Part 2: The Artist & Manager Relationship – A Look At Recording Industry Management Agreements

[Editors Note: This is a guest blog written by Justin M. Jacobson, Esq. Justin is an entertainment and media attorney for The Jacobson Firm, P.C. in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research. Read the Part One of this two-part installment here.]

 

We will continue from our prior installment on “The Artist & Manager Relationship.” We will now explore some additional contract clauses included in most management agreements as well as a few negotiation tactics for these clauses.

Another essential matter that needs to be ironed out is the “term” that the artist is signed to the manager. Typical language outlining the term and options is below:

Term – The term of this agreement will be for an initial period of one (1) year commencing on the date hereof (the “First Contract Period”) plus the additional “Contract Periods” if any, which Term may be extended by Manager’s exercise of one or more of the options granted to Manager below.

Options – Artist hereby irrevocably grants to Manager three (3) separate consecutive options to extend the Term for a “Second”, “Third”, and “Fourth” Contract Period. Each such option consist of one (1) year each and will be exercised automatically by Manager at the end of the then current Term unless Manager gives Artist written notice to the contrary no later than thirty (30) days prior to the date that the then current Contract Period would otherwise expire.

A typical management agreement term can last for as little as 1 or 2 years. But, it can be for as long as 5 or 6 years, or even more. The terms of an agreement are traditionally structured with a minimum of one year followed by several options for additional years. Sometimes, the “term” is based on “album cycles” rather than specified calendar years. In this situation, the “term” starts with the commencement of recording the album and lasts until the end of the tour or associated promotional activities for that album. This time period could end up lasting longer than one calendar year. Similar to the language above, usually the options are automatically exercised by the manager. This provides the manager with the right to choose to terminate the agreement by providing notice to the artist.

If they do nothing, than the option is exercised and the agreement continues. Ultimately, this is a point that should be negotiated between the parties as the agreement could require mutual approval to exercise an option or it could include a set milestone that must be reached for an option to be exercised (i.e. artist must earn $10,000 during the one year term for the option to be exercised or obtain a recording/distribution agreement).

Other possible limitations on the term of the agreement could be that if the artist doesn’t earn a specified amount in a given time frame, then the artist is free to terminate the agreement. If this option is selected, a manager should ensure that any offers that the artist turns down as well as those that are accepted are included in this total amount. This protects the manager as an artist cannot simply turn down valid offers to reduce the income earned in order to get out of the contract. Conversely, an artist should insist that for an offer to count toward this minimum, it must be similar to those the artist had previously accepted. This prevents a manager from simply providing nominal or unsatisfactory offers in an attempt to continue extending the management arrangement.

Since a manager is entitled to receive compensation for any agreement entered into or substantially negotiated during the term of the agreement, a “sunset” clause can be included to reduce the amount that a manager is entitled to after the expiration of the term of the agreement.

Typical language for a “sunset” clause is as follows:

Following the expiration or termination of the Term hereof, Artist agrees to pay Manager for a period of three (3) years a commission of fifteen percent (15%) from any contracts entered into during the Term and all renewals, extensions, additions, modifications, amendments, substitutions or supplements of all contracts, engagements and commitments entered into or substantially negotiated for during the Term hereof. Subsequent to the termination of this first three (3) year period, there shall be modifications downward of Manager’s commission percentage in the following manner: (i) a reduction to twelve (12%) percent for the second three (3) year period subsequent to termination, (ii) a reduction to ten (10%) percent for the third three (3) year period following termination, and (iii) Subsequent to the end of the third three (3) year period the Manager shall no longer be entitled to receive commission.

A “sunset” clause is used to reduce a manager’s commission in the years following expiration of the term of the management agreement. This clause reduces the percentage the artist owes to the manager over time and eventually extinguishes this obligation entirely. This is important for an artist who is leaving one manager and signing with another, as the new manager would typically want their standard commission rate (15-20%) and your prior manager would still be entitled to their percentage under the “sunset” clause (15-20%). This situation severely limits the amount an artist earns; and, therefore, it is prudent to ensure that the prior manager’s percentage reduces and eventually ends at a specified time.

