The Agreement From Hell That An Artist Should Never Sign & How To Make It Fair
By Steve Gordon
Part 1 will focus on production companies and their contracts with artists. Part 2 will tackle deals between artists and indie labels.
Production Companies Are Not Labels
Production companies usually consist of one or two individuals with limited resources who would like to make a few demos for an artist in order to shop him/her to a real record company. Unfortunately, more than occasionally, such a company will present an agreement that locks the artist into a long term deal, makes the company the artist's music publisher, and takes a substantial cut of all the income that the artist may make in the entire entertainment business, as well as other horrors.
The first agreement we will examine in this installment is typical of a contract offered to an artist by a production company masquerading as a "label." Be warned: This agreement is a terrible deal for artists. It presents all the negative terms typically contained in an exclusive recording agreement offered by a major label, including multiple options for additional albums that could extend the duration of the agreement indefinitely, and 360 provisions designed to give the company a significant portion of the artist's income from any of his/her activities in the entertainment business. (See discussion of 360 deals below, and How to Avoid Getting Completely Screwed by a 360 Degree Deal, available at www.digitalmusicnews.com/permalink/2013/07/02/threesixty). Yet the first agreement offers none of the benefits that a major label deal contains, such as a recording budget and advance.
There are many differences between a production company and a real label, but they have at least the following in common: Both production companies and labels own or have access to recording studios and equipment, and they both have producers on payroll or relationships with indie producers who they can call on to make professional recordings. A real label, however, has the following additional assets:
• Staffers and/or freelancers who provide both traditional marketing and publicity as well as online social networking support;
• Staffers and/or freelancers who continually pitch records to terrestrial radio - still a crucial element in breaking in a new artist, especially in pop, R&B, hip hop, rock, and country;
• A video department to produce, oversee and pay for the production of promo videos and electronic press kits (EPKs);
• Relationships with popular TV shows, such as Saturday Night Live, The Tonight Show and Last Call to help the artist garner invaluable exposure;
• Relationships with leading digital services to promote an artist - for instance, by continually lobbying iTunes to feature the artist on its home page;
• Relationships with music supervisors and ad agencies to secure placements in TV shows, movies and ad campaigns;
• Distribution channels through all the big-box chains, such as Walmart, Best Buy and Target to sell physical copies of records;
• The ability to coordinate digital distribution to hundreds of digital music services throughout the world;
• The money necessary to pay staffers and freelancers to do the all the work above; and
• Perhaps most importantly, the financial capacity to pay the artist an advance on top of production costs so that he/she can quit his/her day gig.
First Agreement: Production Company Posing As Label
This form agreement came from an actual production company that presented an agreement that only a real label should offer. As we just discussed, a production company has almost none of the resources of a true record label. The production company should have offered a "shopping deal" under which it would have a limited time to find a suitable label deal for the artist. Instead, this agreement includes provisions that are completely unfair and unjustifiable. Here is an overview of the key provisions and why they should be changed:
The term of this agreement is an initial period of 15 months followed by options for the "delivery" of four additional albums. Since delivery depends on when the company decides to record each album, the contract could continue indefinitely. The artist could hire a lawyer to try to get out of this contract, but at the end of the day, the production company could contend that the contract was valid, which could impede the artist from securing another deal.
If a company is merely a production company and not a real label, it should offer a shopping deal under which it has a limited amount of time to produce at least five or six tracks (sometimes referred to as "demos") that feature the artist's best work, and shop those tracks to real labels to help the artist get to the next level. Generally, a production company has nine months to shop the demos. If the production company cannot secure such a deal, the artist should be free to terminate the agreement.
A production company does not have the resources to help the artist as a real label could, and therefore, it should not try to trap an artist in a multiple album deal. On the other hand, if the production company secures a good deal for the artist with a reputable label, it should share with the artist in monies the record label pays to the artist, including advances and royalties for the artist's exclusive recording services. A fair deal may provide that the company will share in such revenues for the first several albums released by the label.
A reasonable royalty for producing demos and shoppingg demos andfor a deal with a label is 5% to 20%. The percentage should be based on what the label pays the artist, so if the artist's advance is $100,000, the production company would receive $5,000 to $20,000. If the artist's royalty is 15%, then the production company would get 5% to 20% of that royalty, that is, .75% to 3%. The lower royalty of 5% would be appropriate for shopping an artist who already has professionally produced recordings and the production company doesn't have to do anything but shop the artist. The higher royalty of 20% would be appropriate when the production company has to produce all new demos and perhaps even release tracks on social networks, and possibly iTunes. Yet many production companies will try take to advantage of a naive artist and demand 40% or 50%, or even more. The production company's royalty should also be limited to advances and royalties payable by the label for the artist; in a terrible deal for the artist, such as the first one analyzed in this installment, the company will also try to secure a percentage of any income the artist receives in the entertainment business, including live performance and publishing.
It is fair, though, that a production company be compensated for expenses if it secures a suitable label deal. However, the company expenses should be reasonable, documented, and approved by the artist. In addition, the amount should be deductible if a new artist, which means that if the company's expenses were $10,000 and a label is paying an advance of $100,000 for the artist's recording services, the $10,000 should be deducted from the $100,000, and the company should receive 20% of $90,000 ($18,000), and the artist should receive 80% of $90,000 ($72,000). If the expenses are not taken off the top, the company would receive 20% of $100,000 and the $10,000, that is, $30,000. The artist would only receive 80% of the balance of $70,000, that is, $56,000.
Since income from recorded music has drastically declined in the last 15 years, labels have changed their standard deals to share in money from other income streams, including merchandise, endorsements, live performances and touring, and even appearances in TV programs or movies. As labels wish to share in all of the artist's income streams, these deals are known as "360." A major label that can provide the marketing muscle to make an artist a household name arguably deserves to share in those income streams, but a production company has not earned that. However, if the production company actually does something to help the artist make money from other activities than record sales, there is nothing wrong in rewarding it for that success. For instance, if the company finds a good paying gig playing at a private event, the company may deserve a percentage of the fee payable to the artist.
