Wednesday, December 28, 2011

Music Business/Law Tips - "Breaking A Record Contract" (Part 3)

California Civil Code Section 3423 provides an artist with another tactic to terminate a record deal. Equity will not require a party to perform under a personal service contract, such as a recording agreement. Equity can, however, stop an artist from performing personal services (i.e. recording) for someone else if a valid contract exists which makes the artist's services exclusive to the first party. Such a remedy is in the form of an injunction which would prevent an artist from jumping ship to another label.

Section 3423, nicknamed the "$9,000 Plus Provision", requires that a record company must make increasing minimum annual payments to an artist in order to obtain an injunction. Although somewhat complicated, the law essentially reads that a record company can get an injunction only if it contractually guarantees the artist $9,000 in the first contract year, $12,000 in the second year and $15,000 per year in years three through seven. In addition, in years four through seven, the company must have paid the artist additional sums of between $15,000 and $90,000.

An important case discussing Section 3423 is Foxx v. Williams, involving comedian Redd Foxx and his record company Dootone. A lawsuit for a declaration of rights was filed by Foxx, and Dootone attempted by cross-complaint to enjoin Foxx from performing for another company. The court found that the Dootone contract did not meet the requirements of the injunction statute because it did not guarantee Foxx any compensation, and thus Dootone could not enjoin Foxx. In expounding on the purpose of the statute, the court stated:

"An injunction which forbids an artist to accept new employment may be a harsh and powerful remedy. The monetary limitation in the statute is intended to serve as a counterweight in balancing the equities. The legislature has concluded that an artist who is not entitled to receive a minimum of $6,000 [$9,000 now] per year by performing his contract should not be subjected to this kind of economic coercion."

A similar case which sided with the label is MCA Records, Inc. v. Newton-John. There, singer Olivia Newton-John, unhappy as a recording artist on MCA, tried to terminate the relationship. MCA sought to enjoin her from recording for another record company. The contract between MCA and John did not expressly guarantee her $6,000 [$9,000 now] per year minimum compensation and thus John argued that she could not be enjoined. On the other hand, her contract did provide her yearly six figure nonreturnable monetary advances from which she was to record albums and pocket the difference between the actual recording costs and the advance (i.e., the "recording fund"). Moreover, the contract gave her exclusive control over the allocation of production costs. Under these facts, the court decided that John was, therefore, guaranteed a minimum of $6,000 [$9,000 now], and consequently MCA was entitled to injunctive relief. On the basis of this case, in order to determine whether the minimum annual payments were made under a recording fund scenario, one would have to deduct reasonable recording expenses to see if the remainder is in excess of $6,000 [$9,000 now]. Practically speaking, this method to break a contract is quite common when an artist records for a small independent label that cannot afford to pay an artist an advance.

[part 4 next time]

Ben McLane Esq

Thursday, December 22, 2011

Music Business/Law Tips - "Breaking A Record Contract" (Part 2)

Another common technique to cancel a recording contract is the use of California Civil Code Section 2855, the so called "Seven-Year Statute". According to this statute, "a contract to render personal service...may not be enforced against the employee beyond seven years from the commencement of service under it." Hence, the Seven-Year Statute prevents a record contract from being enforceable against an artist for longer than seven years.

In general, most recording agreements run for a period of one year, followed by at least four one year optional periods (the "term"). Often, the periods are contingent upon delivery of recorded product. In other words, instead of providing that a period of the agreement will be one year, the term provision may read that a period will last, for example, "one year, or a period of eight months after delivery of a specific number of recordings, whichever is later." A term based on delivery would be open-ended, because the period is dependent upon an unknown future date when the recordings are actually delivered. However, because of Section 2855, few artist contracts are written for a period of more than seven years.

Furthermore, under Section 2855, any employee (i.e. artist) who is a party to a contract to render personal service in the production of phonorecords may not invoke the code as a means of departure until the employee first gives "written notice to the employer... specifying that the employee from and after a future date certain specified in the notice will no longer render service under the contract" by reason of the expiration of the seven year time limit.

Nevertheless, it is important to note that Section 2855 does allow for a record company to sue an artist for monetary damages if, after seven years, the artist terminates the contract and signs with a new company but still owes the first company one or more records. Obviously, however, since the music industry is generally unpredictable with respect to sales, such damages would be speculative.

Interestingly Ms Braxton [discussed last time], who signed her first recording agreement in August 1989, initially utilized Section 2855 when - prior to her bankruptcy petition - she filed a suit against LaFace in the Los Angeles Superior Court on the basis that her agreement became invalid in August 1996. Apparently, before the civil action was filed she had held discussions with her label about adjusting the terms of the contract, but the talks had reached an impasse. (Again, it would appear that the filing of the Section 2855 action was a negotiating ploy.) LaFace countersued Braxton for breach of contract and then Braxton filed the bankruptcy action which put a stay on the lawsuits.

In the same fashion as Braxton, other high profile artists have used Section 2855 as a lever in the renegotiation of - or exit from - an existing agreement. In 1992, recording star Luther Vandross filed a suit against Epic Records in Los Angeles Superior Court claiming he was no longer bound to his 1981 contract. The very next year, former Eagle Don Henley became embroiled in a Los Angeles Superior Court action with his label, Geffen Records, wherein Henley sought to terminate his 1984 contract. Thereafter, in 1994, Henley's Eagle brethren Glenn Frey was involved in a similar lawsuit when MCA Records sued Frey after he attempted to end his deal. In that same year, the band Metallica challenged its contact with Elektra Records when it asked the court to dismiss the band from its contract. In 1997 the Smashing Pumpkins notified Virgin Records that it would not render future services to the label under the contract it signed in 1991. These disputes have all been settled out of court, and thus the judiciary has not had a chance to rule on the implications of Section 2855.

Equally important, the Vandross, Henley and Frey cases involved an interesting issue that was not adjudicated because of the settlements, but which might impact the outcome of such a situation if it went to trial. In these three matters, although the original contracts between the artist and label were more than seven years old when the artist attempted to leave the deal, there had been subsequent amendments made to the contracts, and the amendments were not seven years old. Hence, the labels argued that the amendments counted as new contracts. Fortunately, on this point there is some guidance. In a New York case involving singer Melissa Manchester and her record company Arista, the court held that an amendment to a contract can stop the seven year clock (or start it anew) if the amendment is so all- encompassing as to amount to a new contract, and if the artist freely elected to extend the term from an equal bargaining position. The amendment issue notwithstanding, Section 2855 is the device most commonly introduced by a disgruntled artist when seven years has elapsed since the date of contract execution.

