manufacture and distribution process and other forms
of commercial exploitation. All music industry negotiations
start with different terms and the bargaining power of different
parties will differ in each case. Are issues which you consider
to be important addressed in the contract in the right way,
if at all?
a) Recording Agreements
Usually the key to a successful career for an artist or group
is the existence of a recording agreement with a record company,
whether with a major record company or an independent. The
advantage to any musician is that money is paid to the artist
at the outset by way of advance and if recordings are a success,
then further income will be forthcoming in the form of royalty
payments.
Notwithstanding the importance of a record deal, the terms
of the deal should be considered extremely carefully by both
parties. Below are some issues which may relevant to one party
or the other:
• Does the contract contain an express provision that
the performer consents to the exploitation of the sound recording
by the record company?
• What is the duration of the contract? Often the contract
is not for a fixed duration. A record company may have option
periods to renew the contract, most probably without the performer's
consent. The contract may continue until a defined number
of records have been recorded by the artist and released.
This may not be particularly advantageous to the artist where
the royalty terms are low.
• Are the parties sure of the extent to which the record
company is entitled to exploit the recordings? Is exploitation
limited to a particular country or to a particular format
such as CDs, rather than exploitation on the internet?
• Are there penalties or termination consequences for
late delivery of an album by the artist to the record company?
• Are the finances for the production dealt with in
the contract? Will the record company bear the production
costs or are these to be borne by the artist out of his advance?
• The record company will usually pay to the artist
an advance. The bigger the advance, the greater is the likelihood
that the contract will contain tougher provisions for the
artist. Advances will usually be "non-returnable"
but "recoupable". That is to say, the artist's royalties
will be used to pay back the advance before the artist receives
any royalties. However the artist is not under any obligation
to return the advance from any other financial source. If
an album is unsuccessful the record company may never recover
the advance.
• There is no standard royalty rate. Royalty rates can
be a flat or set amount, or they may vary depending on the
number of record sales, increasing if, for example, record
sales hit "platinum". The calculation of the royalty
should be considered. Are there any hidden deductions before
the royalty rate is applied, such as packaging costs? Are
there lower royalty rates for different types of sales such
as mail order, budget line labels or compilation albums? Is
the royalty rate lower when the record company exploits the
album abroad through a subsidiary or other company?
• There should be accounting provisions which require
the record company to maintain accurate accounts and the record
company should account to the artist several times each year
for such royalties. In addition, the artist may seek a right
to carry out a professional audit of the accounts to ensure
that they have been maintained accurately. What will be the
consequences of the record company failing to account correctly?
• The artist and the record company will generally be
required to give various "warranties" in the agreement.
For example, a warranty that the artist is not bound by any
pre-existing agreement or a warranty that the record company
will fund and release the sound recordings. You should always
seek professional advice on these issues, the result of failing
to do so could be disastrous.
• The record company may seek the right to reject recordings.
Where this is the case, the basis on which a rejection can
be made should be carefully considered. Should this decision
be based on clear, objective criteria? A right to reject any
album or recording could impact on the duration of the agreement.
b) Publishing Agreements
The publishing agreement between a publishing company and
a writer of music will deal with the commercial exploitation
of the music, or the "underlying works" in a sound
recording. Like the recording agreement, the advantage to
the writer is the payment of an advance of royalties. Again,
the advance is likely to be non-returnable but recoupable
out of royalties and the terms will vary depending on the
size of the advance.
Where the writer is not satisfied with the deals being offered
by the publishing companies, he may decide to set up a publishing
company of his own. In this way he may retain control of the
copyright in his compositions and also the manner in which
the musical works are exploited or are marketed. Any writer
thinking of this as an alternative option should, of course,
seek professional advice.
The following matters are some of the principle issues which
should be considered in the context of a standard publishing
contract:
• The publisher will usually require an exclusivity
provision to ensure that the writer does not enter into a
similar agreement with competing publishers.
• The term of the agreement should be considered carefully.
This may consist of an initial period followed by various
option periods, which are likely to be exercisable by the
publisher. The publisher may for example choose to extend
the contract by exercising an option if the songs of the writer
already provided to the publisher have been commercially successful.