Further, if the major record label demands 360 payments from various income streams, the production company and artist may be able to negotiate separate advances against all those income streams. For example, if the record company wanted a percentage of the artist's touring revenue, the production company and the artist could demand a significant advance payment from the record company in exchange for that royalty. In that case, both the production company and the artist would benefit from the advance.
Second Agreement: A Fair Shopping Agreement
Unlike the first contract, this agreement is an example of a shopping deal that is fair to both sides. The second contract provides a 20% royalty to the production company, but it also provides significant protections for the artist. Unlike the first contract, the second contract (i) gives the artist the right to approve the choice of the "Distributor" (that is, the label), participate in the negotiation of the deal, and approve all the terms of that deal; (ii) limits the Term to nine months unless the company find a suitable deal; and (iii) limits the company's royalty to income flowing from the label, and not from any other income that the artist may earn in the entertainment business.
AGREEMENT THAT AN ARTIST SHOULD NEVER SIGN
_______ Records, Inc.
Los Angeles, CA
Dated as of: ________ __, 2015
Dear Mr. ___________,
This agreement shall confirm and memorialize our discussions with reference to you and Company entering into an exclusive artist recording agreement regarding your performances as a musical recording artist. (You and Company are sometimes referred to herein as the "parties".) Although the parties contemplate the execution of a more formal long form recording agreement (the "Long Form Agreement"), this Letter Agreement, when signed by both you and Company, shall constitute a binding and enforceable agreement regardless of whether the Long Form Agreement is ultimately executed.
Following are the major terms and conditions which the parties agree shall form the basis of our contractual arrangement and which shall be incorporated in the Long Form Agreement (it being understood that such Long Form Agreement shall not be limited to these terms):
1) Artist: _________
2) Territory: World
3) Term: The "Initial Contract Period" shall run for fifteen (15) months from the completion and satisfactory delivery of the Initial Album hereunder. Each subsequent Contract Period, if any as provided for below, shall run for the longer of (i) 15 months from the completion and satisfactory delivery of the Masters to be delivered to Company during such Contract Period and (ii) 18 months from the commencement date of such respective Contract Period. At all times during the Term, you shall render your exclusive recording services to Company for the purpose of making Masters (as hereinafter defined) and for all other purposes as provided for herein.
As discussed in the introduction, most production companies consist of one or two individuals with some experience in the record business who may or may not be producers, but own or have access to a professional recording studio. Their goal is to land a deal for the Artist with a real label that has resources to provide the money and staff to properly market, promote, and distribute records and take the Artist to the next level or to the top.
Generally, a production company has nine months to shop demos to secure a deal. An album is not necessary to shop an artist for a label deal. Note that under the language in Paragraph 3, since delivery does not occur unless the Company records the Artist, delivery may never occur. Therefore this Agreement could go on indefinitely.
This provision needs to be altered to give the Company a reasonable time to find a suitable label deal. If it does not find one within that time, the Artist should have the right to terminate.
4) Recording Commitment/Future Options: During the Initial Contract Period, you shall record up to three (3) previously unreleased "singles" (the "Initial Track(s)"), the first of such Initial Tracks to be commercially released not later than five (5) months after the satisfactory delivery thereof (unless otherwise agreed by you and Company). During the period ending not later than nine (9) months after the commercial release of the Initial Track, Company shall have the right and option, in its sole discretion, to require you to record a full-length album comprised of not less than 10 songs (the "Initial Album"). Thereafter, Company shall have an option(s), to be exercised by Company in its sole discretion, for up to four (4) consecutive additional Contract Periods, comprised of one (1) full-length album during each Contract Period, each such option to be exercised, if at all, not later than the expiration of the then current Contract Period, subject to a ninety (90) day written notice and cure period in the event Company fails to exercise any such option. (The Initial Album, all additional audio only masters recorded by you during the Term hereunder, all audio-visual products, and all other recordings or other formats now or hereafter known embodying your musical performances are sometimes referred to individually and collectively herein as the "Master(s)".) Selection of the Masters to be recorded hereunder shall be subject to the mutual cooperation and agreement of the parties, it being understood and agreed that Company shall have the final word with respect to selection of Masters and for all other creative matters, including, but not limited to, the selection of the songs to be recorded, producers of Masters and album artwork.
A good shopping deal for an artist makes a production company adhere to a firm deadline. If they do not find a deal within nine months, for instance, the Artist can walk away. On the other hand, the company should have the right to share in the Artist's success from a record deal that the production company helped the Artist secure. A typical provision to address this would read as follows:
"The term of this agreement ("Term") shall commence upon the date of this Deal Memorandum and continue until the commercial release by a Distributor in the United States of the fourth (4th) full-length, studio album containing Artist's featured performances and delivered to such Distributor in fulfillment the Artist's recording obligation to the Distributor. Notwithstanding the foregoing, if an agreement for Artist's exclusive recording services between the Company and a Distributor (a "Distribution Agreement") has not been executed within nine (9) months from the date of completion of production of the Initial Masters hereunder (the "Shopping Period"), the Artist may terminate the Agreement."
5) Recording Costs/Advances: Company shall administer and pay all pre-approved recording costs in connection with the production of the Masters. All master recording costs, video production costs, independent marketing and promotion costs, all other sums paid by Company to you or on your behalf, (whether related to Other Music Activities or otherwise) and all other typically recoupable costs and expenses incurred by Company hereunder shall constitute "Advances", fully recoupable by Company from any royalties or other sums to be paid to you (or on your behalf) by us or any third party (excluding mechanical royalties) under this Agreement or any other agreement between you and Company.
There are two things wrong with this provision. First, "all recording costs" should only be expenses that are reasonable, documented, and, if possible, approved by the Artist. Second, in a real recording agreement, the Artist should receive a real advance so he/she can quit his/her day gig and move out of his/her parent's house.