[part 3 next time]

Ben McLane Esq

Sunday, December 11, 2011

Music Business/Law Tips - "Breaking A Record Contract" (Part 1)

A musical artist, under certain circumstances, can break
an existing recording agreement.

For a new musical artist, securing a recording agreement with a record or production company is the golden ticket. Often, however, the gilt wears thin due to a panoply of circumstances, and the artist will seek freedom from the agreement. Typically, an unknown artist has limited negotiating power, and a first record deal is usually one-sided in favor of the label. Later, after a hit record, the artist might feel that the agreement is adverse in light of the artist's newfound notoriety. In addition, the artist might believe that another record company would be better suited to further the artist's career, or, more simply, pay the artist a greater amount of money. This situation has caused many an artist to seek (or threaten) some sort of legal recourse against the record company as a means to leave the contract, or else to force a renegotiation of the agreement. Over the years, various tactics have been used by artists as a way of cancelling a record contract.

Recently, a novel and highly publicized approach has been taken by a small group of best selling recording artists in their attempt to leave an exclusive contract situation. They have filed for bankruptcy. The Federal Bankruptcy Code states that existing contracts may be rejected if they impair a debtor's ability to get back on his feet or recover financially. Bankruptcy law has thus armed an artist seeking to break or renegotiate a contract with a powerful weapon.

In January 1998, best-selling vocalist Toni Braxton filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court in Los Angeles. Although her bankruptcy petition ostensibly was filed on the grounds that her liabilities exceeded her assets, music industry pundits believe that the core reason she filed was so the bankruptcy court would void her existing recording agreement with her record label LaFace.

Braxton's 1993 debut album and her 1996 follow-up have sold an estimated 15 million units worldwide. This enormous success begs the question: How can an artist who has sold approximately 15 million albums go bankrupt? According to her label, following the success of the 1996 release, Braxton demanded more money and said that she would no longer record for the label if it did not meet her demands. She made this demand even though she contractually owed the label more albums. The label did not acquiesce and Braxton apparently implemented the bankruptcy action in an attempt to extricate herself from what she viewed as an inequitable contract.

Braxton is not the first successful recording artist to file for bankruptcy while engaged in a contract dispute. In 1993, the members of the act Run-D.M.C. filed for bankruptcy and emerged from the proceeding with a new contract with Profile Records. Likewise, in 1995, the trio TLC filed for Chapter 11 protection in Atlanta and sought to have its contract with its label LaFace abrogated by the court. In 1996, the group settled out of court with LaFace by securing a new contract.

Such a strategic move is risky because there is no guarantee that the bankruptcy court will reject the contract in question. In 1986, actress Tia Carrere, who was seeking to improve her contract with ABC-TV, filed a bankruptcy petition in the U.S. Bankruptcy Court in Los Angeles. The judge dismissed the petition, saying she did not file in good faith, but rather for the primary purpose of rejecting a personal services contract. This ruling was cited by I.R.S. Records in the label's successful bid to have a Chapter 7 petition filed by the members of its then exclusive recording act Concrete Blonde dismissed. However, the gamble paid off for Braxton who signed a new contract with LaFace in November 1998.

The serious issues raised by the Braxton scenario may one day result in new statutory law. In 1999 there was a bankruptcy bill pending before the House Judiciary Committee which would prevent existing recording contracts from being made void within bankruptcy proceedings. The Recording Industry Association of America (RIAA) sought this special interest legislative relief for what its officials have said is a growing problem of artists and artists' representatives either threatening bankruptcy or filing bankruptcy to get out of their contracts. Should this or a similar bill one day pass, it would be the death knell for the use of bankruptcy as a technique for breaking contracts.

[Note: more recently Braxton used the bankruptcy tactic again against her most recent label/to avoid contractual obligations, and although I have not researched it I understand she was successful.]

[part 2 next time]

Ben McLane Esq (with Venice Wong Esq)

Wednesday, November 30, 2011

Music Business/Law Tips - "Video" (Part 2)

If an artist is signed to a label, a video usually will be produced to help promote the release. A video has two aspects: sales tool (i.e., MTV) and potential product (i.e., home video sales). Although a video is mostly a promotional tool, virtually all record contracts require that the artist grant video rights to the label. For contract purposes, a video is treated like a record. Therefore, the concept of recoupment comes into play. Recoupment means that the label will have the right to recoup the costs of the video, usually from all sources of income that the artist might make. As with records, the label will usually initially pay the production costs of the video. There is a strong argument that since videos serve to promote a record, not to generate sales of the actual video, only a part of the costs of the video should be recouped from the artist's royalties. Thus, most labels only require recoupment of 50% of the label's expense for production costs.

At first glance, it would seem that a signed artist would want to demand a guarantee of a as many videos as possible in the record contract. However, the artist must keep in mind that a label will usually spend an average of $25,000+ on a video. Since half of these costs are recoupable from the artist's royalties, a promotional video might not always be the wisest choice. The key is to try and keep the budget low. An artist on a label will also be concerned with creative control. Yet, unless an artist is quite successful, the label generally controls the content and the concept of the video. Finally, it is not reasonable to expect to make a profit from a video. There are rare exceptions (Madonna and Michael Jackson come to mind), but again the reason for making a video is normally to hype a record.

In conclusion, if an artist is unsigned, in most instances a video (with the exception of an internet only YouTube low budget video) is probably not the most practical way to spend money because chances are it will not be seen on mainstream TV channels like MTV. If an artist is signed, although the label will probably insist on a video, the artist should strive to get the budget low so the artist will not owe back as much money to the label.

Ben McLane Esq

Saturday, November 19, 2011

Music Business/Law Tips - "Video" (Part 1)

Video is a subject that is synonymous with the music business today. Essentially, the main purpose of a video is to promote a record and to help build an image for an artist, not necessarily to make an artist money. However, videos can make money for an artist indirectly because a video can increase record sales, merch sales, and help gain fans for shows. An artist can get utilize a video to get bookings, interest a manager/agent, and perhaps get a record deal. This article will discuss video as it pertains to unsigned and signed artists.

If an artist is unsigned, a full blown video is probably not the best use of resources unless: (1) the artist has a great song along with a great visual or story, (2) the artist can afford to produce a professional video, and (3) the artist can have the video broadcast to a wide audience. Traditionally, the best exposure for a video is of course MTV and similar music video sites. However, getting on MTV is next to impossible without being on a reputable label. It is possible to get on local cable programs with a well produced video. Additionally, many syndicated video and talk shows might consider a video by an unsigned artist. Of course, with the advent of YouTube, Vimeo, Vevo, etc., anyone can upload an amatuer or fully produced video on the internet as well since there is no barrier/gatekeeper, and sometimes the video can go "viral" which can acheive the same end result as being on MTV (but without some promotion its like a grain of sand on the beach).