Where they have not, the publisher may decide to terminate
the contract.
• There may be an obligation on the writer to fulfil
a minimum commitment. For example, the record company may
require the writer to deliver sufficient compositions to fill
a 35 minute album and to guarantee the commercial release
of that album in each option period. That may be a particularly
onerous obligation where the writer has no influence over
the release of an album. Advice should be sought in all cases.
• There will usually be a clause which deals with the
transfer or assignment of copyright in any compositions from
the writer to the publisher. The parties should be clear about
the compositions which fall within this transfer. Will this
include compositions written before the agreement is entered
into? It may even apply to compositions which are commenced
while the agreement is alive but completed after its termination.
The writer should also consider whether he will be entitled
to the return of his rights in the songs which he has composed
after the termination of the agreement or at some stage in
the future. In some cases the rights may have been transferred
for good - this may be to the detriment of the writer.
• Like record deals, there will be various provisions
dealing with royalties. Different percentage royalty rates
are likely to apply to different forms of exploitation such
as the sale of print music, the exercise of the "mechanical
rights" by recording the songs, public performances etc.
Usually the publisher will collect monies due from the exploitation
of the compositions and then distribute royalties to the writer,
although this will be subject to the rules of different royalty
collecting societies such as the PRS (Collecting
Societies & Associations). The contract may deal with
these issues expressly.
• All parties should consider what should be done when
songs are exploited abroad and whether relevant tax authorities
have the right to withhold tax on income. Will the writer
obtain the benefit of any tax credit?
• The parties should consider the inclusion of auditing
provisions, which have already been mentioned in the context
of record agreements.
• Similar warranties will also be included and advice
should be sought on whether the relevant party has the authority
to provide these.
c) Management Agreements
The manager can be one of the most important people in the
life of an artist's career. He will usually be appointed by
the artist and he will be expected to use his best endeavours
to further the career of the artist. This is a relationship
of confidence and mutual trust and both parties should ensure
that they comply with this obligation at all times.
The manager will often invest a great amount of time and
sometimes risk his own money in promoting the artist during
the early stages of his career. In return he will expect a
payment and this is normally by way of commission from the
earnings of the artist. Below are some of the main issues
which should be considered in a manager's contract:
• The manager's commission should be considered carefully
by both parties. Any dispute over finances is likely to sour
the relationship to the detriment of both parties. Therefore,
the rate of the commission should be stated (there are industry
norms) and the income to which this commission applies should
also be clearly defined in the agreement. Both parties should
seek professional advice.
• The parties should also consider whether the manager
will be entitled to any continuing commission after the termination
of the agreement. If so the artist may have to pay his former
manager and his new one.
• The territory in which the manager intends to act
should be clearly stated. Usually this will be the world,
although in some cases the artist may prefer to appoint a
separate manager, for example, for the USA. This may be give
rise to conflict which may be avoidable with appropriate contractual
provisions.
• The manager's rights and duties should be set out
clearly in the contract. The manager, for example, may have
the right to negotiate deals, execute documents, carry out
advertising projects, collect money and deal with financial
matters for and on behalf of the artist.
• Where the artist wishes the manager to handle all
financial matters, he should consider the alternatives of
opening a bank account in his name operated by the Manager
subject to limits and controls of opening a bank account in
the name of his accountant or opening a bank account in the
Manager's name. There are advantages and disadvantages in
each and the Artist should seek advice before adopting any
one alternative. The manager should also maintain accurate
accounts books.
• Because of the special relationship between the parties,
the artist should ensure that the manager does not have a
personal or financial interest in any of the deals he introduces
to the artist. For example, where an artist enters into a
record deal, the artist should consider whether the manager
has a financial interest in that record company. If he does,
then there is a risk that he is not acting in the best interests
of the artist. The contract may deal with this point specifically.
In addition to the standard provisions, the agreement should
deal with special circumstances, where for example, the manager
is a company or a manager is providing services to a group
rather than to an individual.
• Where the manager is a company, an artist may want
to ensure that the services of a particular individual are
guaranteed. The relationship between artist and manager is
crucial and therefore the artist may insist that if the services
of a particular person are not available, there should be
a right of termination or other provision dealing with the
matter.
