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Seminar 5

The Record Label…
The Recording Contract

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SEMINAR 5: THE RECORD LABEL…THE RECORDING CONTRACT


Greetings!

As we continue on during this session, you will want to keep in mind that you are still at the crossroads section...Part IV. You are in the process of looking at some of the people/businesses that hook up at this big intersection. Knowing the backgrounds of all the players will help you to see the big picture.



THE RECORD LABEL

Record Labels -- SMP Hot Link


The record company is an enterprise whose business activities may include:

1) Acquiring the rights to material (e.g., songs, master records, videos, etc.),
2) Locating and signing talent,
3) Securing mechanical licenses,
4) Producing master recordings,
5) Manufacturing end-user commercial recordings,
6) Releasing end-user commercial recordings,
7) Promotion,
8) Distribution,
9) Sub-publishing,
10) Publicity,
11) Public relations,
12) Accounting for royalties collected,
13) Reporting to the IRS on Form 1099--MISC certain royalties, independent contractor fees, salaries, commissions, interests, rents, pensions, medical assistance programs or health, accident, and sickness insurance programs, certain direct sales of consumer products for resale, and other compensations paid out. Each recipient is reported separately and the report must include the recipient's name, address, taxpayer identification number (social security number for sole proprietorships), and the total paid,
14) Paying the required employment and other taxes to the proper agencies, and
15) Distributing the proper royalty payments, accompanied by a royalty statement.

Record companies may be large (majors or minors) or small. Small labels have limited release objectives and capabilities.

It is the business of the label to exploit the rights they acquire with the intention of making a profit. As the proprietor of these rights they administer the related business and financial aspects concerned.

The rights appropriated by the record company from the artist are defined by written document. This document, called a recording contract, contains many clauses because it covers a wide range of agreement.

Record Labels -- SMP Hot Link

Record Production -- SMP Hot Link

Record Distribution/Sales -- SMP Hot Link



THE RECORDING CONTRACT

A Recording Contract is a written document that outlines, identifies, describes, defines, and governs the business relationship between a recording artist (also called a royalty artist) or group, and a record company. The contract is called an executory agreement, i.e., it is an agreement that is yet to be executed or performed.

It is the business of the record company to exploit the rights they acquire (from the artist) and try to make a profit. As the proprietor of these rights they administer the related business and financial aspects concerned.

The label will not usually sign an artist unless they are fairly certain the artist will engender wide and strong acceptance. This is because of the high cost (from $300,000 up) of breaking a new artist.

The type of rights appropriated by the record label from the artist are defined by the recording contract. The contract contains many clauses because it covers a wide range of agreement.



CONTRACT NEGOTIATION AND CONTENT

At the start, all terms of a contract are negotiable. Although it is possible for a novice artist to acquire a "fair" recording contract from an "honest" record company with his first signing--it does not always happen. Even honest labels are going to first look out for themselves and try to negotiate a deal that is not detrimental, or potentially detrimental, to themselves. The dishonest ones, however, look out only for themselves. So, the depth of the contractee's music business experience is important. Past experience helps in negotiating fair contracts. Further, it is predominately a contractee's past track record that will establish his bargaining power. For these reasons the operation of contract bargaining between an artist and a label varies greatly.


Here then, are two points of major concern:

1) Bargaining power, and
2) The contents of the final considerations of the agreement.


Attempts at exercising bargaining power and maximizing the label's self-interests may become apparent at the outset. The artist may be asked to sign an industry form contract that is said to be "standard for everyone." He may be led to believe it is only a formality, and told in so many words that this is his "chance of a lifetime" and not to sweat the small stuff.

If the artist asks any questions or proposes changes the label spokesperson might accuse the artist of insinuating that he (the label representative) is dishonest. This is a ploy by the label representative to put the artist on the defensive. This enhances the record company representative's position of strength and authority. The artist is made to feel that any objections will jeopardize the whole "deal."

Label representatives will also exert authority by having the signing at their office. This further enhances negotiating strength via the psychological edge of being on their own turf.

Many experienced artists will ask for time to read, study, and go over the contract with their family, others who are directly or indirectly involved, and with their legal representative. This would enable a thorough understanding of the contract's content and consequences.

Other artists will hire a competent music attorney to study the contract for them and to do all the negotiations. For example, the experienced music attorney brings with him, not only experience, but clout. This would enable the negotiation of the largest advance and highest royalty rates possible. He would seek over scale wages for recording sessions. He would try to secure generous record promotion budget provisions and guarantees for concert touring, etc..