[part 2 next time]

Ben McLane Esq

Tuesday, November 8, 2011

Music Business/Law Tips - "Union" (Part 2)

As a member of the AFM, one must pay an initiation fee, as well as quarterly dues. However, the benefits are comprehensive. As well as better pay and working conditions, benefits include, but are not limited to: a pension, job referrals, insurance, legal counsel, discounts, collection of unpaid fees, consultation, industry contact information, workshops, etc.

One drawback to being an AFM member is that a person may not work for employers that are not signatory companies. Doing so may result in fines or expulsion from the union. An obvious problem is that many small clubs/coffeehouses and small record companies cannot afford to pay the union minimums. For a musician just starting out his or her career, these smaller outlets are the only supportive showcases for their talents. Many artists work "under the table" and take the risk.

The important question to answer is when, or if, to join the AFM? The best guideline would be for a musician to join the union when he or she has decided to become a full-time professional musician and when there is some reasonable basis to assume that one can survive as a musician.

Ben McLane Esq

Wednesday, November 2, 2011

Music Business/Law Tips - "Union" (Part 1)

If a person is planning to pursue a successful career as a professional musician (either as a player or vocalist), he or she will eventually have to join the American Federation of Musicians (AFM) which is the musicians' union. There are other music-related unions such as the American Federation of Television and Radio Artists (AFTRA) which represents singers and radio/television talent, and the Screen Actors Guild (SAG) which represents actors; however, the AFM will be the focus of this article.

The AFM is a labor union whose membership is comprised of musicians. The AFM regulates wages and working conditions as well as providing a level of job security to its members. The essential reason the AFM formed was because musicians bargaining as a group would have greater negotiating strength than individual musicians. The AFM is a national union with local charters which have their own specific territories (e.g., AFM Local 47 in Los Angeles). Each local union sets minimum wage scales at clubs and theaters in its own jurisdiction. As an AFM member, a musician is free to negotiate wages above union scale, the musician simply cannot work for less than scale.

All of the major record companies have signed an agreement with the AFM whereby as an employer they promise to hire only union members and to provide at least the minimum pay and working conditions set forth in the agreement. Any music employer signing such an agreement is called a "signatory company". As a member of the AFM, a musician authorizes all employers to deduct "work dues", which are a small percentage of the scale wages, from their pay and to have the dues sent to the local union.

[part 2 next time]

Ben McLane Esq

Tuesday, October 25, 2011

Music Business/Law Tips - "Trademark" (Part 2)

If the band cannot afford a federal registration, there are some things which can be done to protect the name. First, do a name search to find out if the name is unique. Google is the easiest, or some large libraries have a publication called (Index To) The Trademark Register. Or, one could check the Billboard International Talent & Touring Directory. Additionally, a person could order a name search report from a professional searching bureau for a few hundred dollars. Such bureaus are listed in the yellow pages on online under "Trademark Consultants." If the name is free and clear, the letters "TM", although unofficial, can be utilized to indicate rights to an unregistered service mark. Finally, the most important thing an act can do is to use the name publicly and consistently.

Assuming the act will seek a federal registration and has done a thorough search, the application procedure basically involves submitting (1) the appropriate application form (online or hard copy), (2) proof of public performance (e.g., advertisement or promo material for the public performance), and (3) the filing fee of approximately $325-375 (subject to change).

In a group situation, it is also important to come to some agreement in writing as to who owns the group name, and what will happen if a member leaves the group. The lack of such an understanding has led to a plethora of lawsuits.

The purpose of this article was to familiarize an artist with the way to protect one of the most important attributes that the public will associate with an act: the name. Since trademark matters can be somewhat complex, it might be wise to consult an attorney who can assist with the search and registration process.

Ben McLane Esq

Monday, October 17, 2011

Music Business/Law Tips - "Trademark" (Part 1)

A band contemplating a serious career in the business would be well advised to take the necessary steps to protect its name by obtaining trademark protection. That way, the act will not only be secure in knowing that it has acquired the right to the name, but also the artist will not be sued for infringing someone else's name.

A name used for entertainment services is actually known as a service mark. Although a service mark is akin to a trademark and is governed by the same law, a service mark is used to identify services offered to the public (e.g., live performances by a group). A trademark, however, distinguishes symbols used on tangible physical goods (e.g., a record or merchandise displaying a group name). Neither of the above should be confused with a copyright which instead protects works such as songs and sound recordings.

In the United States, as opposed to some other foreign countries, rights in a group name are usually created by use of the name, not registration. Therefore, the act must actively perform under its name, advertise under its name, and sell product bearing its name to the public. Nonetheless, it is still advisable to register the service mark with the U.S. Patent and Trademark Office in Washington, D.C. This not only allows the use of the (R) symbol which gives notice to the public of your rights, it also will allow an artist to get an injunction and collect damages.

[part 2 next time]

Ben McLane Esq

Saturday, October 8, 2011

Music Business/Law Tips - Taxes (Part 2)

C. Car. Gas, repairs, parking and depreciation are deductible in total. As an option, in lieu of deducting all the car expenses added together, an artist can simply keep track of the mileage and just take the standard per mile deduction.

D. Entertainment. Meals, drinks, etc. are 50% deductible so long as "primarily" business related.

E. Equipment. For an artist, many tools of the trade are deductible. These would include such things as musical equipment, instruments, computer, etc. Moreover, if an artist uses a portion of their home or apartment on a regular basis for business (e.g., practicing, recording, booking, etc.), that portion is deductible as a home office. This means that a percentage of the rent/mortgage and utilities are deductible. For instance, if an apartment has 4 rooms and 1 is used for business, 25%of the rent and utilities are deductible expenses.

The foregoing is only meant to give an artist an overview of potential business deductions. It is advisable to contact an accountant before filing a tax return to confirm that the artist's particular situation allows for these, or other, tax deductions.

Ben McLane Esq

Thursday, September 29, 2011

Music Business/Law Tips - "Taxes" (Part 1)

If a person is actively pursuing a career as a musical artist, and not just playing/writing as a hobby, that person is engaged in a trade or business (i.e., the music business). Hence, an artist can use the Internal Revenue Laws of the United States to his or her advantage. This article will discuss the main deductions that an artist can utilize for the purposes of paying taxes.

