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 The Artist-Friendly
Contract
Copyright March
2007 by Keith Holzman,
Keith
Holzman Solutions Unlimited.
All rights
reserved.
Back to The
Academy
It's been a number of years since I've written about artist
contracts, but
it's a subject much on my mind lately because I've been seeing agreements
that would curl your hair. I'm not an attorney so I advise all my clients to
retain an experienced entertainment lawyer to draft their own standard artist
agreement, but I'm making the suggestions below based on my many years'
involvement with them.
I've always stressed to my clients that their
contacts be artist-friendly, and I mean this from two standpoints. First,
they should be fair and even-handed in the terms and provisions.
Second, they should be written so that the average person can
readily understand what they mean.
These are some of the things record
labels should consider when writing artist agreements.
Term. Be sure
the "term" -- the period of time the agreement is in effect -- is clearly
stated. Some are so complicated that it takes an Aztec calendar and an abacus
to calculate how long they run, and then lawyers are frequently in
disagreement when they try to interpret them. The same should also apply to
the definition and length of option periods.
Royalty Base. The royalty
base should be 100 percent of either
suggested retail list price (SRLP,) or
the label's price to its distributor, or the distributor's average price to
its dealers (PPD.) Whichever of these is used, it should be clearly stated as
such, and the calculated royalty should be proportionate. In other words,
the artist's royalty should be more or less the same no matter which
of the above is the basis. For example, a 10 percent royalty based on
an SRLP of $14.98 would be about $1.50, but if based on the label's price
to its distributor (about $7.50 -- roughly 50 percent of retail) then you'd
need to double the artist's royalty to about 20 percent to come up with the
same $1.50.
Deductions. Forget about packaging deductions which has been
common but unnecessary since CDs have been typically issued in jewel
cases. This provision is a throwback to the 60's when such a deduction
might have been necessary when artists commonly requested
expensive packaging including gatefold jackets and booklets with lyrics
and lots of photos. I can see some rationale for a deduction for expensive
Digipaks¨. But that's about it.
There's also no need for deductions for
such standard configurations as CDs, cassettes, etc. The CD deduction dates
back to the early 80's when it was a new and unproved configuration and the
actual cost of manufacture was about three times higher than the
then-prevailing LP. That's when the "new technology" clause started creeping
into contracts.
And of course there should certainly be no deductions
for downloaded sales. I've seen contracts where there's a packaging deduction
taken even for these sales that have no package at all!
Territory.
Clearly state the territories that are covered. If it's
the World then say
so. But "parallel universes" -- as in some contracts? Get
real!
Ownership of masters is frequently another sore point. It's
my opinion that masters should always revert to the artist in the
case where a label closes shop and hasn't sold its assets. Some agreements stipulate that, should the label go under or be in default for
not paying royalties, ownership of the masters will revert to the
artist.
If the recording is a "work for hire" then that should be stated
as such, with a clear explanation what the term means.
Royalty
percentages should be clearly stated for each configuration
and price
category, particularly for digital sales.
Free Goods. I'm not a great
believer in using free goods to promote the sale of CDs because this practice
has been severely abused by many labels and accounts. If you must utilize
free goods, I recommend you limit their use contractually to a defined
amount, but in any event no more than 10 percent, which I believe is itself
too high.
Controlled Compositions are those that are written by the
artist or producer, and for which most labels prefer to pay less --
typically 75 percent of the statutory amount. This can be very unfair to
an artist and his publisher, but it's one way for a label to control
its costs.
Co-publishing. Many labels try to obtain a portion of a
writing artist's publishing. This is typically 50 percent of the
publisher's portion, allowing the artist to retain the other 50 percent of
the publisher's portion as well as 100 percent of the writer's
portion. Therefore the writing artist would own three quarters of all
the publishing with the label retaining the other quarter. I believe
this is a fair provision, provided that the label's publishing
division actively works to promote the copyrights involved.
Cross
Collateralization between publishing and record royalties is
attempted in
some contracts, but this is a no-no and is extremely unfair to an artist who
writes his own material. More common is crossing multiple releases so that
positive royalties from higher selling albums are crossed with losses from
poorer selling ones. This is not unreasonable in cases where a label has
actively been developing an artist's career and is thus an opportunity for a
label to try to recoup some of its
losses.
Tour
Support. Most independent labels can't afford to spend much in
the way of
assisting an artist's touring, other than through use of the label's
publicity department to support the artist's efforts. However, if a label
helps support the artist while on tour, then it's reasonable that it be a
recoupable cost.
Independent Publicity, Promotion, and Marketing. Many
small labels don't have fully staffed departments to handle these functions
so in the event they hire outside specialists, it's not unreasonable that
a portion -- no more than 50 percent -- be recoupable from the
artist's royalties.
Merchandising. It's becoming quite common for
labels to negotiate for a percentage of an artist's merchandising income. I
don't think this is unreasonable for those labels who actively work to
develop their artists' careers, but I think it very unreasonable
otherwise.
Artist Approvals should be requested whenever feasible, but
these should not be contractually offered. I've seen too many
occasions where artist's unreasonably withheld approvals and impaired a
project
and its release.
I don't recommend that a label contracts with
an artist who is underage. This can create untold problems, even when parents
sign an agreement. I suggest waiting until the artist has reached
majority.
Profit Sharing. There are many occasions when an artist or
group will record an entire album paying for all the costs as they
proceed, without requesting funds from the label. This is particularly
common when an artist is not yet signed and records an album on his own.
In this event a label and the artist may enter into a
simple profit-sharing plan, where all recording, manufacturing and
marketing costs from both sides are pooled. Then net income after
accounting for expenses is split, usually on a 50/50 basis.
You might
include in your contract a comment recommending that the artist seek the
advice of a competent attorney thoroughly familiar with record industry
practice.
In order to keep an agreement reasonably simple, some attorneys
put all of the definitions, and certain other boilerplate, in a
discrete part of the contract. These are items that will usually
remain standard for all of a label's agreements and simplifies
the negotiating person's work and reduces the amount of typing by
an assistant or paralegal. The definitions will include all of
the standard words that require strict explanation so that there will
be no confusion over terminology.
In sum, I believe that a label
should be as fair as possible in signing an artist. After all, this should be
like a partnership where both artist and label share any bounty. Contracts
should be just that -- an agreement between both parties that is fair and
equitable, creating a win-win situation for all. In short, don't be
greedy.
Until next month,
Keith Holzman -- Solutions Unlimited
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Copyright 2007 by Keith Holzman, Solutions Unlimited. All rights
reserved. Adapted from "Manage for Success," Newsletter #71,
March 2007.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Keith Holzman is the principal of Solutions Unlimited, a management
consultant specializing in the recording industry. A trusted advisor
and troubleshooter, he is a seasoned music business senior executive
with extensive experience in all aspects of running a label. He was
President of ROM Records, Managing Director of Discovery Records,
Senior Vice President of Elektra, and Director of Nonesuch Records.
He publishes "Manage for Success," a free monthly email newsletter
devoted to solving problems of the record industry. You can subscribe
at his website <http://www.holzmansolutions.com>. Keith is a member
of the Institute of Management Consultants and has served as a
panelist for the National Endowment for the Arts, and as a board
member of many arts organizations. He can be reached at
mailto:keith@holzmansolutions.com.
Keith is also the author of the recently published "The Complete
Guide to Starting a Record Company" available both as a 235-page,
printed spiral-bound book, as well as a downloadable E-Book.
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