The Changing Nature of Recording Contracts

Introduction

The way in which recordings of music are being consumed by the public is forever changing. The journey from wax cylinders to CD’s was a prosperous one, in which money could be made from selling physical copies of recordings to the consumer. This business model warranted what we now refer to as a traditional recording contract. This involved artists granting record labels the right to manufacture and distribute their recordings. The labels would then take a percentage of net income from the sale of these physical items in shops. Upon signing with the label, the artist would usually be paid an advance against their share of future royalties which would then be used to record the album. (Hracs, 2012)

In almost all cases the record labels made the most money from these deals, but the percentages received by artists have varied throughout the timeline of the industry. Moby once noted that “if we go back fifty years a lot of musicians were getting two percent”, while in the 80’s and 90’s royalty rates became “pretty fantastic”, moving up to 20 percent. However with recent changes in how we consume music, many musicians feel the big record companies “are trying to justify their survival and keep their lights on” leaving little money behind for the artists who make the music. (Pritchard, 2014)

Streaming

The most pertinent change in music consumption of late is the transition from digital downloads to streaming. An average subscription fee of ten pounds a month will now grant the consumer access to almost all of the recorded music in the marketplace. The business model has shifted from selling a recording to selling a subscription and the streaming services have replaced the shops and online marketplaces. While musicians like Thom Yorke have criticised the money artists receive from this business model, calling it “the last fart of a dying corpse”, it is important to note that the streaming services are paying out massive amounts of money to the industry. Mark Williamson, director of artist services at Spotify said that “in 2013 alone” they “paid out another 500 million dollars”. (Pritchard, 2014)

The lack of money in artist’s pockets therefore, cannot be blamed on the new marketplace. Many believe the recording contracts enforced by the major labels are where the blame is to be found. Musician Billy Bragg blames “the analogue royalty rates that the majors insist on retaining for digital plays”. It seems that the constantly changing model of music consumption requires a constantly evolving recording contract. (Pritchard, 2014)

360 Deals

Part of the reason artists are receiving miniscule money is that record labels are making far less than they were in the era of CD’s. This has forced them to look at all possible ways of monetising their artists and has birthed the 360 deal, otherwise known as a ‘Multiple Rights Agreement’.

This type of recording contract involves monetising all of the artists ancillary ventures such as publishing, touring, merchandising and even television and movie appearances. Today 360 deals are an industry standard as capitalising on these areas has proved to be far more profitable than selling records in the current climate. Edgar Bronfman, CEO of Warner Music Group said in 2008 that he required “all new acts to sign 360 deals” and at that point one third of Warner’s artists already had. Artists have always been making money from touring, merchandise and their image but the fundamental purpose of a 360 deal is to grant the labels a share of all this revenue. (Bielas, 2013)

The initial execution of a 360 deal is the same as a traditional recording contract but with the added extras of granting the labels rights to a percentage of net income from all of the aforementioned ventures. Most labels take between 10-15 percent of the net income from these sources. (Okorocha, 2011)

360 deals can be divided into two categories, passive interest and active interest. Passive interest deals allow the artists to freely contract with third parties without needing permission from the label. In active interest deals the labels have all rights to the artist as well as a split of net income. In this case the labels control schedules, salaries and contracts for publishing and merchandising. (Okorocha, 2011)

Independent and Major Labels

While the major label deals discussed rarely ever work in the favour of the artist financially, independent labels offer artists a different route. Independent labels are smaller companies who are less likely to be pressured by a board of directors to sign a specific sound or promote a certain look. This kind of label would offer each artist more face time due to a smaller roster and would also generally give the artists a bigger share of the income generated from their work. (Cool, 2015)

A massive problem with indie labels however is that many of them simply lack the funds to compete with major labels when it comes to marketing, recording, distribution or tour support. Smaller indie labels will also have less influence and reach in the industry. Filipe Cruz, CEO of ‘Enough Records’ touched on this point in an interview when he said that “traditionally independent labels have been regarded as a stepping stone to signing with a major label”. (Choi, 2009)

Although major labels have some definite advantages over their indie counterparts, they also come with their own disadvantages. The major labels have a significant artist turnover. They sign many artists at once and the majority will eventually get dropped. As well as this, the modern 360 degree recording contracts that the majors insist upon mean a smaller share of the overall net income, a forfeit of most rights and even a loss of creative control. (Cool, 2015)

One way that smaller independent labels manage to get around their lack of funds is through licensing agreements. Indie labels in different territories across the world will pay a once off licensing fee in order to act as the label for that album in that region. They then take charge of manufacturing, promotion and distribution and keep all profits made after the once off fee is paid to the artist. However, in the era of streaming and online distribution, this approach is looking more and more unnecessary as artists can get their songs heard worldwide through the internet. (McDonald, 2019)

