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