6) Royalties: As your sole and complete consideration of your services rendered hereunder, Company shall pay you a sum equal to thirty five (35%) percent of the net revenues received by or credited to Company in connection with the exploitation of the Masters, after recoupment by Company of all Advances, recording costs and expenses and all other chargeable costs related to the distribution and/or exploitation of the Masters, including, but not limited to manufacturing costs, third party distribution fees and charges, and marketing and promotional expenses, it being understood that there shall be no so-called "double-dipping" and such recoupable expenses shall only be charged to your royalty account once. It is understood and agreed that Company's otherwise standard policies would apply to the calculation and payment of all royalties (e.g., free goods, program discounts, reserves, reductions, etc.). You acknowledge and agree that no royalties of any kind nor any other compensation (other than mechanical royalties, if any) shall be due to you except as provided in this paragraph. Company shall account and pay you any sums due not semi-annually, within ninety days after the end of each semi-annual period ending on June 29th and December 31st. Company shall be entitled to withhold any and all taxes as required by law with respect to any sums payable to you hereunder.
If the Company were a real label, a 35% percent royalty payable to the Artist on record sales would not be unfair. However, because the Company is only a production company, the goal is not to sell records but rather to secure a suitable label deal. When the production company achieves that, it should share in the revenues generated by the major label, but not 65%. The following clause should be added to the Royalties section of the agreement:
"Notwithstanding anything to the contrary above, If Company enters into Distribution Agreement, with your prior approval, the Company shall receive [5% to 20%] (see introduction) of any advances or royalties payable by the Distributor for the recording services of the Artist. The Artist shall receive the balance, that is, 80% of such Advances or royalties for the first four (4) Albums. Notwithstanding anything to the contrary above, company shall have the right to deduct its actual documented approved recording costs that have not already been recouped by Company."
7) Name and Likeness Rights/Website: Company shall have the perpetual right, which such right shall be exclusive during the term and non-exclusive thereafter, without liability to any person, to use and to authorize other persons to use your name, likeness and biographical material for purposes of advertising, marketing, promotion and trade in connection with making and/or exploitation of Maters, recordings, audio-visual materials, and all other materials hereunder. You hereby grant to Company the exclusive right, during the Term (and the non-exclusive right thereafter, with respect to an alternate name), to establish and maintain all Artist-branded digital sites and social networking sites, including a website having the URL "_________.com" or any similar designation based on or containing your professional name. You shall make yourself available at Company's reasonable request and expense and upon reasonable notice to appear for photographs, posters, cover art, interviews with representatives of the media and publicity personnel and to perform other reasonable promotional functions.
This clause should be added:
"Notwithstanding, anything to the contrary above, (i) Artist shall have the right to continue his YouTube and Facebook pages; and (ii) all content in Artist branded sites shall be subject to Artist's approval."
8) Representation/Warranty/Indemnity: You warrant and represent that you have been, are and shall continue to be possessed of the full right to enter into this agreement and perform hereunder and that your entering into this agreement and performing hereunder shall not infringe upon the rights of any person or entity. Upon the expiration or other termination of this Agreement, you agree not to re-record any composition embodied on a Master hereunder until the date that is the later of i) three years after the end of the Term and iii) five years from the completion of recording of such Master hereunder. You indemnify us against any losses or damage (including reasonable attorneys' fees) arising out of any claims by any third parties which are inconsistent with any warranty made by you herein or any condition contained herein. You shall promptly pay us on demand any sums for which you are liable under the proceeding sentence and, alternatively, Company shall be entitled to withhold any such sums from monies otherwise payable to you hereunder.
9) Ownership: The Masters (including, but not limited to, any audio-visual recordings related thereto), all duplicates and derivatives thereof, all records made therefrom or duplicates or derivatives (including the copyright and renewal and/or extension of such copyright), and all artwork and other intellectual property created or obtained by Company, together with the performances embodied therein, all in any form, manner, or medium now or hereafter known, shall be exclusively and perpetually property of Company, free from any claim whatsoever by you or any person deriving any rights from you. The Masters shall be deemed a work made for hire within the meanings of the United States Copyright Act. If the Masters are determined not to be a work made for hire, they will be deemed transferred to Company by this agreement, together with all rights in it. Accordingly, the Masters, together with yours and all the performances embodied on them, shall be the sole property of Company, its assignees and successors in perpetuity and throughout the world, free from any claims by you or any other person; and Company shall have the exclusive right to copyright the Master in its name as the author and owner thereof and to secure any and all renewals and extensions of such copyright throughout the world. You will execute and deliver to Company such instruments of transfer and other documents regarding the rights of Company in the Master as Company may reasonably request to carry out the purposes of this Agreement, and Company may sign such documents in your name and make appropriate disposition of them.
This paragraph states that all "Masters shall be deemed work for hire" for the company. Work for hire means that all the copyrights in the recordings are owned by the company, and that the company will have the right to use them for any purpose after the termination of the agreement. In a pro-artist agreement, the copyrights in the master recordings would be owned jointly by the Artist and the Company. This means that if the Agreement terminates, neither the Artist nor the company would have the right to exploit the master recordings without mutual approval.
Without limiting the generality of the foregoing, Company, or any person authorized by Company shall have the perpetual unlimited, exclusive right, throughout the world: (i) to manufacture records, video-records, and any derivatives thereof derived from the Master in any form, in any medium, and/or by any method now or hereafter known; (ii) to sell, transfer or otherwise deal in the same under any trademarks, trade names and labels; (iii) to reproduce, adapt, transmit, distribute, broadcast, perform, communicate and otherwise use the Master in any medium or in any manner, including but not limited to use in physical, digital, electronic, mobile and internet formats; (iv) to cause or permit the public performance of the Master, or derivatives thereof, through any and all media; (v) to add to, delete from, edit, mix and otherwise alter the Master without restriction; and (vi) to exploit the Master and derivatives therefrom through any and all means, whether now or hereafter known, all without payment of any compensation to you except the royalties as described in this Agreement. In the alternative Company may, at its election, refrain from doing any or all of the foregoing.