Another method an artist can utilize to potentially terminate a management agreement early is the inclusion of a “Key Man” clause. This clause protects a musician’s relationship with a particular individual by stipulating that the personal manager (the “key man”) must represent the musician or else the musician may terminate the contract.

This applies if the “key man” is deceased, terminated or otherwise is no longer affiliated with the management company that the artist is currently signed to. The particular individual needs to be listed by name in the agreement for this clause to be operative. However, the inclusion of this type of language does not obligate the artist to leave the management company; it just provides the artist with the opportunity to do so if they choose.

A standard “key man” clause could reads as follows:

During the Term, John Doe shall be primarily responsible for Manager’s activities under this Agreement. Notwithstanding the foregoing, it is understood and agreed that John Doe may delegate day-to-day responsibilities to other employees of Manager provided John Doe remains primarily responsible for the activities and services provided by Manager. Notwithstanding anything to the contrary contained herein, in the event that John Doe shall cease to be employed by Manager or shall cease to be primarily responsible for Manager’s activities hereunder (“Key- Man Event”), Artist shall have the right to terminate the Term of this agreement effective upon the date of Artist’s notice to Manager of such Key-Man Event.

Overall, a personal manager is an essential member of your music business team and one that can truly make or break your career. They can be a driving force behind your success or a stumbling block to your advancement; consequently, the negotiation of a written management agreement helps to ensure that an initial managerial arrangement doesn’t have a negative impact on an artist’s career going forward and that all parties fully understand what they sign and feel protected.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted. Some of the clauses have been condensed and/or edited for content purposes, so none of these clauses should be used verbatim nor do they act as any form of legal advice or counseling.

Part 1: The Artist & Manager Relationship – A Look At Recording Industry Management Agreements

[Editors NoteThis is a guest blog written by Justin M. Jacobson, Esq. Justin is an entertainment and media attorney for The Jacobson Firm, P.C. in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research.]

 

Update: Read Part Two of this series to learn more about the Artist & Manager Relationship here.

We will now begin a series of articles exploring several music business agreements. The first agreement we will examine is the agreement that governs the artist (talent) and personal manager relationship. An exploration of what a manager does, a few standard provisions included in most management agreements as well as a few negotiation tips for these clauses follows.

A “personal manager,” usually referred to as the artist’s “manager,” is one of the most important individuals in an artist’s career. Managers handle all of a musician’s day-to-day affairs, including booking hotels, procuring transportation to and from live performances and appearances, booking recording sessions and all the other personal matters that an artist doesn’t have time to handle on their own. In addition, a manager acts as a buffer between the artist and other parties, including the press, record label and endorsement requesters. In addition to coordinating day-to-day affairs, a personal manager advises the artist on all aspects of the career, including assisting in developing the artist’s creative direction, such as selecting producers, instrumentals (“beats”) and album artwork. They also help in various other facets of a musician’s life such as managing the artist’s tour, advising on merchandise design, licensing, songwriting and anything else related to the artist’s entertainment career.

Choosing a manager is one of the most, if not most, important decisions that an artist makes in their career. It is a choice that should not be taken lightly as an artist’s first manager can have a profound effect on the talent’s long-term development. Once a musician has selected the individual to act as their manager, it is prudent, if not essential, for the manager and artist to enter into a detailed written agreement. This agreement should outline all of the essential terms of the arrangement to ensure that both parties are adequately protected. The document lists each party’s expectations and rights in an effort to alleviate any concern as to who is responsible for what and who is entitled to what.

To better understand this contractual relationship, let us now review a series of common clauses included in many standard artist management agreements.

A manager wishing to act on behalf of an artist must be appointed as such. In order to effectuate this, a management agreement includes a “power of attorney” clause such as the one below.