Also, having an attorney handle the negotiations would completely remove the artist from any confrontations with the record company. In this way, they are able to remain "friends" with the management of the label while their representative hammers out the final agreement.

Legitimate record labels will respect sound business procedures implemented by an artist.

Experienced artists never rush into any contract without completely understanding its ramifications both short and long run. Total evaluation and understanding may take several days. After reading, studying, and discussing the contract with a competent music attorney, they often put the contract aside for a few days, clear their minds, and then look at it again. They would talk to others who are currently under contract with the record company. They would try to look at all the angles and consider the worst possible situations that might occur. Finally, they would try to minimize the probability and possibility of these distasteful situations ever happening.

Optimistic and positive attitudes are easier to maintain when all the bases have been covered.

Sometimes laws will override things upon which agreements are made. Sometimes agreements are made that are illegal and therefore will not be upheld in a court of law.

Sometimes the law allows for devastating things to happen to an artist even if it is not so stated in the contract. For example, the meaning of some words and/or phrases used in the contract may be defined by statutory law. These words and/or phrases may seem insignificant to an inexperienced artist. They could, however, result in long term grief!

A competent music attorney would be able to spot these "hidden" legalities and meanings and explain them to the artist.

Life will be easier to face when all the bases have been covered.

Many of the roads that lead to burnsville can be avoided if one has the ability to make competent business decisions. The ability to work from a position of competence, then, is the bottom line.

To help establish competence the content of what a good recording contract would contain should be brought to light and be fully understood. Well, "good" is relative depending on whether the contractee is the artist or the record label!

The artist, who often enters the contract with little or no knowledge of the business and law aspects of recording contracts, usually gets all the surprises. A list of these possible surprises would probably be as long as the contract itself--pages and pages! And that is where the real potential for being burned lies, in ignorance, and not in record sales. Many successful artists (successful in record sales) are bummed out, broke, and held hostage for years to past contracts singed in ignorance. Yes, these "surprises" are almost always of the bad news variety. And many last a substantial number of years or even a lifetime.

The record label, since it is an established business, should already know the ropes. For example, record companies know that the statistical probability of monetary loss from a recording venture is about 9 to 1--in favor of the red ink! Because of this reality, the label will protect itself as much as possible in the contract. They will attempt to minimize their liabilities both short and long term.

The content of most recording contracts will vary extensively. This is because the negotiating powers in each situation are different and because the parties involved have different needs and desires. Granting these vast variations, it is still profitable to read and study example contracts (called form contracts). It can also be profitable to extract clauses, modify them slightly, and make them applicable to one's own unique situation. It saves time and provides more depth and accuracy in one's own draft.

An example recording contract can be procured from La Costa Music at:

Recording Contract -- Form Contract Purchase Online

Before beginning, it should be pointed out that every contract would have the contract name, page number, and total number of pages written at the top of each page. For example, "Record Company/Recording Artist Contract-page 3 of 8 pages" would appear at the top of page 3 in an 8 page contract (most recording contracts are from 8 to 12 pages in length).

Contracts will often identify the involved parties by referring, throughout the contract, to each party by means of capitalized key words. For example, the artist or group might be identified as ARTIST.

Contracts often sound funny or are hard to follow as you read them. This is because the articles "a," "an," and "the," and some prepositions may be omitted. Sentences are often compound/complex with run-on sentences and long lists of particulars. This often makes finding the associated subject of a verb near impossible!

The record label will often add words and redundant statements to confuse and tire the reader. Their reasoning is, "the more the words the more the coverage." And also, "the more confused and tired the reader is, the less he is apt to object and request changes to the contract!"

From the artist's perspective, all contract statements should be short and to the point. This is in reality, however, usually a pipe dream!


Here is where you will really need the SMP Membership Full Text Version of Seminar #5…this is because in the Full Text Version there is a list of the 58 most important Clauses of a Recording Contract! And there are also invaluable tips regarding contract negotiables, blank spaces, integratable statements, and the dreaded "non-related clauses" nightmare. Not knowing this information can put you in peril for many years to come.

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Legal info links:

Legal Notes -- SMP Hot Link



CONCLUSION

This discussion will hopefully reveal the importance of you knowing as much as possible BEFORE you sign any recording contract!

Also, remember that this has been just a general discussion…Do not use this discussion to verify any position with respect to any contractual situation. Do not sign any contract on this information alone, use it only as a guide to get competent legal assistance. Experienced artists always procure competent legal assistance BEFORE they sign any contract.

Now we come to the end of Part IV where we have looked at the "crossroads" of our endeavor. In the next session we will check out Part V and get into Part VI as we tackle Publicity.


*R*


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