10) Mechanical License: With respect to any musical compositions embodied on the Masters which are owned or controlled by you or your designees, you hereby grant to us and our designees the irrevocable non-exclusive right to reproduce the Song on records (including digitally delivered reproductions) and to distribute any of those records in the United States and Canada. Mechanical royalties shall be payable on a maximum of ten (10) songs on each album, on net sales of such records at the following rates: (i) on such records sold in the United States, the rate shall be the United States mechanical rate. The "United States mechanical rate" shall mean the amount equal to seventy-five percent (75%) of the minimum statutory royalty rate (without regard to playing time) provided for in the United States Copyright Act which is applicable to the reproduction of musical compositions as of the date of initial release of the Master concerned; and (ii) on such records sold in Canada, the rate shall be the Canadian mechanical rate. The "Canadian mechanical rate" shall mean the amount equal to seventy-five percent (75%) of the minimum statutory royalty rate (without regard to playing time) provided for in the Canadian Copyright Act which is applicable to the reproduction of musical compositions as of the date of initial release of the Master concerned; (iii) the mechanical royalty rate for a Song contained on a mid-price record or budget record shall be three-fourths (3/4ths) of the United States mechanical rate or the Canadian mechanical rate; as applicable; and no mechanical royalties shall be payable on any phonograph records for which no royalties are payable by Company. If the copyright in a musical composition is owned or controlled by a person, firm or corporation other than you, you shall cause that person, firm or corporation to grant to us and our designees the same rights as you are required to grant to us and our designees hereunder. You hereby grant to us and our designees at no fee, royalty or other cost to us or our designees, the irrevocable, non-exclusive, worldwide right to reproduce and publicly perform each Song on audio-visual recordings, to distribute audio-visual records embodying those audio-visual recordings, and otherwise to exploit in any manner and through any media those audio-visual recordings. You grant to us and our designees, or shall cause to be granted to us, the irrevocable right to print and reproduce, at our election, the title and lyrics to the Song on the packaging of phonograph records embodying Masters throughout the world in perpetuity, without payment to you or any other person, firm or corporation of any monies or other consideration in connection therewith. Any assignment, license or other agreement made with respect to the Song shall be subject to the terms hereof.
This paragraph is known as the Controlled Composition Clause. It means that the Artist who writes his own songs does receive mechanical royalties from record sales by the Company, but the Company pays only ¾ of the statutory rate of 9.1 cents per song instead of the full rate. It is a standard clause in any major label or major indie deal and usually cannot be negotiated away unless the Artist has tremendous bargaining power. However in the context of this Agreement, it is usually irrelevant as the Company will probably not sell records, or if it does, perhaps only one or two tracks in order to spark a real label's interest in the Artist.
11) Co-Publishing. The parties agree that you (or your affiliated publishing company) and Company's designated publishing affiliate shall be co-publishers with respect to music and lyrics of all compositions written, owned and/or controlled by you during the Term. Accordingly, you (or your affiliated publishing company) hereby irrevocably and absolutely assign, convey and set over to Company (or its designee), or will cause Company (or its designee) to receive an assignment, of fifty (50%) percent of all right, title and interest (including the worldwide copyright and all extensions and renewals thereof) in and to each and every controlled composition which is recorded hereunder. Upon request, you agree to execute and deliver to Company, or to cause to be executed and delivered to Company (or its designee) a separate Co-publishing Agreement with respect to each such controlled composition in accordance with standard forms of such agreements. If you shall fail to promptly execute such agreements, you hereby grant to Company the right to sign same on your behalf, though Company's failure to exercise the rights granted to use such authority shall not diminish Company's rights as set forth within this Agreement. Company shall be the exclusive administrator of 100% of all rights in and to such controlled compositions, and it (and/or its designees) shall be entitled to exercise any and all rights with respect to the control, exploitation and administration of such compositions including, without limitation, the sole right to grant licenses, collect all income and to use the name, likeness and biographical material of each composer, lyricist and songwriter hereunder in connection with such composition for the full term of copyright (including all renewals and extensions thereof) in and to such Composition. From all sums actually earned and received by Company in the United States of America from the exploitation of such Composition throughout the world (the "Gross Receipts"), Company shall: (i) deduct and/or retain all out-of-pocket costs incurred by Company in connection with the exploitation and protection of such Composition; (ii) deduct and pay royalties payable to the writers (including you) of the Composition (which you warrant and represent shall not exceed fifty (50%) percent of the Gross Receipts); and (iii) pay to you an amount equal to fifty (50%) percent of the balance remaining after deducting the aggregate sums set forth in subparagraphs (i), (ii) and (iii) above, and the remaining fifty (50%) percent thereof shall be retained by Company for its sole use and benefit. Accountings for such royalties shall be rendered semi-annually subject to all the terms and provisions of Paragraph 11 hereof.
The Artist should delete this paragraph 11 completely. Since a production company is not a music publishing company, which is equipped to exploit songs and collect income from them all around the world, the Company should not become the Artist's music publishing company.