Power of AttorneyArtist hereby irrevocably appoints Manager for the term of this agreement and any extensions hereof as Artist’s true and lawful attorney-in-fact, to:

(a) sign, make, execute and deliver all agreements or contracts in Artist’s name as if Artist were personally present;

(b) make, execute, accept, endorse, collect and deliver all bills of exchange, checks and notes in Artist’s name; and,

(c) demand, sue for, collect, recover, and receive all goods, claims, money, interest or other items that may be due to Artist or belong to Artist, and to defend, settle, submit to arbitration and compromise all actions, accounts, claims and demands which are or will hereafter be pending, in such manner as Manager will deem advisable in Artist’s best interests, including retaining attorneys and accountants to represent Artist’s interests thereof.

(d) In addition, and without limiting any of the foregoing, Manager may generally do, execute and perform any other act, deed or thing whatsoever that reasonably ought to be done, executed and performed, as fully and effectively as Artist could do if Artist were personally present. Artist further understands and acknowledges that the power of attorney granted to Manager is coupled with an economic interest on Manager’s part in Artist’s Career, in the artistic talents of Artist, and in the products of Artist’s Career and those talents and the earnings of Artist, arising by reason of Artist’s Career. Such power is therefore acknowledged by Artist to be irrevocable during the term of this agreement and all extensions and renewals hereof.

Limitation on Appointment – It is expressly agreed that Manager’s jurisdiction and authority as personal manager, the power of attorney and compensation due Manager under this Agreement are limited to matters directly related to Artist’s Career in the entertainment industry and Artist’s professional business interests relating thereto; such jurisdiction and authority does not include Artist’s business interests which are separate and distinct therefrom.

The above language provides the manager with the power to enter into contracts on the artist’s behalf as well as deposit and draft checks on the artist’s behalf from the artist’s accounts. It also gives the manager the power to sign agreements on the artist’s behalf, institute lawsuits on the artist’s behalf, hire and fire attorneys and other third-parties on the artist’s behalf and to approve use of an artist’s likeness for advertising and promotional uses. It also includes a limitation to ensure that the power of attorney only applies to the “entertainment industry” without providing the manager with rights in other non-entertainment related areas of an individual’s life. It is also prudent to try to include some additional limitations on the Manager’s power of attorney, such as requiring additional written approval from the artist for certain appearances over a certain time period (i.e., a live appearance lasting more than two or three days) or for issuing a check over a certain amount from the artist’s bank account (e.g., any check over $500 requires prior written approval from artist).

When determining where a manager’s compensation derives from, the following language is typically utilized:

Manager is entitled to a percentage of the following:
(a) Any and all contracts, engagements and commitments now in existence;
(b) Any and all contracts, engagements and commitments entered into or
substantially negotiated during the term hereof;
(c) Any and all bona-fide proposals of contracts, engagements and commitments which are offered to Artist during the term hereof and entered into after the term hereof; and,
(d) Any and all renewals, extensions, additions, modifications, amendments.

This language means that the manager is entitled to a percentage of the income from all existing contracts. That is in addition to any entered into during the term of the agreement. Also, any agreements that are substantially negotiated during the term but executed after the term’s expiration are included. This means that the artist’s manager is compensated from any existing contract that currently already pays the talent as well as a percentage from any agreement that the manager negotiates during the term of the agreement as well as from any agreement “substantially negotiated” during the term of the agreement and entered into after the term expires.

While there is no set typical payment or commission rate for a manager, most managers earn anywhere from 10-25% of the artist’s total income, typically the rate is between 15-20%. A manager is entitled to a percentage of either the gross or the net income received by an artist during the applicable period of time known as the “term” of the agreement. Gross income is the total amount earned prior to the deduction of any associated expenses or fees; while, net income is the total amount earned after the deduction of all associated expenses and fees. A manager typically takes their commission from the “gross” income as that is amount is larger than the “net” income. Depending on the manager’s level of clout, they may require a higher percentage (e.g., 25%); while, a newer manager may accept a lower percentage (e.g., 10-15%).

Typical contractual language that explains what streams of income are subject to the manager’s commission may be described as such:

The term “Gross Earnings” as used herein refers to the total of all earnings whether in the form of salary, bonuses, fees, royalties, recording budgets or funds, video production budgets or funds, tour support or advances against royalties or advances against royalty guarantees, percentage shares of profits, shares of stock, other kinds or types of income, earnings or proceeds, or property, including real property, merchandise, performances, appearances, or other income flows which are reasonably related to Artist’s Career in the entertainment industry received by or due to Artist.

