Artist Contracts: What To Look For

Recently, I visited Nashville and was able to interview Linda Edell Howard, a top music lawyer. Nashville, where Howard has her practice, has a different environment than New York or Los Angeles. There is a large legal community working with many artists and songwriters. The pay, however, is considerably less and there is a real component of artist service in the profession. For Howard, that service involves helping artists avoid mistakes, while taking care of their creative rights and freedoms. This is especially important as the music industry changes. As will be seen, the role of an entertainment lawyer often involves preparing contracts with an exit strategy in mind.

Howard has worked on a range of contracts, from Lady Antebellum’s record deal to Wallmart’s online music operation, at Wallmart.com. Currently, record companies are trying to restructure nearly every aspect of their artist contracts to include 360 deals. “Nobody signs an artist now to make and sell records”, said Howard; “companies are not paying them to live” (while making those records). Artists are now only getting about a $100,000 split between the entire band, a much smaller figure than before. Solo acts are given much less. This lack of funds is affecting everyone and everything; there is less money disbursed among studios and engineers, and distribution has shrunk significantly.

Record companies are following the money, and are trying now more than ever to get in on every piece of the pie. The old language that appeared in recording contracts is now being manipulated to mean something entirely different. For example, touring now includes anywhere an artist appears–and wherever they open their mouth. The definition is no longer exclusive to a musical performance. Sponsorships and endorsements are part too of the label’s revenue share. ‘Merchandise’, for that matter, has also been expanded to include mobile phone applications, online icons, avatars, voice and ring tones (call backs, shout outs, greetings) and anything else that the artist can potentially make money from.

Currently, there is a dispute in the courts regarding the common packaging- deduction-and-breakage language found in contracts entered prior to the year 2000. The Allman Brothers Band have taken Sony to court over whether these fees should be taken out of digital downloads as well. If this language is disposed of due to the intangible nature of digital downloads, then the artist will receive fifty percent of the licensed income (thirty five cents as opposed to seventeen cents for a sale). This also poses the question of whether one actually owns a download or if it is a license. Yet Sony may not be able afford a decision that favors artists–a symbol of how much things have changed. With so much at stake at stake, many contracts hang in the balance. Eminem, for example, raised a similar contractual issues, but litigation was dropped when the terms of his contract appeared solid.

Record companies make the case that the goal of these 360 deals, if done right, is to try to create a partnership. The idea is that if a record company does what it is good at, i.e. distribution, and the management and the merchandising company pull their weight, success will follow. It has worked for some artists. As Howard notes, artists typically think that the 360 deals will work out, and in the end sign the contract. But they should be careful. “I spend a lot of my time now trying to get these artists out of these deals.”

All in all, the landscape of recording contracts has changed drastically. There is little difference between a deal from a major and an independent, and distribution deals are common. When looking at a contract, look out for the commitment expected by the artist, the exclusive rights granted, and what is recoupable or not. Howard says: “It takes me four to six hours to read a contract through once…and I have no idea what I’m looking at now”. Contracts are often up to sixty or seventy pages long. The term or concept of an ‘album’ is no longer used in contracts; they are referred to as ‘projects.’ It is unclear what an artist is going to be making, whether it’s a single, an EP, or a full length record. In these contracts, labels only commit to the first ‘project,’ with nothing specific regarding the promotion they will be doing (marketing, advertising, buying into tours, paying for photo shoots, etc). Likewise, artists are given rights to merchandise and touring, but labels do not make promises on funding. Essentially, an artist may be signing everything away and getting nothing in return.

The terms of the contract have also changed. In regards to recordings, deals used to be seven to nine albums over the term, then four to five. They now require having five to seven ‘projects’ over a minimum of ten years. Howard has had some success negotiating that early gross earnings between $500,000 to $1,000,000 not be earmarked for recoupment. She also remarked that it has become easier to withdraw publishing rights from the deal.

The cash flow at major labels, naturally, has diminished considerably, and fewer artists are being signed. To compensate for the lack of resources, record companies are trying to control every part of an artist’s livelihood. One of the most outrageous requirements seen in recent contracts is that a label demands ownership of everything an artist has done before signing up with them: the artist’s name, the website, any and all recorded music prior to the contract, domain names, and even photos. Howard has seen a record company allow a band to remain in control of their original site, but become prohibited from streaming any music on it.

Bands that have become good at creating success under their own power while maintaining a fluid relationship with fans, sometimes sign it all away for the promise of “a team that will handle that now.” Indeed, there are some unnerving sentences within new contracts. Record companies are now trying to step in and take on the role of the personal manager, including the manager’s common sunset clause—i.e., wanting to be part of that brand forever. Contracts are structured to allow labels ten to fifteen percent of all sponsorship money, and cross-collateralizations and recoupments are stiffer.

Singles are also changing the market strategy. In the past, once a song hit a certain point, it would go to retail. However, this rise used to take eight to twelve weeks–not up to forty weeks to climb the charts, as Howard says is the case now. In Lady Antebellum’s case, however, the group released a single for radio, which almost immediately went straight to number one. At the time of the release, the group was still in the studio working on the record, and had only four tracks cut. There was immense pressure to rush the album in order to get it out, and the label ended up releasing the completed tracks, making them available for download, with the promise to add the remainder of the album once it came out.

The popularity of single releases are affecting the market, and changing the terms of an artist’s contract. In general, there is also a great need now for copyright and technology lawyers. If artists are to be freed from poor contracts, they made need the advise of such experts. Artists have to understand the digital mindset and seek appropriate advise. An entrepreneurial outlook is also required for, despite everything, a large portion of an artist’s revenue is being made from merchandise, synchronization licensing, photos used in ads, touring, and sponsorships. As Howard points out, “you need to be aggressive, but not entitled, and be willing to work with the industry and not against it, bearing in mind your own definition of success”.

By Kerry Fee

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