12) Other Music Activities. You shall pay to Company a sum equal to thirty (30%) percent of all OMA Income ("the OMA Payment", provided that the OMA Payment in connection with your touring and other live musical performances shall be deemed to be twenty (20%) percent). You authorize Company to collect all OMA Income on your behalf but to the extent such is not collected by Company, within fifteen (15) days of the end of each calendar quarter of the Term, you will send Company a detailed written account of all OMA Income received by you or on your behalf during such accounting period and the amount of the OMA Payment accordingly payable to Company. On receipt of each such accounting statement, Company will elect either to deduct the OMA Payment from monies (including royalties) due to you hereunder or to receive payment, in which case you shall pay the amounts shown to be due in each accounting statement within ten (10) days of the date of such statement. You agree to maintain complete and accurate books and records relating to OMA Income. At any time within two (2) years after any accounting statement is rendered to Company hereunder, Company shall have the right to inspect such books and records on reasonable notice but not more than once during each year. As used herein, "Other Music Activities" shall mean all of your professional activities connected to the entertainment industry including, without limitation, merchandising, advertising, sponsorship, endorsements and tie-ins, touring and all other live performances, and TV or film appearances (but specifically excluding music publishing, any fees or royalties you receive for acting as a "producer" of records for others, record royalties hereunder, and any other income payable to you which Company is otherwise participating in (i.e., there shall be no "double dipping" with respect to OMA Income). "OMA Income" shall mean all gross sums paid or payable to you with respect to your "Other Music Activities" during the Term or with respect to any and all agreements related thereto entered into during the Term and for a period of three months thereafter (whether received during the term or thereafter), after deduction of third party out-of-pocket expenses or deductions reasonably incurred in connection with the Other Music Activities, including booking agent commissions, monies payable to third party co-publishers and co-writers of musical compositions written by you and reimbursement for actual out-of-pocket expenses incurred by you in connection therewith (but which such deduction shall not apply to production, travel, musician, or other show related costs for your live performance activities or management commissions). Upon request by Company, you hereby agree to execute standard Letters of Direction authorizing and directing any third parties to pay any such OMA Payments directly to Company.
The Artist should delete this paragraph completely for the reasons discussed in the introduction to this installment (see 360 Provisions). Yet in fairness to the Company, if it does something to deserve ancillary revenues, there is nothing wrong with compensating it for its efforts. Here is an alternative to harsh 360 clauses compensating the Company if it actually helps the Artist make money:
(a) Company may, from time to time, secure and coordinate "synch" placements of any of the Artist's Songs in motion pictures, TV program, ad campaigns, video games etc. ("Company Synchs"). It is understood that Company is not a music publisher and shall not be required to procure any synchs for Artist. If Company does secure and coordinate any live personal appearance for the Artist, Company shall be entitled to collect all gross revenue from the Company Synchs. Company shall pay Artist seventy-five percent (75%) of gross revenue derived from such Company Synchs. Company shall make such payment to Artist within three (3) days of Company's receipt of such monies together with a comprehensive accounting statement. Notwithstanding anything to the contrary above, (i) Artist shall have the right to approve Company Synchs and the synch fee; (ii) Artist has no obligation to Company for any synch placement not secured by Company. Company shall have no other rights in Artist's songs except as set forth in this Subparagraph.
(b) Company may, from time to time, secure and coordinate live personal appearances for Artist and shall negotiate the Artist's compensation in connection therewith for concerts or live performances ("Company Shows"). It is understood that Company is not an employment agency or a talent agent and shall not be required to procure any employment for Artist, and that Company has not represented that it will procure employment for Artist. Any live personal appearance that Company does secure and coordinate for the Artist shall be incidental to its role as a record company. Company shall pay Artist seventy-five percent (75%) of Net Revenue derived from such Company Show. "Net Revenue" as used in this paragraph shall mean all gross revenue actually received by Company less documented reasonable expenses incurred by Company in connection with such Company Show such as lighting and sound. Company shall make such payment to Artist within three (3) days of Company's receipt of such Net Revenues together with a comprehensive accounting statement. Notwithstanding anything to the contrary above, (i) Artist shall have the right to pre-approve each Company show and her performance fee; (ii) Artist has no obligation to Company in connection with any live performance not secured by Company.
13) Miscellaneous. This agreement is the entire agreement between the parties with respect to the contents hereof, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and shall not be modified, except by an instrument in writing, signed by each of the parties duly authorized to execute such modification. Company may assign its rights under this Agreement in whole or in part.
There is a great deal of boilerplate language here that may be legally necessary, but is not more favorable to one party than the other. Here is one truly insidious sentence: "Company may assign its rights under this Agreement in whole or in part."
This would mean that the Company could assign the agreement (together with the five albums that the Company is entitled to) to any other company or individual. The Company could thereby literally sell the Agreement. This sentence should be modified to allow the Artist to approve any assignment of the Agreement to a third party.
You may not assign this agreement or your rights or responsibilities hereunder without the prior approval of Company, such approval not to unreasonably withheld with respect to a so-called "furnishing company" owned or controlled by you which is exclusively entitled to your recording services. A waiver by either party of any term or condition of this agreement shall not be deemed or construed as a waiver of such term or condition for the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations, and agreements contained herein shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party. No breach of this agreement by either party shall be deemed material, unless the non-breaching party shall have given the other party notice of such breach and such breaching party shall fail to cure such breach within 30 days after receipt of such notice. If any part of this agreement shall be determined to be invalid or unenforceable, the remainder of this agreement shall remain in full force and effect. This Agreement has been entered into in the State of California and the validity, interpretation and legal effect of this Agreement shall be governed by the laws of California applicable to contracts entered into and performed entirely within California, with respect to the determination of any claim, dispute or disagreement which may arise out of the interpretation, performance or breach of this Agreement. All claims, disputes or disagreements which may arise out of the interpretation, performance or breach of this Agreement shall be submitted exclusively to the jurisdiction of the appropriate court in California. You acknowledge that Company has given you the right and opportunity to have this Agreement reviewed by an attorney of your choice having competence in the music industry, and you have done so. You further acknowledge that said attorney has reviewed with you the terms of this Agreement and that he/she has advised you as to all legal ramifications and consequences of your entering into this Agreement. You acknowledge that your services hereunder are of a special, unique, unusual, extraordinary and intellectual character and in the event of a breach by you of any material term, condition, representation, warranty or covenant herein, Company will be caused irreparable injury and damage. You expressly agree that Company shall be entitled to the remedies of injunction and other equitable relief to prevent or remedy a breach, which relief shall be in addition to any other rights or remedies, for damages or otherwise, which Company may have.
