Everything you need to know about the legal aspects of the music business and how we can help as your attorney
The music business and the rights and laws that go with it can be very confusing. This is primarily because there are two types of music rights: publishing/compositions and sound recordings. Each has very different laws, contracts, and business practices. You can find a brief outline of both below, but feel free to contact us for a free consultation if you have further questions.
types of Music Licenses
Before diving into the distinctions between music compositions and sound recordings, it’s important to understand the different types of music licenses and how they function
A mechanical license is needed for any physical reproduction of an artist’s work. Primarily this refers to the manufacturing of CDs or distribution of music in any tangible form. An artist that does not write his own songs and is recording a cover version will need a mechanical license. For this type of license, royalties goes to the songwriter, however in some cases the payments are divided with the band, the label and the publishers. Generally, the Harry Fox Agency represents music publishers in issuing these licenses.
One of the most used licenses in the market. It ties the copyright owner and the licensee, granting permission to use a song and “sync” it with a visual media. Synchronization licenses are usually used in television shows, movies, commercials and other videos.
Master licenses are a bit more complex than most others, in that they’re similar to sync licenses but not quite as broad-ranging. A master right is held by the person who owns the recording of a song. The master license gives the user permission to use a pre-recorded version of a song in a visual or audio project, but does not allow a user to re-record a song for a project (i.e. to cover or edit a song). Generally a master license is issued in conjunction with a sync license.
While ‘performance’ may be a limiting term, it applies generally to any broadcast of an artist’s work. This includes businesses who play music in their store, jukeboxes, or any other form of public performance — all the way up to concerts.
Performing rights organizations (PROs) such as BMI, SESAC, and ASCAP generally manage public performance licenses and issue music royalties to artists on a per-use basis. Generally, PROs issue blanket licenses to their entire catalog. These blanket licenses are individually negotiated and can be based on a flat fee, number of subscribers, a percentage of ad revenue, or any number of factors. They have a maximum term of 5 years. Songwriters and publishers can also license their work directly to licensees despite being affiliated with a PRO.
This license refers to the physical copy of the sheet music that an artist has created. It’s needed when someone prints a sheet music compilation, or any time the sheet music of copyrighted work is reproduced.
Also a very specific form of written permission, theatrical licenses are very common in the theater industry. The license is required any time a copyrighted work is performed on-stage in front of an audience.
Sampling involves digitally copying and remixing sounds from previously recorded albums. When done correctly, this practice requires two licenses; one from each the owner of the sound recording as well as the owner of the musical composition. Failure to get the proper licenses for sampling can have drastic consequences including signing away part or full ownership of your song. Always contact us for help clearing your samples!
Music Publishing agreements
Music publishing rights are given to the songwriter, not the performer, unless of course they are one in the same. What does a music publishing company do? The duties of the music publisher include working with songwriters creatively, protecting and enforcing copyrights, seeking potential licenses, entering into licensing agreements, and most importantly, collecting and dispersing the resulting income.
The way music is distributed and consumed has been changing pretty much constantly since the dawn of automatic piano rolls. Each of these new technologies have helped make the music publishing business explode. However, these advancements have caused and continue to cause many business and legal challenges due to rampant infringement. Finally, technological advances have brought about many changes in the law and industry practices, but the law is far from being perfect in this digital age, as I state here. In any event, here’s a brief outline of the major agreements and considerations in music publishing law and contracts. This list is by no means exhaustive and countless other clauses are up for negotiations between attorneys, so always contact us for counsel and review!
With one exception, music publishing revenues are divided equally between the writer and the publisher. That exception is when songwriters are able to sign co-publishing agreements in which they retain a portion of the copyright in their songs. Generally, songwriters will get the usual 50% of revenue as well as 25% of net income for a total of 75%. Co-publishing agreements are discussed more below.
In a songwriter agreement the songwriter will transfer 100% of the copyright and administration rights to the publisher in exchange for 50% of the income which may include an advance on royalties. These agreements can be for a single song, a number of specified songs, all songs written during an exclusive term, or some songs written during a specified term. The songwriter or their heirs have the right to recapture US copyright in their songs 35 years after the assignment to the publisher. These agreements usually occur between new name and less established songwriters.