So long as an artist incurs expenses that are "ordinary and necessary" in pursuit of that artist's career, the expense should be deductible. However, any expense deducted from a tax return must be backed up by documentation. Therefore, it is imperative that an artist keep complete records of any and all expenses paid in pursuit of the artist's career. Usually, the record will be a receipt. Note that the IRS does not consider a cancelled check, by itself, adequate to verify a deduction; a receipt is more official and credible. An account book/file is also recommended to keep track of expenses. The main deductions to be aware of are as follows:

A. Travel. This would include air, bus, taxi or train fares, and any related transportation.

B. Meals and Lodging. These are deductible if related "primarily" to business.

[part 2 next time]

Ben McLane Esq

Wednesday, September 21, 2011

Music Business/Law Tips - "Songwriter Agreement" (Part 2)

Statements. Once the song is recorded or printed, the writer is entitled to receive royalty statements at least once every six months. Further, the writer should be allowed to audit the publisher's books to see if royalty calculations were done correctly.

Writer's Credit. The publisher must see to it that the writer receives proper credit on all uses of the song.

Arbitration. In order to avoid large legal fees, it is advisable to include a provision to allow an arbitrator to settle any disputes between the writer and publisher.

Future Uses/Rights. Any use/right not mentioned specifically in the contract should be retained by the writer because it could be a valuable bargaining chip in the future.

Performing Rights Affiliation. The writer must affiliate with either BMI, ASCAP or SESAC and the contract should read that all writer performance royalties must be paid directly to the writer by the performing rights organization; and, if the publisher should be paid these monies in error, the monies must be immediately sent to the writer.

Because of the length of a publishing relationship and rights transferred, the writer should obtain an experienced person to assist with a contract negotiation, preferably an entertainment attorney.

Ben McLane Esq

Monday, September 12, 2011

Music Business/Law Tips - "Songwriter Agreement" (Part 1)

Important decisions a songwriter faces concern which publisher to sign with and what type of contract to sign. Publishing deals are of two basic kinds: the single song contract (generally for one song) and the exclusive songwriter's contract (for all songs written during a period of time). Although these two deals are quite different, they have one thing in common that the writer must be aware of: copyright ownership is transferred to the publisher. Therefore, it will be a long-term deal. This being the case, the writer needs to be certain that he/she is entering into a fair contract. Some basic points that a songwriter's contract include are the following:

Reversion Clause. There should be a provision that if the publisher does not secure a commercial release within a specified time (i.e., one year), the songwriter can terminate the deal.

Work For Hire. If it is a single song deal, make sure that "employment for hire" and "exclusive writer agreement" phrases are not included. Also, there should be no options for future songs.

Changes To Song. The publisher should only be able to change the title, lyrics or music with the songwriter's consent.

Royalty. The songwriter should receive at least fifty percent (50%) of all income earned from the song(s).

Deductions. The costs of demos should be paid 100% by the publisher.

[part 2 next time]

Ben McLane Esq

Monday, September 5, 2011

Music Business/Law Tips - "Royalties (computing)" [Part 2]

Since new, unknown acts do not have a guaranteed audience, the label is hesitant to grant a high rate because there a is good chance that the artist will never even sell enough records to recoup all of the costs that go into releasing a record (i.e., recording, promotion, pressing, etc). In comparison, a well-known artist is almost assured of making a profit and hence would receive a higher rate.

The artist must be knowledgeable about what the royalty is based on. The base is usually the suggested retail list price, but oftentimes the wholesale price of the record acts as the base upon which the royalty is computed. Since the wholesale price is roughly one-half of the suggested retail list price, the artist should receive approximately twice the royalty that would be allowed under the retail base price system.

The artist should try to negotiate escalations for royalties. In essence, this means that the artist is rewarded in the future with a higher rate if the artist reaches certain sales levels. For example, it the artist has a 10% royalty, the rate would be bumped up a percentage point if 250,000 units were sold. Increases can continue for even further sales levels. Escalations can also be tied to when the label picks up an option for another year/record.

Royalties for sales outside of the United States are usually reduced. The reduced rates depend upon whether sales are in major foreign markets or not. For example, Canadian sales usually receive 85% of the U.S. rate; sales in the United Kingdom, Germany, France, Japan and Australia receive 75% of the U.S. rate; the remainder of the world receives approximately 50% of the U.S. rate. The justification for the lower foreign rate is that the label is probably licensing the product to an independent foreign distributor that must also be compensated.

Other things which affect the rate but which were not discussed here consist of, but are not limited to, packaging deductions, free goods, and whether a record is a budget release or not.

Ben McLane Esq

Monday, August 29, 2011

Music Business/Law Tips - "Royalties (computing)" [Part 1]

Once an artist is fortunate enough to obtain a deal from a reputable record company, the artist is probably most interested in how much money will be made on sales of the records which are released. This article will briefly explain some of the elements of an artist royalty clause.

The artist royalty clause determines how much money an artist will receive from the sales of CDS, downloads, etc. In most contracts, the royalty is expressed in terms of a percentage, rather than an actual dollar or cent amount. The percentage is called the "rate".

Generally, for a new artist, the rate will range from 10% to 15% of the selling price. However, some smaller independent labels might offer even a lower percentage (or a net profit split). As with most things in a contract, the rate is negotiable depending on the bargaining power of the artist. A new group with no proven sales record that has never toured will probably not be able to achieve a very high rate. However, if the A&R staff feels that an act has tremendous sales potential and/or there is a bidding war between labels, the rate will tend to increase.

[part 2 next time]

Ben McLane Esq

Thursday, August 18, 2011

Music Business/Law Tip - "Reserves" (Part 2)

Generally, the label does not state any percentage limit on reserves in the contract. Instead, it is common to see that "reasonable" reserves will be held back. If a percentage is stated, it will be lower for established artists and higher for new artists. Additionally, different configurations have different reserves percentages because of the return history for that type of recording. For example, usually more singles and EPs are returned than CDs and cassettes. (Note there are no returns on digital, so reserves should not apply to that configuration.)

An artist needs to be mindful of the reserves percentage because it can substantially reduce the initial royalty payments and it postpones the date that the artist will be paid. An artist can negotiate protections into the contract. First, the artist should have a specific reserves percentage in the contract (25% is common for an album). Second, the artist should limit the amount of time that a label can withhold royalties (i.e., "liquidation period"). Instead of just accepting that reserves will be liquidated within a "reasonable" amount of time, the artist should ask for a specific liquidation period (12 to 24 months is common).

Ben McLane Esq

Friday, August 12, 2011

Music Business/Law Tips - "Reserves" (Part 1)

Every record contract includes a hazy and mysterious concept called "reserves". Since this concept can have such a negative impact on the artist's ability to be paid royalties, it is important that an artist be aware of this clause and know how to limit it.