Under the last sentence above, the Company could seek a court to enjoin the Artist for recording for another record label.
If because of: an Act of God, inevitable accident; fire; lockout; strike or other labor dispute; riot or civil commotion; act of public enemy; enactment, rule, order or act of any government or governmental instrumentality (whether federal, state, local or foreign); failure or delay of transportation facilities; or other cause of a similar or different nature not reasonably within Company's control, Company is materially hampered in the recording, manufacture, distribution or sale of records, then, without limiting Company's rights, Company shall have the option by giving you notice to suspend the running of the then current Contract Period for the duration of any such contingency plus such additional time as is necessary so that Company shall have no less then sixty (60) days after the cessation of such contingency in which to exercise its option, if any, to extend the Term of this Agreement for the next following Option Period.
The parties agree that, upon both of our signatures below, this letter shall constitute a valid and binding agreement regarding the exclusive rights to your services. Notwithstanding the contemplation of the Long Form Agreement, all legal and equitable rights, obligations and remedies of both parties attach hereto with no limitation.
ACCEPTED AND AGREED TO:
__________ Records Inc. Artist
An Authorized Signatory SS#:
FAIR SHOPPING DEAL
___________ Productions, Inc.
f/s/o _______ [Producer]
New York, NY
As of ______, 2015
__________ Music, LLC
f/so __________ [Artist]
c/o __________, Esq. [Attorney]
Los Angeles, CA
Note that the Artist was represented by experienced counsel.
Re: Deal Memorandum
Ladies and Gentlemen:
The following sets forth the terms on which (i) ____________ Inc. ("Company") f/s/o _______ and ___________Music LLC ("you") furnishing the services of _______ ("Artist") agree to form a California limited liability company (the "Venture") to furnish the exclusive services of Artist to a Distributor (as defined herein), (ii) Artist will furnish her exclusive recording services to the Venture, and (iii) Company will furnish the services of _______ ("Producer") to the Venture to produce the Venture Masters (defined below).
This agreement was essentially between two individuals: an artist and a producer who owned a production company. "Company" is the name of the producer's corporation. The Artist entered into this agreement through a "furnishing" company as well. By entering into the deal as companies rather than individuals, both parties secured "limited liability" and certain tax advantages. Limited liability means that even if a company consists of only one individual, the personal assets of that individual (such as his/her personal bank account, house and car) are not be subject to liability.
As used herein, the term "Distributor" shall mean Sony Music, Universal Music and Warner Music, their wholly owned affiliated labels (collectively "Major Label"); a major independent record company, or an indie record label that is regularly distributed by a Major Label.
This Agreement uses the word "Distributor" to refer to the record company with which the Company is trying to secure a deal. The definition of "Distributor" will vary, but it is in the interest of the Artist to narrow this definition to the three major labels --- Warner, Sony, and Universal, and their wholly owned label affiliates, such as Atlantic, Epic, Columbia, Republic, and Interscope, or a major independent, such as Beggars Banquet (the Strokes), Big Machine (Taylor Swift), or Glassnotes (Mumford and Sons). Yet the Company may want a broader definition embracing companies with national distribution, such as RED, ADA, and Caroline, which are owned by the majors but are essentially distributors who seldom provide advances or marketing support.
The definition of "Distributor" is not as important in this Agreement as it could otherwise be because, as set forth in Para. 2, distribution shall be subject to the prior written approval" of the Artist.
1. Organization of the Venture. Contemporaneously with the execution of this Deal Memorandum, Company and you will cause to be filed Articles of Organization in the State of New Jersey organizing a limited liability company called "_______ LLC", such name deemed approved by both Company and you hereunder (or, if such name is not available, another name mutually agreed upon by Company and Artist). The Venture shall be owned 20% by Company and 80% by you.
Note that the Artist will receive 80% of any income; the Company's royalty is limited to 20% -- compared to 65% for the production company in the first agreement discussed above.
2. Artist Obligations. The term of this agreement ("Term") shall commence upon the date of this Deal Memorandum and continue until the commercial release by a Distributor in the United States of the fourth (4th) full-length, studio album containing Artist's featured performances and delivered to such Distributor in fulfillment the Venture's recording obligation to the Distributor. Notwithstanding the foregoing, if an agreement for Artist's exclusive recording services between the Venture and a Distributor (a "Distribution Agreement") has not been executed, or substantially negotiated, within nine (9) months from the date of completion of production of the Initial Masters hereunder (the "Shopping Period"), upon written notice, via registered mail, return receipt requested, by Artist given to Company, the parties' obligations hereunder shall terminate and Artist shall be released from any further obligations to the Venture.
The maximum duration of this Agreement is for four albums. Note that unless the Artist has approved a Distribution Agreement within nine months from the date of completion of production of the Initial Masters (six tracks), the Artist has the right to terminate the deal with the Company.
In such event, neither Company nor you shall have any right to exploit the Venture Masters without the express written permission of Company and you. All master recordings containing Artist's featured performances that are recorded during the Term, including without limitation the Initial Masters (defined below), shall be referred to as "Venture Masters" and shall be deemed "works made for hire" specially commissioned by the Venture.
If the contract terminates, neither the Company nor the Artist has the right to exploit the Initial Masters without mutual approval. Again, this is very favorable for the Artist. In a pro-company agreement, the Company would exclusively own the copyrights in the recordings and be able to exploit and/or license any masters made during the term. In this agreement the Venture (that is the Company and the Artist) jointly own the copyrights.
Notwithstanding the foregoing, if during the Shopping Period Venture receives a bona fide written offer from a Distributor to enter into a Distribution Agreement and the Distribution Agreement is not fully executed prior to the expiration of the Shopping Period, then Shopping Period shall automatically be extended for an additional ninety (90) days.
Company needs this provision in order to wrap up any negotiation that are ongoing as of the end of the nine month shopping period.
