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Things to Consider Before Signing A Music Contract

Posted by Steve Vondran | Aug 11, 2019 | 0 Comments

Attorney Steve® Music Law Essentials - The Music Contract

Introduction

            You have just gotten your first offer from a large record label and everyone you talk to says you'll be the next big thing! So your label representative brings you to a plush office to sign a music contract that will “make you a star” but before you just sign your name on that line there are a few things to keep in mind. Throughout this article I will explain what a music contract entails, its significance and a list of specific clauses to be mindful of.

Music contracts, just like any contract, can hold certain clauses not beneficial to the signer. Many companies will take advantage of a young up-and-coming musician if the opportunity arises and money is to be made. Regardless of the great opportunities being promised a contract can have very different terms, this is why reading the contract is important. Even with a keen eye there can be fine print not obvious to the unaccustomed reader, this is why bringing a lawyer along with you is not a bad idea. 

What is a Music Contract?

            Music related contracts are typically named either a recording or master license agreement. Since the artist is the creator they are the sound recording copyright owner who is negotiating a deal with the label to assign rights and monies regarding the content. 

Contract terms and clauses to be mindful of.
  • Smaller Things

Remember that legalese can be purposefully tricky and obscure in order to manipulate the parties involved in the signing. Because of this it is necessary to become fairly literate in the lingo that is used in these contracts or risk being taken advantage of. 

  • Major Red Flags
    • Contracts with initial term lasting multiple years
      • An artist's career can take many turns throughout their career, especially at the beginning. Because of this signing a 1 year long contract with option periods, the ability for the label to renew or reevaluate your contract with them
    • Work-for-hire or transfer of copyright
      • These phrases should always sound alarms when in a contract.
      • Work-for-hire, which has been covered in another blog on our website (Enter URL), means that the originator of content, in this case a song, is an employee or contractor. If you are considered work-for-hire the company, the label, owns any creations generated while under contract.
      • Assignment or transfers of copyright are two terms frequently used to strip a creator of their songs copyrights.
    • To combat these create a license deal, where you license exclusive control of your music master to the label for a set period of time and within a specific region.
      • Exclusive rights should include: distribution, promotion, exploitation
      • Non-exclusive rights you should keep: rights to your name, likeness, image and non-commercial promotional web-uses 
  • Perpetual ownership of rights for the label
    • Often labels will state they own the rights for perpetuity. Although a copyright ends 70 years after the death of the creator you still want to hold these rights for as long as you can.
  • A well-negotiated license deal can grant the label the rights for approximately 10-20 years, but if you have the leverage to make it even shorter do it.
    • Re-recording Restrictions
      • These are a common clause in this form of contract. The issue arises when the label states restrictions for longer than 5 years. Who knows what song(s) you've released during this time will be hits, try not to tie yourself down.
    • Hidden Royalty Deductions
      • Labels will try and sneak royalty deductions, sometimes in a “blank-check” form; into your contract in various ways potentially negating any royalties you should receive.
      • Examples of these forms of deductions are: travel expense, meals, entertainment and hotel stays among other creative excuses to extract royalties from the content originator.
      • To remove these you must find all of the deductions and decide if they are worth you losing precious royalty money from your songs, personally I would strive to have zero deductions.
    • Essential Additions
      • Release Commitment
        • Labels can have you record songs and never release them.
      • Adding a release commitment clause with language committing the label to releasing your music within 60-120 days post acceptance of the product and if they do not release within the specified time frame the rights are revoked and go solely into your possession.
        • Defined Marketing Budget
          • Always get written guarantees of your labels marketing efforts.
          • Larger labels typically have in-house marketing and radio departments, which you want them to commit to.
          • Even with the available use of the in-house marketing it is a smart idea to have the option for third-party marketing available within your contract. Keep in mind that these investments made by the label will be recouped from the artist's royalties at a typical rate of 50%. 
  • Prior-Approval
    • The addition of language such as “subject to written prior approval of the Artist” will allow you to retain artistic control over your music.
  • Items prior-approval should be used for: selection of songs on records, music videos, artwork (such as cover art), promotional materials and remixes.
    • Defining the Artist Royalties
      • There are two types of royalties physical and digital. Typically labels can start with a lowball price for royalties and negotiation starts there.
      • Specifying the calculation of royalties is essential for accurate and fair payment. Net Published Price to Dealer, Net PPD, means that it is the wholesale price after distribution and store fees, this is the most fair price calculator.
      • Some fair royalty rates for larger labels is around 20-25% physical and 25-35% digital. Smaller/Indie labels have physical rates around 20-30% and 40-50% digital.
    • A subset of royalties is mechanical royalties from a composition
      • A label can make a copy of a record but will need a license, this license is called a mechanical license. To get around this license in the U.S. a label can go through a strenuous legal process to attain a compulsory license. The cost on the label for this license is $0.091 for any song 5 minutes or less in length and is upped to $0.0175 for any minute in a song over 5 minutes.
        • For example if a 4-minute song sells 1,000 copies the royalties would be $91 to the artist. If a 7-minute song sells 1,000 copies the royalties would be $122.5 in royalties to the artist.
      • Auditing of the Label
        • With all this money coming in it is easy to lose track of some of it and the label can try to take advantage of this. To make sure they are not withholding any money unfaithfully you must audit.
        • The addition of an Auditing Clause can make this process viable. These clauses can allow an artist to hire a registered accountant once a year to review the books and receive their money. If stated in the contract the label will pay for the auditing if the amount of money exceeds 10%.
        • Do not worry about this seeming like an insult to the label company since this is incredibly common, especially with larger labels and deals. 

Parting Words

            Signing your first record label is extremely exciting and could mean you're the next big star played on all the radio stations, but do not get ahead of yourself and blindly sign the first contract you see. Instead remember what you want out of your music career to save yourself a lot of time, money, and heartbreak.

When in doubt about if you want to control something or not negotiate in the contract for Written Prior Approval so you are not shocked when your song is used for a opioid drug advertisement. Read the entire contract a few times over and never be shy about getting some help from a professional or trusted industry expert.

Be smart about your future and avoid signing your life away to a label that sees you only as a cash cow to exploit. Your rights and royalties are essential to keeping what you created in your control along with being able to profit off the fruits of your labor.

blog written by Tomas Braly - Texas A&M graduate.

Contact a California Music Lawyer

We can help with a wide variety of music law issues including contract review and negotiation, celebrity endorsement agreements, partnership agreements, works for hire, DMCA and much more.  Call us at (877) 276-5084 or email us through our online contact form.

About the Author

Steve Vondran

Thank you for viewing our blogs, videos and podcasts. As noted, all information on this website is Attorney Advertising. Decisions to hire an attorney should never be based on advertising alone. Any past results discussed herein do not guarantee or predict any future results. All blogs are written by Steve Vondran, Esq. unless otherwise indicated. Our firm handles a wide variety of intellectual property and entertainment law cases from music and video law, Youtube disputes, DMCA litigation, copyright infringement cases involving software licensing disputes (ex. BSA, SIIA, Siemens, Autodesk, Vero, CNC, VB Conversion and others), torrent internet file-sharing (Strike 3 and Malibu Media), California right of publicity, TV Signal Piracy, and many other types of IP, piracy, technology, and social media disputes. Call us at (877) 276-5084. AZ Bar Lic. #025911 CA. Bar Lic. #232337

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