The language of a record contract generally sets forth that royalties will be paid to the artist only on records that are actually sold to the general public, not on records that are manufactured and shipped but eventually returned because they are unsold (i.e., "returns"). Depending upon the particular artist, the number of records that might be returned can be substantial. For example, if the label ships 300,000 records to the stores, 150,000 might be returned as unsold goods. Imagine what would happen if the label based its royalties payable to the artist only upon the amount of records shipped; it would have paid royalties on 300,000 units instead of 150,000, resulting in an overpayment of 150,000 records. Hence, since the label knows that there will normally be returns, to protect itself it withholds a certain percentage of an artist's royalties in anticipation of such returns. This ensures that the label will not overpay an artist.

[part 2 next time]

Ben McLane Esq

Thursday, August 4, 2011

Music Business/Law Tips - "Record Clubs" (Part 2)

The club giveaway offers can have a dramatic impact on an artist. First, the artist will only receive about 50% of their usual royalty rate on sales through clubs. This is because the royalty payable by the club to the label is very low (less a container deduction), based on 85% of sales. The rationale for the lower royalty is that the marketing costs are higher for record clubs and there are a lot of people who never pay for the records ordered. Moreover, the mechanical royalty to the songwriters is also reduced (usually 75% of 75% of the statutory rate). Finally, there is the unseen factor that the clubs' special offers devalue the product in the eyes of the public. If the public can buy eleven CDs for a penny, how can an artist be worth $25 for a concert? Because of the low monetary rate of return to the labels and acts, some major record companies are no longer licensing their catalogs to the clubs.

When an artist signs a record contract, there is always language that allows for the label to license the artist's product to record clubs, for a reduced royalty to the artist. However, the artist can attempt to negotiate certain provisions into the contract that will lessen the financial hit to the artist from record clubs sales. First, the act can try to exclude record club sales entirely. Second, the artist can ask that the record company agree that the number of royalty free records distributed by the clubs will not exceed the number of records sold. Hence, even if the number of free goods exceeds the number sold, the label still has to pay a royalty on that excess. Third, the act can request to be paid a straight 50% of the company's net licensing receipts.

Record clubs will probably always be around in some form (but are evolving due to the internet). Although they can provide exposure and sales to an artist, it is important for the artist to try and maximize the royalty payable on such club sales.

Ben McLane Esq

Tuesday, July 26, 2011

Music Business/Law Tips - "Record Clubs" (Part 1)

To the consumer, joining a record club might seem like an inexpensive way to obtain some music. However, the recording artist that creates the music should understand how record club sales influence that artist's bottom line.

Record clubs first became popular long ago when there were no major record chain stores. To some in remote areas, a record club would be the only way to buy a certain record. These clubs generally license the entire product catalog (i.e., records) of various record companies. The clubs then manufacture and distribute these records to their club members for very low prices. Unlike product sold at retail stores, clubs have the right to give away one free good for every one sold. They must have the right to do this; otherwise, they would not be able to make offers such as eleven CDs for a penny. This is problematic because an artist receives no royalty on free records distributed by clubs. Also, there is no way for the record club to limit how many copies of one particular artist's records are given away. Hence, a popular artist would be negatively affected.

[part 2 next time]

Ben McLane Esq

Monday, July 11, 2011

Music Business/Law Tips - "Raising Money" (Part 2)


This involves accepting a loan for a fixed sum of money and agreeing to repay the sum plus interest by a certain date. Loans usually must be paid back whether or not the project makes money. There are two basic loan sources:

Commercial Sources. A commercial source of money would include banks, finance companies and credit cards. In particular, banks generally want to secure a loan with collateral, such as a home, auto or equipment. (If the artist is established, copyrights might be acceptable collateral.) Unfortunately, most artists are not in a position to have collateral in place. However, if an artist has some credit cards and has been paying rent consistently, a bank may loan the artist a small sum. Otherwise, if the artist does not qualify for a loan, the artist can ask a relative or friend with a good credit rating to be a co-signer for the loan. Because the co-signer is agreeing to make the payments if the artist does not, a co-signer is accepting a great responsibility.

Family And Friends. Normally, family and friends will lend money at a lower rate of interest with a more flexible repayment schedule. The downside of this type of loan is that there is a strong potential to strain the relationship if repayment becomes a problem. When obtaining this type of loan, the artist can prepare a simple promissory note. For example: "On or before December 31, 20XX, Artist agrees to pay Lender the sum of $2,000.00 plus 8% interest from April 30, 20XX, signed, Artist."

Ben McLane Esq

Monday, July 4, 2011

Music Business/Law Tips - "Raising Money" (Part 1)

Many struggling artists have the need to record some music or finance a tour, only they lack a necessary element: money. This article will explain different ways to raise capital in order to finance a project.


In this instance, the artist uses his or her own money. On the positive side, the artist will: (1) retain artistic control, (2) be free of financial obligations to a lender, (3) not be bothered with a maze of paperwork, and (4) will reap all of the monetary benefits. On the negative side, the artist will: (1) bear all of the risk, and (2) will have to be solvent enough to finance the project (which is probably not the case).


Another source of money is investment from a financial backer who can be either active or passive. An active investor will put up money and become involved in the management of the project. This type of arrangement includes a general partnership, joint venture or corporation. A passive investor will put up money but have no role in the management of the project. This type of arrangement is usually a limited partnership, and the artist has to be careful when accepting money from a passive investor because there are security law regulations which may apply. Thus, a professional should be consulted before choosing this latter route.

[part 2 next time]

Ben Mclane Esq

Monday, June 13, 2011

Music Business/Law Tips - "Publishing Company" (Part 2)

Third, the publisher must register the songs to be published with the Copyright Office in Washington, D.C. in the name of the publishing entity. If the songs have already been copyrighted under the name of the writer, assignments need to be filed which transfer the ownership of the songs to the name of the publisher.

Fourth, it is advisable to affiliate with the Harry Fox Agency in New York. For a small percentage fee, the Harry Fox Agency acts as the publisher's agent to issue mechanical licenses (which allow others to record the songs), collects the mechanical royalties, and accounts to the publisher.

Finally, if the artist ends up signing a record deal, third party publishers (major or indie) will then want to become the publisher (or co-pubisher) because a record deal almost always ensures that the songs will generate some income. By acting as his or her own publisher, this does not mean that the writer cannot one day be published (or co-published) by a larger, more established publishing company in exchange for an advance and better promotion of the songs. The writer simply has to assign the publishing (or part of it) over to the major or indie publisher.

In conclusion, if an artist is planning to release his or her own record and is without a publisher, forming a publishing company might be advisable and the above-mentioned steps should be helpful in doing so.