This language is extremely broad and includes any potential income that the artist receives “in the entertainment industry.” Since this language is so broad, it is prudent for an artist to try to exclude certain avenues of compensation from the manager’s commission. These areas could include the exclusion of funds earmarked as “recording budgets” or “touring funds/support.” The reasoning behind this is that these funds should be fully utilized to pay for all the associated recording, mixing and mastering costs to produce the album.

These subsidies should also be used to alleviate any touring deficiencies that may arise during an artist’s tour without a manager receiving a percentage; thereby, reducing the artist’s budget for these matters. Furthermore, if a musician is also involved in other entertainment activities, such as a songwriter or actor, the management agreement language should clearly outline whether funds earned from these activities are included in the manager’s commission or not. This is commonly referred to as a “carve-out” clause, which specifies streams of income that are ‘carved out’ and not included in the fees subject to the manager’s commission.

Additionally, when negotiating a management agreement, a compromise regarding a manager’s percentage might be possible through the creation of an escalating or de-escalating clause. For instance, a manager could be entitled to 20% of the first $10,000 earned by the artist during the term; and, then his percentage could decrease to 15% for the rest of income earned during the period; or, vice-a-versa, where the manager’s percentage increases from a lower percentage after reaching a specified earning mark.

Another key point in the management agreement is the process by which the manager recoups the expenses they incur on the artist’s behalf. Since this amount can start to add up quickly, it is imperative that the management agreement outline the exact parameters of the manager’s recoupment, including how much can be recouped and the procedure to receive reimbursement. It is judicious for an artist to insist on a specific monthly, weekly or other “cap” or set a limit on the amount a manager can spend on behalf of the artist. The artist should also include provisions that require the artist’s prior written approval for certain large expenses, such as incurring a $10,000 marketing bill on behalf of the artist for the artist’s promotions.

These are just a few of the main points that need to be agreed upon between the parties. We will explore some additional clauses typically included in many standard management agreements in our next installment.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted. Some of the clauses have been condensed and/or edited for content purposes, so none of these clauses should be used verbatim nor do they act as any form of legal advice or counseling.

Breaking Down Copyrights In Music

[Editors Note: This is a guest blog written by Justin M. Jacobson, Esq. Justin is an entertainment and media attorney for The Jacobson Firm, P.C. in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research.]

 

We have previously explored the reasons to register a copyright and the procedures to effectuate it. In this article, we will explore copyright law as it specifically relates to the music industry to ensure the proper exploitation and monetization of an artist’s finished song.

For a work to be copyrightable, it must be original and fixed in a tangible form, such as a sound recording fixed on a CD, MP3 or other digital sound recording file format such as a WAV file. Some examples of copyrightable material that are common in a musician’s career are the actual song recordings, the lyrics and underlying musical composition, music videos or other audio-visual works, photographs, logos or other visual materials and any biography, website or other unique textual information the artist creates.

In particular, copyrights as they apply to music are unique in that every track has two copyrights. One of these is a copyright in the song, i.e. the musical composition, which consists of the lyrics and underlying music (beat, instrumental). The other is a copyright in the sound recording or “master recording” itself. The “C” in the circle (©) is the appropriate notice for the lyrics and underlying musical composition, which are protected by the “Performing Art” Copyright. The appropriate notice is a “P” in a circle (℗) for the actual sound recording, which is protected by the “Sound Recording” Copyright. This indication originates from the International Phonogram Convention and refers to a “Phonogram”, which is used when referring to any sort of audio master.

The same party or several parties may own rights in each of these distinct copyrights for the same music. For example, “All Along The Watchtower” was originally written and composed by Bob Dylan. It has been subsequently performed and “covered” by several artists, including Jimi Hendrix. In this situation, the copyright in the underlying musical composition (the lyrics and musical arrangement) is owned by Bob Dylan (or his Publishing Company); while, the copyright in a particular sound recording is owned by Jimi Hendrix (or his Record Label).