• Where the manager works for a group, there should
be an express provision which deals with any artist leaving
that group. If the contract does not address this issue then
the artist leaving may still be bound to the manager until
the expiration of the contract.
d) Group Management
Where an artist performs as a member of a group it will be
necessary to ensure that he is aware of his responsibilities
to the other members of the group. It is therefore appropriate
to ensure that a workable structure is in place to help the
artists manage their business and commercial affairs.
Partnership
Artists in a group may choose to work together in the form
of a partnership. It may be that the group is a partnership
(by virtue of the law) without being aware of that fact. This
relationship will be governed by the Partnership Act 1890
and unless the artists set out their arrangement in an agreement
dealing expressly with certain issues, it is likely that the
Partnership Act will imply certain rights and obligations.
The agreement should generally deal with the following matters:
• The financial input of each partner for investing
in the group's business and success.
• The allocation of group income to each member of the
group.
• The ownership of songs/compositions. Will these be
owned by the group as a whole, or will the composer maintain
ownership? This requires very careful consideration and professional
advice should be sought.
• How will losses be apportioned?
• The entitlement of any partner to withdraw his/her
profits from the business at any stage.
• The extent to which a member of the group may bind
the rest of the group in deals with third parties.
• The ownership of the group name and any trade marks.
What happens here, if one member of the group leaves and wishes
to use the same name? Often legal problems arise here and
advice should be sought.
• The work and effort which each member of the group
is expected to contribute.
Company
It is quite common for individual artists and groups to establish
limited liability companies through which they can run their
business. The company will be a completely separate legal
entity from the individual artists/shareholders and the artists'
liability will usually be limited to the value of the shares
should the company go into liquidation.
Similar issues will need to be addressed as those considered
for partnerships. However, other legal issues apply to companies
and professional advice should be sought on this. Furthermore,
while the rules of the company or the "Articles of Association"
may place controls on the artists and the way they interact
with and/or run the company, it may still be necessary for
the band members to enter into a separate shareholders' agreement
to regulate their behaviour between each other. This agreement
may, for example, restrict the sale of shares in the company
by any member of the band.
Anyone contracting with the company for the services of the
group may require a guarantee that those services will be
provided. In this case, they may seek an express undertaking
from individual members. On all of these matters, professional
guidance will usually be necessary.
e) Production Agreements
Music producers are often one of the main keys to making
a successful sound recording of a song. The producer is expected
to contribute his expert knowledge of the music business and
the latest musical trends, along with his particular expertise
relating to the use of the recording equipment, in combination
with his musical skills for the creation of a new successful
sound recording.
Where the record producer is an employee of a record company,
it is likely that he will receive a fee for the production
of any record in addition to his basic salary. However, he
is not likely to receive anything more, such as a cut of the
royalties generated by the exploitation of the sound recording.
An independent producer however, is likely to demand a cut
of profits by way of royalty. The extent of his remuneration
and the other terms in the agreement will be a matter for
negotiation and this is likely to depend on his success as
a producer.
The following matters should be considered in any producer
agreement:
• The parties to the agreement - in some cases the artist
will contract for the services of the producer andon other
occasions the relationship will be directly between the record
company and the producer.
• Payment of an advance - because the producer will
be expected to set aside valuable time for the production
of the album he will expect to be paid an advance. The amount
will depend on the recording (single or album for example)
which is being carried out and the length of the recording
period.
• Royalties will usually be payable - the producer should
try to obtain the most efficient method of royalty payment.
If, for example, the artist is responsible for the payment
of royalties out of his own royalty receipts from the record
company, the producer may try to negotiate payment of royalties
direct from the record company. The parties should also consider
whether the royalty rate will be fixed, or be based on some
other objective criteria such as the number of sales of the
album produced. There are many different royalty mechanisms
and professional advice should be sought on this matter.
• Rights in the sound recording - to the extent that
any rights in the sound recording created by the producer
vest in the producer from the outset, the record company should
ensure that those rights are assigned to the record company.
At the very least the agreement should contain a declaration
that the record company owns all the rights in the sound recording.
• Artistic control - it is likely that the producer
will wish to retain some artistic control over the album produced.