Ben McLane Esq

Monday, June 6, 2011

Music Business/Law Tips - "Publishing Company" (Part 1)

The area of the music business known as publishing can be very lucrative. Because of the income potential, many writers form their own publishing companies. Some writers do this in order to "keep their publishing," while others do so because the established publishing companies have shown no interest. However, getting published means nothing if the songs are not recorded or exploited in some other way. Thus, If a writer is also an artist that has an independent record coming out, or has a song being used in a film or on television, the writer should consider forming a publishing company.

It is easy to form a publishing company assuming that there is a record coming out or if a film or television show is using one of the writer's songs. First, the writer must affiliate with ASCAP, BMI or SESAC. (All 3 if the writer intends to publish other writer's songs as well.) The reason for joining is that these rights societies pay the publisher performance royalties if the songs are played on radio, television, etc. These societies will not let a publisher use a name which is similar to an existing company because the wrong party might be paid accidentally. An uncommon name should be selected for the company so that the name will clear. If the publisher is also a writer that has not yet affiliated with either SESAC, BMI or ASCAP, he or she should affiliate as a writer with one of the three societies at the same time as joining as a publisher. Because the societies require that the song's publisher be affiliated with the same society as the song's writer, the publisher will have to affiliate as a publisher with the same society joined as a writer. Part of the registration process will involve registering all songs written by the writer with the performance rights society selected.

If the publishing entity will not be operating as a corporation or LLC, the second step is to file a "fictitious name statement" with the county recorder. This puts the public on notice that the publisher is doing business under a name that is different from the writer's surname. In California, this statement is necessary in order to open a bank account, and to cash checks made out to that name.

[more next time]

Ben McLane Esq

Monday, May 23, 2011

Music Business/Law Tips - "Performance Royalty" (Part 2)

BMI, ASCAP and SESAC represent both songwriters and publishers. It should be noted that even where a songwriter is represented by a third party publisher, that songwriter needs to also join a society because songwriters and publishers are paid separately by the societies. One would normally join when they have a song being performed in some medium (i.e., radio, tv, internet). As for which organization is best, each songwriter will have to decide that for themselves because it is difficult to say with certainty which society pays more. BMI, ASCAP and SESAC all have websites and will be happy to send out information brochures to interested applicants.

Choosing a performing rights society is an important decision for a songwriter to make because if a song ever becomes a hit, the performance royalties can be substantial. Thus, any serious writer should find out about affiliating with either BMI, ASCAP or SESAC.

Ben McLane Esq

Monday, May 16, 2011

Music Business/Law Tips - "Performance Royalty" (Part 1)

There are several ways that songwriters can make money in the music business. One of the most significant is from royalties generated by the public performance of their songs. These royalties result from what are called "performance rights".

In the United States, "performance royalties" are paid out mainly by three performance rights societies, BMI, ASCAP and SESAC (most foreign countries also have their own societies). Under the copyright law, a songwriter controls the public performance of that songwriter's songs. In essence, a songwriter designates either BMI, ASCAP or SESAC as his or her agent for the public performance rights of that songwriter's songs. A songwriter can only affiliate with one society at a time. BMI, ASCAP and SESAC have arrangements with the parties - such as radio, television, concert venues, restaurants, etc. (essentially any user who performs music publicly) - who want to use the songs in the societies respective catalogs. For a licensing fee, BMI, ASCAP or SESAC will grant to that user what is called a "blanket license", which means that the user can play any song, by any songwriter or publisher affiliated with that society, any number of times. It must be stressed that fees are collected from the entity or venue user, not from any actual performer.

The money earned by a songwriter from the societies (i.e., the performance royalty) is proportionate to the volume of airplay or performances of the songwriter's songs. Performance royalties are based on extremely complicated formulas. Basically, however, the societies monitor radio and television airplay to determine how often a song is heard and by how many people. The larger the audience and the more times a song is played, the more the income. Since it is impossible to cover all media outlets, BMI, ASCAP and SESAC rely on estimates based upon samples as well as data tracking software. After deducting operating expenses, the societies divide the fees up and pay it to their affiliated writers and publishers. The societies pay quarterly.

[part 2 next time]

Ben McLane Esq

Thursday, April 28, 2011

Music Business/Law Tips - "Name" (Part 2)

B. There could be a question as to who owns the name between two, or more, different groups who all perform under the same name. The actual ownership is usually decided by which artist performed under (i.e., used) the name first. However, there is a legal term called "secondary meaning" which could override first use. A secondary meaning is when the public identifies a name with a particular artist. The Rolling Stones are a good example. There is no question as to who this name refers to. It could be that another act using the name the Rolling Stones was around first, but the public identification is with the famous group. If the artist is just starting out and finds itself in a situation where there is a rival claim to the name, it is probably better to change the name early on to avoid legal hassles.

C. There could be a question as to who owns the name between the members of a group. This becomes a problem if a member leaves or the group breaks up. It is advisable for the group to enter into a partnership agreement, or form a corporation, so that this issue is dealt with in advance.

An artist should also be wary of any record label that attempts in the contract to have ownership rights in the name transferred to the label. The artist must refuse this request because it is unfair for the label to benefit from owning a name that the artist created and developed.

In conclusion, a name is very important and great care should be taken in selecting it, protecting it and clarifying ownership in it.

Ben McLane Esq

Tuesday, April 19, 2011

Music Business/Law Tips - "Name" (Part 1)

The professional name that an artist performs under is a valuable commodity to both the artist and to any record company that releases the artist. Both the artist and the record company should be concerned that the name is protected, and that the rights in the name are reserved and understood. Usually, a record contract will have provisions dealing with the name, whether it is the artist's real name or a professional name. This article will discuss some of the common problems surrounding names.

The record label will essentially be concerned with two aspects of the name. First, the label will demand that the artist warrant and represent that the name used by the artist is in fact owned by the artist. Second, the label will demand that the artist grant to the label the right to use the name for publicity and promotion of the artist's recordings.

Often, the ownership of the name is disputed. There are three common scenarios:

A. There could be a question as to who owns the name between the artist and a third party (i.e., producer, production company, label, manager). In these situations, there is usually a contract between the artist and the third party that sets forth who in fact owns the name.

[part 2 next time]

Ben McLane Esq

Tuesday, April 12, 2011

Music Business/Law Tips - "Merchandising" (Part 2)

Term. This period is usually one or more years, or until the advance is recouped. The artist should make sure it has the right to repay the advance so that the deal does not drag on if sales are slow. The merchandiser will want to have a sell-off period (generally six months) after the deal ends in order to finish selling the goods that were manufactured. However, there should be no right to manufacture any further items.

