The following is the first installment in a series of articles from entertainment industry attorney Steve Gordon. In each installment, Steve discusses a particular music industry form of agreement from the point of view of both parties (that is, artists, songwriters and/or producers on the one hand), and those they do business with (that is, record labels, music publishers, managers, etc. on the other). Steve is writing these blogs primarily for the benefit of indie musicians. His hope is that they will read this series in other outlets. EASL is publishing these because they may be of interest to attorneys, particularly attorneys with limited experience in music business transactions.
Although there is no truly "standard" agreement, many music business contracts begin as "form" agreements before the terms are negotiated. Often, there are two versions of a form agreement: one that represents the best interests of creators, including artists, songwriters, and producers, and one that represents the best interests of the companies that do business with them, such as record labels, publishers, and managers.
These parties typically have adverse interests. For instance, while a record label will often attempt to secure rights in an artist's sources of income beyond mere record sales, such as touring, merchandising and publishing, it is usually in the artist's best interest to retain as much income from these secondary sources as possible. Other agreements, such as contracts between co-songwriters or band members, seek to delineate the rights and duties of similarly situated parties in order to avoid disputes that might otherwise arise.
In this upcoming series, I will review the form contracts that artists are most likely to encounter in their music careers and provide commentary on each provision.
My focus will be on the types of agreements typically offered to indie artists, songwriters and producers who are taking the step to the next level.
In the first installment, below, I take on management agreements. I have re-printed a standard "pro-manager" form of agreement and provide paragraph by paragraph commentary from the artist's point of view. I also include a complete pro-artist management form of agreement.
Future installments will tackle these agreements:
2. Indie record deals
3. Synch licenses for original music
4. Co-writer agreements
5. Producer agreements for the licensing and sale of beats
6. Band agreements
7. Investment agreements
8. Agreement for production of music for TV ad campaign
9. Synch rep deals for artists, producers, and songwriters
10. Merchandising agreements; and
11. Performance agreements with clubs and promoters.
It is my hope that this series will be used as one tool to educate and prepare artist and artists' attorneys for the negotiations that will help define music careers.
1ST INSTALLMENT: MANAGEMENT AGREEMENTS
Managers have never played a more important role in the music business than they do today.
A good manager advances the career of his or her client in a variety of ways. Traditionally, a manager provided advice on all aspects on the artist's professional life, used his or her relationships to generate opportunities, negotiated deals when the opportunity to do so arose, and helped the artist select other members of the "team," such as accountants, lawyers, booking agents, and publicists. A manager's principal job was, however, searching for the "holy grail" --- shopping the artist to record labels, particularly the majors, with the hope of signing a lucrative recording agreement. Signing a record deal meant a payday for both the artist and the manager. Managers work on commission, so the goal was to sign with a major label and negotiate the largest advance possible. In the 90's, when I was a lawyer for Sony Music, we paid advances to new artists ranging from $250,000 to upwards of $500,000. If the artist caught fire, both the artist and the manager could become very wealthy from record sales alone. Those days are largely gone.
Starting in 1999, income from recorded music has declined more than 75%, accounting for inflation. As a result, the major labels (Sony, Universal, and Warner, along with their affiliates) sign fewer artists and pay those new artists far more modest advances. An artist may never get a deal, or may be dropped from the label's roster much faster than in the past, when labels had spare cash to support a developing artist. For instance, Bruce Springsteen did not catch fire until after Columbia (now a Sony affiliate) released two albums. However, Columbia had faith and supported him through the early disappointments. Today, with the major labels fighting just to survive, a story like that is far less likely to occur. Labels would rather put their resources behind already established acts, where a return on investment is more certain.
In these days of financial insecurity in the record business, the manager's role is more important than ever. In the past, once the artist was signed to the major label, the manager's primary function became to serve as liaison between the record company and the artist. The manager lobbied the label to do more, spend more, and focus more on his or her artist(s). However, due to budget cuts and massive layoffs at the labels, today's manager does much of the work that the label used to do. For example, the manager may take over social networking, search for opportunities to get the artist's music in movies or commercials, or find branding opportunities with sponsors. Furthermore, if the artist cannot find an acceptable record deal, the manager may become the artist's de facto label, and take on the responsibility of securing funding from investors or crowdfunding to produce records, arranging physical and digital distribution, and everything else the record companies traditionally do.
PRO-MANAGER AGREEMENT WITH PRO-ARTIST COMMENTARY: Forms-management.comp2.16.pdf
In this PDF, I critique a standard pro-management agreement and explain in the comments the changes an artist should negotiate. There are a number of important terms where the interests of the manager are directly adverse to the interests of the artist. For example, it is generally in the manager's interest to have a long initial term and several options to extend the duration of the agreement. The artist, conversely, will want to be able to get out of an agreement quickly if the manager is not meeting the artist's goals. This issue is addressed in the comments for the first paragraph of the pro-management agreement.
Most management agreements base the manager's commission on gross income that an artist earns from any activities in the entertainment business. It's crucial for the artist to insist that monies paid to the artist, or on the artist's behalf, for recording costs, touring expenses and other business expenses are not included in gross income. For instance, if a record company gives an artist an advance of $100,000, and the artist spends $80,000 on recording costs, the manager should not calculate his or her commission on $100,000. If the contract allowed her do so, she would be entitled to $20,000 and the artist would be left with nothing. This issue is addressed in the comments for subparagraphs 11(b) and (d).
Another very important provision is whether the manager has the right to receive a commission from any contract negotiated during the term -- even after the management contract terminates. Pro-manager agreements will usually include such a provision. The artist will want to terminate the manager's right to commission his or her income when the contract ends. However, the manager's position is that if the manger lands a multi-album deal or long-term publishing agreement, the manager should continue to receive money because he or she helped create that source of income. The compromise is called a "sunset clause." Under this clause, the manager still receives income from contracts negotiated during the term of the agreement, but that amount of income declines over time and eventually ends within a reasonable time. An example of a sunset provision is included in the comments for paragraph 13 in the pro-management agreement, and is also contained in the pro-artist agreement provided in this installment.
Other terms are mere boilerplate that are important to the agreement but equally protect the interests of both parties. I will point out these terms and explain their significance as well. One example is paragraph 29, which states that any amendment to the contract must be made in writing and signed by both parties.
PRO-ARTIST MANAGEMENT AGREEMENT: Forms-management.pro-artist.2.16.pdf
This PDF provides an example of a pro-artist management agreement. The contract a new manager presents to an artist will often start out resembling the pro-manager agreement, and the closer one can negotiate it to the pro-artist agreement, the better.
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. His clients include Time Life Films, Soul Train Holdings, Smithsonian Folkways, Music Choice, Maryland and Louisiana Public Broadcasting, and established and up and coming artists, producers, indie labels, and managers. He is the author of The Future of the Music Business (4th ed. 2015 Hal Leonard).
Steve Gordon 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.