This is likely to be a subject for considerable negotiation
and it is unlikely that the producer will be granted any substantial
rights in this respect. Although, of course, he will be expected
to contribute his artistic skills and opinions.
• Budget - where the producer is required to draw up
the budget for the production, this should be estimated only.
He should endeavour to include all potential overheads and
he should also include a margin for unforeseen costs. He should
attempt to limit his liability for failing to keep within
budget.
• Credit - the producer will usually seek a right to
be credited on the album cover or CD packaging. This right
should be specifically set out in the agreement.
• Duties of the producer - the producer will usually
be expected to produce the album within a set budget and within
a defined period of time. He will also be required to attend
the studio at all times specified in a schedule. All duties
should be expressly set out in the agreement.
• Restrictions on recording - the record company may
endeavour to impose restrictions on the producer from recording
other artists during the term of the agreement or beyond.
Any restrictions of this nature should either be avoided or
be sensibly limited to, for example, a set period of time.
f) Manufacture and Distribution
There are many alternative arrangements for the manufacture
and distribution of sound recordings on different media. Many
of these will depend on the commercial standing of the owner
of the sound recording in the international market. Some record
companies have their own manufacture and distribution subsidiaries
world-wide. Other smaller companies often do not have the
resources to carry out their own manufacture and distribution
projects. In this case they will enter into arms' length transactions
with third parties which will provide these services for them.
Some of the common terms which should be considered in a
manufacture and distribution agreement are as follows:
• Delivery - the agreement will provide for the delivery
by the owner of the master sound recording to the manufacturer.
• Licence - the agreement will provide a licence for
the manufacturer to produce copies of the sound recording.
The extent of the licence should be considered very carefully.
Will the licence be sole and exclusive? What is the duration
of the licence and does it limit the media on which reproductions
of the sound recordings may be produced?
• Advance - the owner of the sound recording (usually
the record company) will expect to receive an advance. Part
may be payable on signature and the other on the delivery
of the master sound recordings.
• Royalty provisions - the royalty provisions are likely
to depend on the nature of the deal. Reduced royalty rates
should also be considered where there are reduced rates for
the exploitation of the sound recordings, e.g. club sale recordings
and promotions/advertising
• Trade marks - the manufacturer will require a licence
to incorporate any of the relevant trade marks which are associated
with the record company which owns the rights in the sound
recording into the product packaging. Relevant trade marks
may include the name of the company or the label with which
the sound recording is associated.
• The manufacturer/distributor will usually seek various
warranties from the owner of the sound recordings. The manufacturer
should in particular seek a warranty that the licensor has
obtained all relevant consents for the exploitation of the
sound recording.
• Accounting provisions - the rights owner of the sound
recording should seek the right to verify the accuracy of
accounts maintained by the manufacturer/distributor and also
the right to carry out a professional audit.
• Distribution - will the distribution to wholesale
suppliers carried out by the manufacturer or other parties?
What is the extent of the manufacture licence; does this cover
national distribution only?
• Returns - does the agreement deal with the return
of reproductions of the sound recording ("units")
which are faulty or remain unsold in retail outlets after
a set period of time.
The MCPS plays a role in the issue of licenses to record
the musical works of its members. Where an individual composer
or publishing company is a member of the MCPS, MCPS will issue
licences to manufacturers which record their members works
and ship the recordings for commercial exploitation. The MCPS
has negotiated rates with the BPI to the effect that on every
recording shipped, [8.5%] of the Published Price to Dealers
(PPD) should be paid to the MCPS. This amount will then be
distributed to the relevant MCPS member. In this way the owner
of the underlying rights in the sound recording is financially
rewarded for each recording of the musical work which is manufactured
and shipped.
g) Other Forms of Commercial Exploitation
Merchandising rights - merchandising rights may be granted
in relation to the name and likeness of artists and their
trade marks. Often these rights are granted to a third party
merchandiser, which may or may not be associated with the
recording or manufacture of the relevant sound recording.
Synchronisation rights - these rights allow the use of the
musical work in the sound track for film or television. Usually
the film producer will require a licence to use the underlying
work (the composition) and a licence to use the sound recording.
These rights may be owned by seperate parties and seperate
licence agreements will be entered into.
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