Territory. The territory can be worldwide or rights can be licensed on a region by region basis.

Creative Control. The artist should insist that it has approval over any artwork which will be marketed so that shoddy or negative merchandise does not enter the marketplace.

The sale of merchandise can be very lucrative depending upon the type of artist because some forms of music lend themselves better to the sale of merchandise. Yet, since most popular artists will enter into some type of merchandising agreement, knowledge of the parameters of the contract will help ensure a fair deal.

Ben McLane Esq

Tuesday, April 5, 2011

Music Business/Law Tips - "Merchandising" (Part 1)

Signed artists, as well as unsigned artists that tour and have a strong following, can make a considerable amount of money by selling merchandise such as T-shirts, jackets, buttons, bumper stickers, posters, etc.

When an artist is preparing to tour, the artist will enter into a merchandising agreement with a merchandiser. The artist licenses to the merchandiser the right to use the artist's name, likeness or logo for the manufacture and sale of merchandise. In exchange for the license, the merchandiser pays the artist a royalty on the goods sold. Artists and their representatives beware because many record companies try to obtain the exclusive merchandising rights to the artist when the artist signs a recording contract.

The merchandising agreement consists of a few basic deal points:

Royalty. The royalty will either be a percentage of the gross sales of the item sold (usually from 25%-50%), or it will be in the form of a flat fee per unit sold.

Advances. Although the amount of the advance depends upon the stature of the artist, it can range anywhere from $0 to over $1,000,000. As with record royalties, merchandising advances are recoupable from royalties.

[part 2 next time]

Ben McLane Esq

Sunday, March 27, 2011

Music Business/Law Tips - "Management Agreement" (Part 2)

Further, the Agreement will have a time limit, or "term". The average term is three years. Normally, there is an initial number of years and then "options" for additional years, with the manager generally having the option power. The artist can limit the term by requiring "performance standards" whereby, for example, if the artist does not obtain a recording agreement or does not make a certain amount of money in the initial period, then the manager cannot pick up an option for more years.

Moreover, the Agreement will set forth the manager's fee, which on average is fifteen to twenty percent "of gross earnings" (i.e., before deductions) from all aspects of the artist's career. Yet, the artist can exclude certain monies from the manager's commission. If the artist, for example, is already a successful songwriter or actor, the manager should not be able to commission those earnings. Further, there are other monies which only "pass through" the artist's hands and which the artist never really earns. These, too, should be excluded and consist of: recording costs, tour support, independent promotion money, producer fees, and live gigs where the "net" is minimal.

Finally, with respect to commissions, the Agreement should have what is known as a "sunset clause" on activities which occur after the termination of the Agreement. Although a manager normally wants to be paid perpetually on sales of records released during the term, the band can negotiate that the percentage is reduced over a span of a certain number of years until the manager is no longer entitled to any commission.

Although this is not an exhaustive list of the important points, an artist needs to at least have a grasp of these concepts before he or she signs on the dotted line.

Ben McLane Esq

Thursday, March 10, 2011

Music Business/Law Tips - "Management Agreement" (Part 1)

Once an artist has decided to work with a manager in which there is mutual trust and belief, it is advisable to memorialize a management agreement ("Agreement") in writing. Such an Agreement has certain elements an artist should be familiar with. This article will discuss the most important components.

The Agreement will contain a description of what the manager will do for the artist. The standard terminology is that a manager will "advise and consent" the artist in all aspects of the artist's career. Although this is vague, the manager will be performing creative functions, such as formulating an image, selecting material, and finding ways to promote the artist. Further, the manager will act as the artist's liaison with record companies, publishing companies, attorneys, agents, the press, etc.

The Agreement will also set forth that the manager is "not a talent agent". This means that the manager is not agreeing to find live gigs for the artist. There is a law in California which requires a talent agency license in order to procure live engagements for an artist. A talent agent must abide by strict standards which most managers do not want to be shackled by (i.e., posting a bond, limited commission percentage, cannot work out of home). If a manager violates this law, the artist can terminate the Agreement and require the manager to pay back commissions collected from the act in the past.

Additionally, the manager is usually granted some form of "power of attorney" to act on behalf of the artist on business matters. This allows the manager to approve such things as ads and publicity. However, it also allows for abuses because this power lets the manager sign documents on behalf of the artist. Thus, it is best to limit the signing authority only to short term live appearance documents or publicity matters, and only then once the artist has consented to the terms.

[part 2 next time]

Ben McLane Esq

Monday, February 28, 2011

Music Business/Law Tips - "Infringement" (Part 2)

Under the Copyright Act, the copyright owner is entitled to several remedies. Along with the damages suffered, the writer can obtain attorney's fees and court costs. In some instances, the writer can obtain profits of the infringer and an injunction. However, in order to take advantage of the full remedies under the Copyright Act, the song must be registered with the U.S. Copyright Office. Moreover, it is important to not delay in bringing the infringement suit once the infringement is discovered. Otherwise, the suit might be barred by what is known as the "statute of limitations". The party sued for infringement may raise certain defenses which are exceptions to copyright infringement. For instance, the doctrine of "fair use" allows a work to be copied if there is no "profit" motive (e.g., for education, research, news). Another legitimate defense is that the new work is a parody of the original work.

Although copyright registration is not mandatory under the Copyright Act of 1976, songwriters are encouraged to officially register their works because if an infringement situation arises, it will be easier to recover damages.

Ben McLane Esq

Thursday, February 24, 2011

Music Business/Law Tips - "Infringement" (Part 1)

Many songwriters are concerned that someone may steal their song and make a profit. If such an act occurred, it would be an instance of "copyright infringement" and the original writer would be entitled to relief. This article will explain how a copyright is infringed upon and what a writer can do to protect his or her works.

Under the 1976 Copyright Act, the copyright owner (i.e., the creator of the song), has certain exclusive rights: to reproduce, to distribute and to perform the work. Any or all of these exclusive rights may be transferred to third parties through an "assignment" or "exclusive license". Each separate owner of an exclusive right can sue for copyright infringement.

The most common type of copyright infringement occurs where a commercially available song is, or seems to be, very similar to another pre-existing song. In order to sue for infringement here, the original writer must show three things: (1) ownership of the song infringed upon, (2) the infringer had "access" to the original song, and
(3) "substantial similarity" between the two works. Infringement can also occur when someone uses a song without permission/license and when a record is "pirated" or "bootlegged".