Intellectual Property, Copyrights and Royalties

Worked into all recording contracts will be pages detailing Intellectual Property and Copyright laws as well as agreements on the percentage splits of royalties, often referred to as ‘Points’. Intellectual Property law involves the protection of people’s work and the three most common types are copyright, trademark and patents. In the music industry, the most important protection is copyright. This protects the sound and written work of the music professional for their lifetime plus 70 years. (Muhammad, 2017)

Copyright is especially important when it comes to publishing. Publishing is one of the main ways money can be made from recordings. The person or company who holds the publishing copyright to a recording decides how much money it costs to use and where that income goes. In most cases Major label recording contracts insist on the label owning the publishing. (Muhammad, 2017)

Music copyrights are divided into two categories. Musical compositions and master recordings. Royalties for the use of a musical composition are usually split evenly between the composer and the owner of publishing (the label), whereas the master recording is usually owned by the label in full. The use of the master recording can then be sold for whatever price the holder of the copyright wishes. (Foreman, 2018)

There are various different types of royalties that can be earned. Mechanical royalties are paid out when the music is consumed or purchased in mechanical format, this includes CD’s, MP3’s, toys, video games and streaming. Performance rights are royalties for the public performance of a song. This also includes the broadcasting of the song on radio and television and in pubs and clubs. These royalties are collected by Performance Rights Organisations and are split evenly between the writer of the composition and the publisher of the master recording. (Foreman, 2018)

Synchronisation fees are paid when a movie, television show or commercial wants to use an artist’s work. The company will pay a fee to license the composition and the master recording. Further royalties can then be earned from performance rights once the movie or show airs. Streaming services pay out royalties in three ways, mechanical, performance rights and the licensing of the master recording. (Foreman, 2018)

A Sample Heads of Agreement and Deal Memo

This contract between ‘Sony Music UK’ hereinafter referred to as the ‘Agreement’ Executed and effective this day, 23rd of April, 2019, by and between ‘The Riptide Movement’ (hereinafter referred to as the ‘Artist’) and Sony Music UK (hereinafter referred to as the ‘Company’).

It is Hereby Understood:

  • The Company is an organisation which specialises in the management, recording, distribution and representation of musical artists.
  • The Company is familiar with the musical abilities of the Artist and has the expertise, ability, industry contacts and resources to assist the Artist in the furtherance of his/her career.
  • The Artist performs under the name “The Riptide Movement”.
  • The Company and the Artist wish to enter into this Agreement to provide for the production and distribution of the recording.

It is Therefore Agreed as Follows:

  • TERM. The effectiveness of this agreement shall commence with its execution by all of the parties, and shall continue thereafter for a period of 2 years.
  • THE RECORDING. The recording shall be produced in the following manner:
  • PRODUCTION. The Company agrees to produce two master recordings consisting of songs written and performed by the Artist. The resulting recordings shall include not less than 40 minutes in playing duration each, and shall be of a quality which is equal to master recordings normally produced for commercial distribution.
  • CONTRIBUTION BY THE ARTIST. The Artist agrees to fully cooperate with the Company, in good faith, in the production of the recording; to contribute the music and lyrics embodied in the songs and to arrange, direct and perform the songs in such a manner as to facilitate the production of the recording.
  • COSTS. The company shall be responsible for all costs incurred in the production of the recording, including the prepayment of all travel, hotel and meal costs incurred by the Artist in attending the recording sessions. The Company may recover such expenses after the production of the master recordings or upon the advancement of the Artist’s career. The Company’s production, promotion, manufacturing and all other bonafide expenses relating to the Artist are deemed recoupable from gross income.
  • ARTISTIC CONTROL. The Company and the Artist shall be jointly responsible for all decisions regarding the artistic content of the recording.
  • COMPLETION AND RELEASE. The first recording shall be completed and prepared for release and distribution on or before the 23rd of April 2020. The Company and Artist each agree to exercise all reasonable means to achieve such completion.
  • ASSIGNMENT OF EXCLUSIVE RIGHTS BY ARTIST. Upon the timely occurrence and performance of all material events and obligations required to produce the recording, the Artist shall assign to the Company all of his/her rights, title and interest in and to the following property;
  • The songs
  • The Artist’s performance of the songs contained in the recordings
  • The title of the recordings
  • COPYRIGHT. Upon the Artist’s completion of the songs the Company will proceed to obtain and secure a copyright for each of said songs. The copyright shall be the sole property of the Company.
  • ROYALTIES. In accordance with the rights granted by the Artist to the Company, any royalties or licensing fees collected by the Company resulting from the use, exploitation or existence of the recording will be used to satisfy costs incurred and paid by the Company to create the recording. In the event that the royalties are insufficient to complete such reimbursement, the Artist shall not be liable. The remainder of such royalties, if any, shall be distributed between the Company and the Artist in the following proportion:
  • 85 percent to the Company
  • 15 percent to the Artist

Bibliography

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