Here, the songwriter retains 100% of the copyright and the publisher receives an administration fee (usually 15 to 20% of gross income). In contrast to co-publishing agreements administrator’s rights usually expire after three years or so.
As with administration agreements, the publisher acquires no ownership rights. Again, typically for a period of three years the publisher agrees to handle the paperwork of registration, licensing, and collection in exchange for 5 to 15% of gross receipts. The major difference between a collection agreement and administration agreement is that the publisher generally does not undertake any affirmative obligation to exploit the songs.
These are agreements between US publishers and foreign publishers that are similar to US administration agreements. These agreements often have stipulations of artistic and economic control such as not allowing copper recordings unless the translated or adapted lyrics have been approved by the original publisher.
Although there is no standard form of co-publishing agreement, every major music publisher has a basic form or series of forms to meet different needs. Typically, these agreements split copyright ownership 50-50, so that the songwriter gets their typical 50% royalty of all income in addition to 25% of profit for a total of 75%.
Bargaining can go back and forth on many issues that we as your lawyer can advocate. The artist generally wants a long commitment, few company options, large advances, and significant creative control, while the record label will want all the opposite. Here are the general major provisions of co-publishing deals:
- Another bargaining point can be the right to the reversion of the songwriter’s copyright at an earlier date than the 35 years set by the copyright statute.
- The publisher will typically have two or three options in the company’s favor to renew if the artist is a success.
- Advances are also hotly negotiated with payments typically arriving in stages such as the signing of the agreement, securing a record deal, release of the first album and perhaps “sales kickers” when the album sells a certain amount of units.
- What songs are included is always hotly debated with many publishers insisting on every unpublished song the songwriter ever wrote or everything written during the term. The songwriter can of course seek to limit this scope.
- Territory is usually open to negotiation as well. If the publisher is paying a significant advance, they will almost always insist upon worldwide rights.
- Administration rights are almost always exclusive to the publisher by your attorney can fight to impose some restrictions regarding the exercise of certain rights in which prior approval or consultation will be required with the writer. For example some writers are hostile to the idea of their songs appearing in motion pictures or commercials.
- What is “taken off the top” may also be negotiable but usually includes an administration fee and the costs of copyright registration, collection of income, and making demos.
These two terms reference how income is divided from foreign subpublishers. Under a receipts deal, the division of income is based on what is collected by the original publisher from the subpublisher which includes the subpublishers fees. With a source deal, the originating US publisher absorbs the subpublisher fee out of their percentage. If subpublishers themselves subpublish to other publishers in other territories the fee buildup can have a snowball effect in receipt deals. However, receipt deals are the norm unless a songwriter or copublisher adds significant bargaining power due to past hits. That is not to say that a maximum percentage of which can be deducted cannot be specified.
Generally music publishers have two obligations, the obligation to exploit and the obligation to account and pay. These obligations will vary from contract to contract. Publishing companies generally try to limit their obligation to exploit and instead stated that their only real obligation is the customary housekeeping details such as registration of the copyright and so on as well as accounting and payment of royalties. Songwriters can advocate for clause to have their songs revert back to them if they are not exploited for a set time of typically two years.
Publishers will typically try to limit the period of time that a songwriter/co-publisher may request an audit. These terms typically range from three to six years.
Record Deals & Industry Considerations
Record labels are responsible for producing and promoting their artists sound recordings. This is a high risk business that requires significant investment to succeed. Here are the principal considerations one should know about the business as well as the major clauses in a record deal:
The cost for a major label album can run anywhere from $100,000-700,000+. This is called a “recording fund,” and includes studio costs, producers, and mastering engineers. After production of the album, any remaining amount in the fund is advanced to the artist. However, the recording fund is almost always subject to recoupment by the label prior to paying the artist royalties. In addition to the recording fund, the label will also advance funding for radio and video promotions as well as touring, all of which will also be subject to recoupment. Royalty payments to other creative contributors such as producers will also be subtracted from the artist’s payment.
The good news is that if the album does not recoup the total amount advanced, the artist is not liable for repayment. Only around 1 and 20 new-artist albums manage to break even. If the artist fails to recoup the labels advancement, the label will rarely, if ever, exercise their option to renew the contract.
Recording artists receive revenue from four different avenues; recording, publishing; touring; and merchandise sales. Generally, record labels do not participate in these auxiliary revenue streams and third-party agreements are signed for each.