This situation most commonly arises where a singer is merely involved in and has rights in the sound recording copyright of a song by being the actual featured vocalists on a track; while, the other parties who wrote the track own rights to the underlying musical composition.

Each copyright confers each owner with several exclusive rights. These include the exclusive rights to reproduce the work, including the mechanical reproduction of a musical composition in CDs, downloads and vinyl as well as to authorize third-parties to do the same. It also includes the exclusive right to distribute the work (Spotify, Pandora, YouTube), to prepare derivative works based on the original work (sequels, spin-offs), to publicly perform the work (concerts) and to publicly display the work.

Therefore, a copyright generally provides the owner with the exclusive right to publicly distribute copies of their work by sale, rental, or lease and to publicly perform or display the work, such as selling copies of a CD or publicly performing a musical composition at a restaurant or nightclub.

In the music business, the songwriter and composer typically assign their copyright in the underlying musical composition to a publishing company in exchange for receiving songwriting royalties. The income is generally split in half, even though the publisher collects all of the money (except for small performing rights). Fifty percent (50%) of the income goes to the publisher, and the other fifty percent (50%) of the income is split between the composer, the lyricist, the arranger, the translator, etc. The fifty percent (50%) that goes to the “publisher” is typically referred to as the one hundred percent (100%) “Publisher’s share” and the fifty percent (50%) belonging to the songwriters, arrangers, lyricists, etc. is typically referred to as the one hundred percent (100%) “Songwriter’s share.” For a more in-depth look at publishing monies, check my prior article on this topic.

Additionally, the copyright in the sound recording is generally assigned to a record label in exchange for receiving royalties for the sale and licensing of the sound recording. The sound recording copyright may be owned by the label and may be considered a “work for hire.” Included in this assignment may be a mechanical license, which authorizes the label to mechanically reproduce the underlying musical composition on phonograms or other sound carriers such as downloads.

In order to make records, downloads, tapes, and CDs, the record label requires a mechanical license from the music publisher. Until the first initial public release of the musical composition, the songwriter and publisher have complete control over issuing licenses. However, after this first release, anyone else can create their version of the song (a “cover” track) by paying statutory fees and obtaining a compulsory mechanical license.

A “compulsory license” is one that cannot be refused by the songwriter (or publisher), i.e., it does not require the songwriter’s permission for you to record his song. In the United States, The Harry Fox Agency is the foremost mechanical rights agency. It was created by the National Music Publishers Association to administer and issue these compulsory licenses and to collect the mechanical royalty license fees and distribute them to the appropriate parties. Additionally, when there are more than one owner of a particular copyright, unless there is an agreement to the contrary, each co-owner can license the full copyright to a third-party subject to an accounting to their co-author and paying over their share of the royalties.

As is evident, the music business and the rights associated with the works distributed are part of a complex system that has been developed over time and shifts with the changing landscapes and with the advent of new technologies. Therefore, it is essential for a creator to protect their rights in their completed work so they can properly license and monetize it.

This article is not intended as legal advice, as an attorney and/or an accountant specializing in the field should be consulted.

A Musician's Basic Guide to Business Entities and Taxes

[Editors Note: This guide is written by Justin M. Jacobson, Esq., a New York City-based entertainment and media lawyer, (therefore this article does pertain to New York State law). Read his last equally helpful piece on the TuneCore Blog about songwriter split sheets!]

As an individual embarks on their chosen journey, a career in music and in the music business, it is essential for them to have a basic understanding of the complexities and formalities associated with operating a legitimate business. You should treat your “musical career” as a full-time occupation in order to prosper and succeed on this journey.

jayz youtube

As Jay Z said “I’m not a businessman, I’m a business, man” and he literally meant it. In fact, in order to better protect their personal assets, (i.e. Shawn Carter’s personal assets – cars, houses, stocks, bonds, securities, bank accounts, etc.), Jay Z and many other musical acts typically create a business entity, such as a corporation or limited liability company (LLC). These limited liability entities shield the owners from personal liability for any claims arising from any contracts or other arrangements entered into on behalf of the individual through its corporate or LLC entity.