Further, notwithstanding anything to the contrary expressed in or implied by this Agreement, it is understood and agreed that the choice of the Distributor, as well as the terms and provisions of the Distribution Agreement, shall be subject to the prior written approval of Company and you, such approval not to be unreasonably withheld or delayed; further, Company and you agree that if you choose not to enter into a Distribution Agreement with a Distributor during the Shopping Period then you shall not directly or indirectly deal with such Distributor (or its affiliates) for a period of twelve (12) months following the expiration of the Shopping Period.
Here it is made clear that the Artist has the right to approve the terms of the Distribution Agreement as well as the Distributor. This is absolutely key. Without the right to approve the Distribution Agreement, the Company could enter into a deal that is bad for the Artist, and the Artist would be powerless to prevent it. The Company may argue that the Distributor will not finalize the deal if the Artist does not sign an "inducement" letter confirming his assent to the agreement. However, without the right to approve the deal, if the Artist did not sign the inducement letter, the Artist would arguably be in breach of the Agreement with the Company. The Artist should at least have approval of the major deal points including duration, number of options for additional albums, recording budget, advances, and royalties.
3. Company Obligations. Company agrees as follows:
a. Engagement. Promptly after the execution of this Deal memorandum, Company will cause Producer to record and deliver to the Venture six (6) Masters (the "Initial Masters"). In addition, provided that a Distribution Agreement is entered into or substantially negotiated during the Shopping Period, the Venture shall engage Company to, and Company will cause Producer to produce and deliver three (3) Venture Masters per album for potential inclusion on each of the first four (4) "commitment" albums to be delivered to the Distributor pursuant to the Distribution Agreement. For the purposes hereof, the Initial Masters and all other Venture Masters produced by Producer shall be referred to as "Produced Masters". The first four (4) "commitment" albums to be delivered to the Distributor pursuant to the Distribution Agreement are sometimes referred to as "First Album", "Second Album", "Third Album" and "Fourth Album", respectively.
In this Agreement, the Company was furnishing the services of a top notch producer. In addition to shopping the Artist to labels, the Agreement contemplates that the producer would also have a role in producing tracks for the Artist after he/she got signed.
b. Producer Advance; Costs. In respect of the Initial Masters and any other Produced Masters on the First Album, the Venture shall pay, or cause the Distributor to pay, to Company, as advances, recoupable against the Producer's Royalty (the "Producer Advances"), $15,000.00 per Master payable as follows: (1) $7,500.00 payable promptly upon execution of the Distribution Agreement, and (2) the balance promptly following delivery and acceptance by the Distributor of technically satisfactory Masters. In addition, use of Company's studio in recording, edition and/or mixing any Produced Masters shall be billed in accordance with a budget that has been approved by both you and Company, which budget is attached hereto as Exhibit "A" (the "Approved Budget").
This provision and the next does not require the label to use the producer's tracks, but does guarantee that the producer would receive advances and a royalty (also referred to as "points") on the first four albums.
c. Producer Royalty. The Venture shall pay Company (or cause the Distributor to pay to Company) a producer's royalty (the "Producer's Royalty") of three percent (3%) of SRLP in respect of net sales of full-priced records through normal retail channels in the United States ("USNRC") embodying solely the Produced Masters. Notwithstanding the foregoing, in no event shall the Producer Royalty hereunder be lower than the royalty equivalent of three produced tracks per album, through the fourth album. Producer's Royalty on all other sales and exploitations shall be reduced, adjusted, calculated and paid in the same proportion, and at the same times, as is the Venture's basic "all in" royalty. As to records not consisting entirely of the Produced Masters, the royalty rat shall be prorated by multiplying such royalty rate by a fraction, the numerator of which is the number of Produced Masters embodied thereon and the denominator of which is the total number of royalty bearing masters (including the Produced Masters) embodied thereon. Producer's Royalty shall be paid retroactive to the first record sold or other exploitation after recoupment of the recoupable portion of all recording costs incurred in connection with the Album on which they are embodied at the net artist rate (i.e., the "all in" royalty payable to the Venture less the Producer's Royalty payable to Company and the royalties payable to all other producers, mixers and engineers of such Masters), subject, however, to recoupment of the unrecouped portion of the Producer Advance. There shall be no reduction in the Producer's Royalty due to; (i) amounts payable to mixers or executive producers, or (ii) after delivery and acceptance of any Master, amounts payable to any third party producer. In calculating "recording costs" for recoupment purposes, "recording costs" shall not include any "in pocket" advances payable to the Venture or Artist. Producer's Royalty shall be paid directly to Company by the Distributor pursuant to an irrevocable letter of direction.
3% to 5% is a normal producer royalty.
d. Credit. The Venture shall instruct, and use reasonable efforts to cause, Distributor to accord Producer the following credit in all trade and consumer advertisements relating to any Produced Master of ½ page or larger, and in and on the outer packaging, label copy, liner notes and labels of all records embodying the Produced Master:
"Produced by ______"
The Venture shall instruct, and use its best efforts to cause, Distributor to include Company's logo (the "Company Logo") and Artist's Logo (the "Artist Logo") in all trade and consumer advertisements relating to any record embodying any Venture Master of ¼ page or larger, and in and on the outer packaging, label copy, liner notes and labels of all records (including promotional and commercial singles) embodying any Venture Master. Each such logo shall be no less prominent, and no smaller in size, than any other logos (including the other party's logo) included on such records or in such advertisements, including, without limitation, Distributor's logo. In the event that any Distributor will not agree to include both the Artist Logo and the Company Logo on such terms, Company and Artist shall negotiate in good faith to determine which logos, if any, will be so included.
e. Controlled Compositions. Producer's interest in any compositions embodied on any Produced Masters shall be subject to any so-called "controlled composition" provisions contained in the Distribution Agreement between the Venture and Distributor.
See comments for paragraph 10 in the first agreement.