[part 2 next week]

Ben McLane Esq

Tuesday, February 8, 2011

Music Business/Law Tips - "Independent Promotion" (Part 2)

Promoters can be found in most large cities in the yellow pages under record promotion or via an internet search. Call and make an appointment to play the record for the promoter. A genuine promoter will not work a record unless they believe in it. The artist should check references and the track record of the promoter.

Once the artist has located the right promoter, a contract should be entered into. The two most important points to cover are the fee and the duties of the promoter. Although the fees vary depending on the type of music and scale of the campaign, a good promotion person could require around $300-$500 per week minimum (college radio campaigns may be less); a proven hit maker may charge more. The promoter will want bonuses built into the contract to be triggered by certain happenings, such as having the record chart, entering the top ten, and hitting number one. Moreover, the promoter's expenses (i.e., phone, mail, travel) will have to be paid by the artist. The artist should require that the promoter specify the number and type of stations he or she will be contacting.

Finally, the artist should not forget that it is meaningless to hire a promoter if the record is not going to distributed in some way; otherwise, the listening audience cannot buy the record and this would defeat the entire purpose of generating airplay.

Ben McLane Esq

Tuesday, February 1, 2011

Music Business/Law Tips - "Independent Promotion" (Part 1)

Once an artist has gone to the time, trouble and expense of producing and manufacturing/digitizing an independent release, it is usually the case that the artist's goal is to earn exposure for the record, which translates into sales, and, hopefully, a career. Support from radio is key in order to make the masses aware of a new record. Unfortunately, obtaining radio play is difficult and competitive. Hence, an artist should budget for the services of an independent promoter ("promoter").

In order to compete with the major labels, the artist must be able to take the steps that a major label would take in order to promote a record. Since an independent artist does not have a promotion staff to service the hundreds of appropriate radio stations across the country necessary for an effective radio promotion campaign, a promoter is the vehicle to generate airplay. The promoter can gain the necessary radio "adds" for several reasons that the artist cannot, because they: (1) have years of experience, (2) have established relationships with program and music directors, (3) know how to properly pitch a record, and (4) know who to approach with the pitch.

Because a promoter is not cheap to employ, smaller labels and artists will generally just hire the promoter to work the record in a particular region. If airplay becomes significant in that region, often the record will then take on a life of its own and other regions will want to play the record. The hard part is developing the first important adds.

[part 2 next week]

Ben McLane Esq

Monday, January 24, 2011

Music Business/Law Tips - "Independent Deals" (Part 2)

Production Deals. In this type of deal, the artist signs on with a production company (usually headed by an established producer). These deals are normally structured like a regular recording agreement. In essence, the producer will record the act's music and then attempt to obtain a deal with a record label. If the production company is successful in procuring a deal, the royalty paid by the record company to the production company on records sold will be divided between the production company and the artist.

Pressing and Distribution Deals (P&D Deals). In this situation, the artist delivers a fully mixed master and finished artwork to the record label, which in turn manufactures and distributes the records. One advantage of this kind of deal is that the artist should be able to obtain a higher royalty on sales because the act has already paid for the costs of recording the product.

Since it seems that major labels prefer to see what the public responds to before making a large financial commitment, many artists are considering independent labels, distribution deals, production deals, and P&D deals in order to prove that they do appeal to a record buying audience. As a warning, some of the operations listed above can be suspect. Thus, an artist should make sure that any deal made is with a reputable entity/person.

Ben McLane Esq

Tuesday, January 18, 2011

Music Business/Law Tips - "Independent Deals" (Part 1)

In today's rapidly changing music business, major labels are hesitant to sign new, unproven acts to their rosters. However, do not be disheartened; a major label deal is only one avenue to obtain mass exposure for a musical artist. This article will explain some alternatives to signing a recording contract with a major label.

Independent Labels: These labels tend to specialize in a particular style of music and obviously have smaller rosters. This can work to the artist's benefit because the act should receive more attention. Also, an independent will usually have some form of distribution in place, which is necessary to put records in stores. Many independents have become successful subsidiaries of major labels, which has provided them with major label distribution.

Distribution Deals: Here, the artist delivers to a record company an agreed amount of completed product (e.g., compact discs). Then, the label will distribute the product to stores. Sometimes, the label will also market and promote the product. Otherwise, this duty is left to the act. For its services, the label will collect a percentage of the selling price of the record. Digital distribution these days is normally part of any such deal.

[part 2 next week]

Ben McLane Esq

Monday, January 10, 2011

Music Business/Law Tips - "How Distributors Pay" (Part 2)

The artist will only be paid the remaining 75% of the monies for records actually sold and paid for in/at the store. Although it is a bit complicated, a distributor normally has an arrangement with a store whereby the store can "return" any record it orders for a refund or credit from the distributor if it cannot sell the record over a certain period of time. Since there is no way for a distributor to know how many records sold to a store will ultimately be sold to customers (and hence not returned), the distributor will hold back a "reserve" of the sales monies it was paid by the store for a period of time to see if there are returns (which are common). This is how a distributor protects itself so it does not overpay the artist. To combat this, the artist needs to provide in the distribution agreement that there is a return limit. (The average is 25% for an album and 50% for a single.) Also, the artist needs to provide that the reserve can only be held back for a limited time; the shorter, the better. Note that there are/should be no reserves hold back against digital sales.

Finally, once a distributor is paid by the store for the record, the distributor has a duty (after its fee is deducted and reserves are accounted for) to pay the artist his or her share. Generally, the distributor will pay the artist anywhere from between 30 to 90 days after it is paid by the store. Obviously, the sooner the better.

A distributor is a necessary cog in the record selling wheel if the goal is to maximize record sales. Therefore, an artist should seek out a reputable distributor for its product.

Ben McLane Esq

Monday, January 3, 2011

Music Business/Law Tips - "How Distributors Pay" (Part 1)

For an artist to increase his or her chances of selling records, a record distributor should be utilized. This article will attempt to simplify how the artist gets paid by the distributor.

The artist/distributor relationship at its most basic is as follows: (1) the artist records a record; (2) once the record is manufactured, a distributor will sell/ship the record to a store (brick and mortar or e-commerce); (3) the store will, in turn, sell the record to a record buyer. Hence, the distributor's main job is to sell. Ancillary to the function of selling, the distributor will also warehouse the record (if CD), ship the record, collect the money from the store, and pay the artist. Occasionally, a distributor will also promote and advertise an artist, but that is the exception.

Once the distributor receives an order from a store for a physical record, it will sell the record to the store at a wholesale price (far less than the retail price), but for e-commerce the record is basically in the "cloud" waiting to be downloaded/sold.

From the wholesale price it is paid by the store, the distributor will then deduct its fee, which is generally about 25% of the wholesale price.

[part 2 next week]

Ben McLane Esq