Generally, these individual’s business entities are called a “loan-out company” (i.e., Jay Z, Inc., a corporate entity that has rights to the performer). These loan-out companies typically enter into a contract with a third-party as part of a loan-out agreement. Ultimately, the corporate entity, not the members of it, is liable for any debts or contractual obligations of the entity and creditors generally cannot recover against each individual’s personal assets. This protects a person’s assets from judgments or outstanding debts.

For example, this is beneficial if you are a member of a four-person musical group and during your live performance, a member spills a drink on the club’s soundboard and destroys it. If the live performance agreement at the venue is solely entered into with the band’s loan-out company (which it should be), the loan-out company will be the only party contractually responsible for the damaged property and each member will not be personally liable for the damage. The venue’s only recourse is to go after the corporate entity (which may not have assets) and, not each individual band member, for payment to fix or replace the broken equipment.

While shielding an individual from personal liability is one of the most important advantages of creating a corporate entity, there are also several other important benefits for an artist’s career. One is that having a separate corporate entity permits the musician to open a corporate bank account in an assumed name. This also facilitates easier tracking of your expenses and permits the deduction, or “writing off”, of relevant properly documented business expenses.

In order to determine a corporate entity’s eligibility for these deductions and not have the Internal Revenue Services (I.R.S.) categorize your musical career as “a hobby” (which disallows the deducting of your losses), the entity must substantiate that they are actually carrying on the business activity (music career) for profit or to attempt a profit. Since most artists do not typically make a profit and end up incurring losses for great spans of time, they may be permitted to deduct these documented losses on their tax returns.

The following is a non-exhaustive list of factors that the I.R.S. may consider in determining whether or not you are a “for-profit” business and thus eligible for appropriate tax deductions. These include:

  • whether you carry on the activity in a business-like manner,
  • an examination of the time and effort you put into the activity indicating an intent to make it profitable,
  • whether you depend on income from the activity for your sole livelihood,
  • whether your losses are due to circumstances beyond your control,
  • whether you changed any of your methods of operation in an attempt to improve profitability,
  • whether you were successful in making a profit in similar activities in the past,
  • whether the business activity actually makes a profit in some years and the amount of profit that it makes.

There also seems to be a three out of five year guideline, i.e., a profit in two out of five years helps justify that the entertainment venture is not a hobby.

savings, finances, economy and home concept - close up of man with calculator counting money and making notes at home

An accountant or tax professional should be consulted for a more in-depth analysis of potential tax deductions; however, some typical ones for a musician include:

  • equipment,
  • instruments,
  • promotional materials (e.g., CDs, stickers, flyers),
  • consumable supplies (picks, strings, drum sticks, etc),
  • website and graphic design, professional expenses (i.e., attorney, accountant, business manager),
  • copyrights and trademarks,
  • travel and meal expenses (hotel, airfare, on-site travel, fuel costs),
  • rental costs (equipment, car, sound),
  • any related depreciation of assets (guitars, amps, recording equipment).

It is also important to organize and document these expense records in case the tax authorities are interested in a more detailed examination of them. Keeping copies of receipts and utilizing a separate credit/debit card solely for entertainment related expenses makes it easier to target the deposits and credits to the corporate account.

Another benefit is that a corporate entity typically is governed by a written contract (an operating agreement for an LLC or a shareholder agreement for a Corporation) that outlines how the entity will operate. This includes an outline of the split of any profits and losses among owners.

Also, it specifies how any management decisions shall be addressed and how additional owners and members can be added (or removed) to an entity. These companies also provide easy management over any artist owned intellectual property (i.e. sound recordings, audio-visual works, photographs, logos) for licensing and distribution purposes as well as any tangible property (e.g., studio recording equipment, instruments, mixers).

Without these outlined procedures, it may be very difficult to make certain career decisions, especially when more than one individual may be involved in these important career choices.

