An Overview of Music Industry Contracts

by Leonard Bendel (Lenny_B)

As we saw previously, copyright holders have exclusive rights to deal with their musical works and sound recordings. These rights can be exploited by licensing them for a period of time or by selling them. These are all based on; “what rights do you want, how long do you want them for and what will you give me in return?” The answers should always be in a written contract and will be subject to each side’s bargaining power.

Sound recordings and compositions (musical and literary copyrights) can generate income for the copyright holder in several ways. Firstly, from sales of recordings which generate royalties (including “mechanical royalties” as we saw last time), secondly from public performances of those recordings on radio and TV broadcasts (collected through specialist collection societies) and also from fees and royalties generated by licensing the recordings and compositions to (for example) TV programmes, films, adverts, video games and indeed to other record companies for use in compilations. As we saw last time, record companies will usually control the copyrights in sound recordings, and music publishers will usually control the copyrights in the underlying compositions (and will collect the Publishing Income from them). Licensing a recording to films, adverts and computer games will usually require the permission of both record label and publisher – there are blanket agreements in place between TV broadcasters and the collection societies who agree rates for broadcasts.

There are two main types of Recording Agreement. In the more common “Record Deal”, the Record Label will (usually pay for and) own the copyright in the recordings themselves, whereas in a License Deal, the artist creates and owns his recordings and then licenses them to a Record Label for a specific length of time, and to specific territories.

• Exclusivity – will the artist be allowed to record for anyone else? (Record Deals are usually exclusive.)
• Term – what will be the length of the Record Deal? Will it be measured by time, or by the fulfilment of a number of recordings, or a mixture of both? Will there be “options” to extend the term? (Very often a “four-Album deal” means the Record Label may release up to four albums, and, depending on the commercial success of the previous albums, they will decide whether or not to exercise that option.)
• Territory – what territories or countries will the deal be for? Most Recording Agreements will be for the world, but License Deals can be on a country-by-country basis.
• Royalties – Record Labels generally pay artists in one of two ways – either on a “Net Receipts” basis, where the label and artist shares profits from a recording, or else on a “Points” (or Percentage) basis, where the label pays the artist a percentage of the “dealer price” (or wholesale) price of the record, usually somewhere between 15-22%.
• Advances – will the Record Label pay any advance? Be aware, that whatever sum of money that a label will pay upfront, they will recoup these before you see any royalties!
• Accounting – when will royalties be paid? This is usually every three or six months.

Publishers deal with compositions rather than recordings, and can offer a variety of services to a songwriter. Firstly, they will collect and administer publishing income (created in the ways I mentioned above), from the UK and overseas. Some publishing deals go no further than that and are commonly referred to as “Administration Agreements”. Some Publishers will also look to actively promote the songwriter and exploit his catalogue – they may seek cover versions, or synchronization licenses (where the song is “synchronized” with a film or TV programme), they may assist with trying to secure the writer a record deal, or provide much needed financial assistance.

Where Publishers are more pro-active, they will often sign the composer to a “Term Agreement” – this means that for an agreed period of time (“the Term”), the composer will write exclusively for the Publisher and assign it the rights in his compositions. Similarly to Record Deals, a Publisher may also pay an advance against future royalties, but would also wish to have options to extend the Term. The same contractual points as set out above for Record Deals would also apply. There is often a “minimum commitment” of number of compositions that the composer must provide within each Term period. The Publishers will generally also seek a “retention period” – this is the length of time after the Term that the Publishers can continue to collect income from the compositions (often between three and twenty years). It used to be the norm that Publishers would seek to control compositions for the life of copyright, but this is thankfully not the case anymore.

Publishers commonly commission between 15-30% of income generated from the compositions. This will vary depending on what type of Publishing Agreement you enter into, how much is paid as an advance, and other factors.

With all music industry contracts you are strongly recommended to seek independent legal advice from a lawyer who is experienced in the music industry. Any reputable record label, publishing company or manager will insist that you do take such advice before signing you. Indeed, contracts have in the past been overturned by a judge because legal advice was either not given, or was given by lawyers with no music business experience (as happened to the Stone Roses). However, be warned that not taking legal advice should not be relied on as an excuse to get out of a contract – it can take a great deal of time and money before you or your lawyer will come before a judge who will then decide whether or not the contract is fair. Your copyrights are your assets – before you enter into any contract that will license or let anyone else deal with them, you should know exactly what you’re getting in return, whether this is fair or industry standard, and that if you’re not going to be getting these rights back, that you’re getting an appropriate fee to compensate you.