These agreements continue to become more and more complex with typical agreements with a major label running in excess of 70 pages. What an artist is able to get out of a label totally depends on bargaining power and the skill and knowledge of their attorney. The initial offer from a label will certainly not be drafted in favor of the artist and accommodations well need to be asked for. Here are some of the major clauses and negotiating points that we advocate for in record deals:
- Artists may enter the agreement individually, or as we recommend, through entities called “loan out” companies. Contracting through such companies protects the individual from certain liabilities. In response, the record company will require the artist to sign what is called an “inducement letter” which assures the label that the artist will remain responsible for performing the personal services required under the recording agreement.
- Recording agreements are almost always exclusive. Exceptions we advocate for are recording as a featured artist on another artist’s recording session as well as performances on soundtrack records.
- If the label is signing a group they will often include what is called a “leaving member” clause which will give the label an option to renew the agreement even if members leave the group.
- The term of the contract is usually not defined in a term of years but an “initial period” within which one or more record albums must be delivered. We will advocate for the number of albums to be “firm” which means the label must record and release the albums or pay the artist a negotiated amount if not released. This is called a “pay or play” provision. Absent this provision, the label generally has the authority to terminate the agreement at any time and not release an album.
- The agreement will contain a delivery clause which will allow the label to determine whether the recordings are technically and commercially satisfactory. Generally the artists will want such approvals to be mutual at most.
- If signing with a major label the “territory” will generally be worldwide, but it the label is smaller and independent, the artist should request the right to license their masters to third-party labels in other territories.
- The agreement will include a provision for music videos which will be considered a “recording cost” that is recoupable against artists royalties. Negotiations can be made so that the label will agree to recoup only 50% of the video production cost from the sale of records and the rest from revenue pertaining to the video.
- Creative control will be hotly contested and again will depend on negotiating strength and bargaining position, especially the artist’s past track record.The label will originally ask for final say on all recordings and compositions including the producers to be used.
- Labels will almost always get worldwide ownership rights. However, there is room for negotiations. As an artist’s attorney, we always insist that publishing income not be “cross collateralized.” For songwriters, this means that income from publishing rights will be separate from sound recordings and will not be applied against the artist’s recoupable account.
- Merchandising rights have become a new point of contention. In the past these rights were typically retained by the artist. However, with declining CD/album sales, labels argue that but for their support and promotion, the artist would have no merchandising value. If these rights are signed over, the artist should insist on creative control on merchandising licensing.
- Artists are generally responsible for hiring producers and engineers. Producers that are entitled to receive a royalty will receive a “letter of direction” which enables them to be paid their royalty directly from the label. However, most deals are considered “all in,” which means that producer royalties will come out of the artist’s cut.
- Artist royalties typically begin at 14% of retail price. Labels try to limit artist royalties to 90% of sales with the argument that 10% is breakage, reminiscent of the days of vinyl albums. This is obviously no longer an issue and eliminating this deduction can be a major deal point in negotiations, especially for new artists. Typically, artists gain one percentage point per new album unless they have a major hit, in which case they can negotiate royalties as high as 20%. Royalties also escalate as certain sales thresholds are hit. Typically a half percent every 500,000 copies.
- Licensing it’s typically split 50-50. A major contention is whether digital downloads should be subject to the regular sales royalty or licensing royalties since record labels are technically licensing the songs to most digital platforms. The courts have recently sided with artists who are now negotiating a 50-50 split on digital downloads. Depending on the label, a wide variety of numbers for digital downloads is possible.
- The artist should request an additional advance called “deficit tour support.” This is an advance to support the artist on the road while promoting the album if the artist is not able to recoup touring cost. This protects the artist from losing money on tour. However, this is a recoupable advance that the label will take before paying royalties.
- The label will attempt to limit the amount of mechanical royalties paid with what is known as a “controlled compositions” clause. This maimly applies to recording artists that write their own songs. Typically, the rate will be 75% of the statutory rate which currently is 9.1 cents per composition. The label will also insist upon limiting the amount of mechanical royalties to a specific number of songs, typically between 10 and 12.
Before signing a publishing or record deal, you need to consult with an entertainment lawyer! We have all of the knowledge and expertise you need! Schedule a free consultation today or come and see us in downtown Ann Arbor!
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