4. Management, Voting and Control.
a. The business and affairs of the Venture shall be managed by Company and you. Company and you will have joint decision making authority and all decisions made regarding the business and affairs of the Venture must be mutually approved by you and the Company, in writing, including, without limitation, those decisions relating to: (i) determining which Distributor(s) with which to enter into Distribution Agreement(s), and (ii) the release and/or exploitation of any Master(s). For the avoidance of doubt, the Venture shall not enter into any agreements or other undertakings regarding any Venture Master prior to the execution of a Distribution Agreement, including, without limitation, any license agreement or otherwise, without unanimous written consent of you and Company.
b. Artist and Company further agree as follows: (i) Company's counsel and Artist's counsel and Artist shall jointly represent the Venture in connection with any Distribution Agreement(s) to be entered into by the Venture, and (ii) Artist's counsel shall represent Artist's interests in connection with any additional obligations that Artist may have to any Distributor (such as an obligation to deliver additional commitment albums). Company's counsel and Artist's counsel shall split any legal fees paid or reimbursed by any Distributor in connection with the Distribution Agreement and the Venture shall be responsible for paying, or shall make appropriate arrangements for discharging, all reasonable legal fees of Artist's counsel and Company's counsel in connection with any Distribution Agreement(s) that are not paid or reimbursed by the Distributor.
This is a very favorable provision for the Artist, as it not only gives him/her approval, but lets his/her attorney actively engage in negotiations with the label.
5. Allocations and Distributions.
a. All advances and royalties (including audit settlements) received by the Venture, or credited to the Venture against an advance previously paid to the Venture, shall be distributed as follows:
i. First, to the reimbursement of any actual out-of-pocket expenses incurred by the Venture, or by Artist or Company with the Venture's prior written approval, in connection with the Initial Masters, including the Approved Budget, and in soliciting or negotiating any Distribution Agreement (including, without limitation, legal fees incurred by the Venture pursuant to paragraph 4(b) above); and
ii. Then, after payment of any Producer Advances, Producing Royalty (subject always to recoupment of recording costs and/or the Producer Advances on the terms set forth above) and/or the Approved Budget amount due to Company, 80% to you and 20% to Company.
b. Company and Artist agree to require, as a condition of any Distribution Agreement, any Distributor to agree to account directly to: (i) Company for any Producer Royalties that may become payable, (ii) you for 80% of all royalties that may be payable to the Venture under any Distribution Agreement (net only of the Producer Royalties payable to Company, if any); and (iii) Company for 20% of all royalties that may be payable to Venture under any Distribution Agreement (net only of the Producer Royalties payable to Company, if any). For the avoidance of doubt, as between Company and Artist, subject to the payment of the Producer Advances due to Company pursuant to paragraph 3(b) above, 80% of all "in pocket" advances payable under any Distribution Agreement shall be payable to you.
Note that the Company's compensation is limited to monies payable by the label, not to any monies that the Artist may earn in the entertainment business. This is not a 360 deal, which is a good thing for the Artist.
c. Except as expressly otherwise provided herein, each of you and Company shall be responsible for payment of its own attorney's fees, personal management commissions and/or business management commissions out of its share of distributions and/or payments by the Venture. Under no circumstances shall the Venture be responsible for payment of commissions in respect of personal managers, business managers or other advisors engaged by Artist, Producer or Company unless such person was retained expressly to represent the Venture with the prior written consent of both Artist and Company.
a. The Venture shall maintain accurate books and records of all monies paid to or collected by the Venture pursuant to any Distribution Agreement(s). The Venture's books and records relating thereto may be inspected during regular business hours by a certified public accountant or attorney at law designated by Company or you and at the inspecting party's expense, at the place where same are regularly, maintained, upon thirty (30) days' written notice to the Venture; provided, however, that such examination shall not be permitted more than once a calendar year.
b. Neither party may assign, convey, sell, transfer, give, liquidate, encumber, or in any way alienate ("Transfer") all or any part of his or its respective membership interest in the Venture without the prior written consent of the non-transferring party, which consent may be given or withheld in the sole discretion of such non-transferring party. Any attempted Transfer of all or any part of a membership interest without the necessary consent, or as otherwise permitted hereunder, shall be null and void and shall have no effect whatsoever.
Unlike the first agreement, the Company is not trying to give itself the right to sell the contract.
7. Definitive Agreement. You and Company hereby acknowledge that it is the parties' mutual intent to enter into a more formal operating agreement (the "Operating Agreement"), as well as a long-form producer agreement (the "Producer Agreement") and a Furnishing Agreement, at a later date. You and Company hereby agree to negotiate in good faith the terms of such agreements, provided that such agreements shall not contain any provision contrary to any material provision set forth herein, unless mutually agreed in writing by both parties. Until such time, this Deal Memorandum shall serve as the operating agreement between the parties regarding the Venture.
ACCEPTED AND AGREED TO:
____________ PRODUCTIONS, INC.
____________ MUSIC, LLC
Steve Gordon is an entertainment attorney with over 20 years of experience in the entertainment industry, including 10 years as Director of Business Affairs for Sony Music, attorney at a law firm representing Atlantic and Elektra Records, and in-house music counsel for a Hollywood Studio. He gratefully acknowledges the assistance of Ryanne Perio and Anjana Puri in the preparation of this material. Ryanne Perio is a graduate of Columbia Law School and a former legal intern at Atlantic Records and SAG-AFTRA. She is currently an associate at Wilmer, Cutler, Pickering, Hale & Dorr, where she focuses on intellectual property litigation. Anjana Puri is a lawyer pending admission to the New York bar. She currently works as an associate of Mr. Gordon. She received her JD from Benjamin N. Cardozo School of Law (2014) and received her B.A. in International Development Studies from UCLA.
Disclaimer: The information in this series has been prepared for informational purposes only and does not constitute legal advice. This series should be used as a guide to understanding the law, not as a substitute for the advice of qualified counsel. You should consult an attorney before making any significant legal decisions.