While these business entities provide numerous benefits to its owners, there are potential ways a third-party can “pierce the corporate veil.” That is an attempt to attach an individual’s personal assets and disregard an existing corporate entity’s protection of its owners. Thus, it is essential that the company follows any and all statutory procedures and guidelines, which are different in each state.

It is vital that the entity is utilized for a proper purpose and not just merely as a shield from personal liability. Some of these corporate formalities include the preparation of annual corporate minutes to ensure the corporation is a real functioning entity. Also, careful use of business bank accounts as well as their separation from personal accounts are crucial formalities to follow.

Some labels may even require the creation of a corporate entity to permit accounting and payment by utilizing the entity’s Tax-ID/EIN number as opposed to paying an individual personally. An E.I.N. is an employer identification number and is analogous to the company’s social security number.

A final note, every individual must file its own personal federal as well as, possibly, state tax returns for the state they live in; however, an entertainer may have to deal with separate personal state tax issues in several states that they earn income from. Again, please consult an accountant or tax representative regarding the appropriate filings.

This article is not intended as legal advice, as an attorney and/or an accountant specializing in the field should be consulted.

Are You Co-Writing Songs? A “Split Sheet” Just Isn’t Enough

[Editors Note: This is a guest blog written by Justin M. Jacobson, Esq. and was originally featured on Hypebot. Justin is an entertainment and media attorney in New York City. He also runs Label 55 and teaches music business at the Institute of Audio Research. We’re excited to have Justin weigh in for the benefit of independent artists in the future!]

For some unexplained reason, frequently when artists go into the recording studio to work on a track together, they typically sign a “split sheet” and think it suffices. In reality, the traditional songwriter “split sheet” could merely be used as a stop-gap measure that is meant to ensure all parties are on the same page and understand what was contributed to the song by each party. Ultimately, songwriters should enter into a more elaborate and complete agreement to ensure the song can be properly used.

A “songwriter split sheet,” or “split sheet” for short, is a form that is signed by all the parties involved and lists each producer and songwriter. Each party’s contributions and ownership percentage of a particular musical composition are detailed. A typical “split sheet” should also include additional information about the parties, including each person’s physical mailing address, performance rights organization information (in the U.S., ASCAP, BMI, SESAC), publishing company information (if there is one), birthdate and Social Security and EIN number.

This document may seem to be comprehensive enough to cover the parties involved as it lists each party’s specific contribution (i.e. lyrics, beats, melody, etc.) and the corresponding percentage that each party owns of the final piece; however, it does not specifically address numerous important issues that could make or break a tune and severely inhibit its commercial value.

Generally under U.S. Copyright Law, if no agreement exists between the contributors to a particular copyrighted work, the assumption is that all of the contributors are considered joint-authors and own an undivided equal share of the song. This permits each owner to issue third-party licenses without the approval or consulting of any other owner as long as they account for any profits they made to the remaining owners. While this may be acceptable in situations where the actual work was equal among the contributors; it is not always the case, and could cause some serious issues if the composers do not understand this point. For example, if members of a band create compositions, sign a split sheet and then break up; each individual from the group can record and release the same material, merely subject to an accounting and payment. This is frequently thought of as a nightmare situation. Therefore, the right to issue or enter into third-party licenses for the finished material should be agreed upon in a more formal contract. This is an important point that a typical “split sheet” does not address at all.

Songwriter Split Agreement

Additionally, a standard “split sheet” does not speak about many ancillary and important elements to a song’s commercial value. This includes any right of publicity matters, such as utilizing a particular producer, artist or songwriters’ name in connection with the publicity and marketing of a finished work. Other important matters to address include the right to request a proper accounting from the other parties, the right to audit and inspect a particular co-owner’s business records and the right to recover (i.e., recoup) certain documented expenses (i.e. recording, engineering, mixing, mastering costs, etc.). The agreement should also address the right to proper attribution or credit on the finished work.

Furthermore, the traditional “split sheet” does not mention any warranties or indemnifications by any of the parties to each other. Without these warranties, each party could be liable for any potential unauthorized sampling, lack of appropriate rights clearance or any other unauthorized or infringing uses in the finished work by each party. A “split sheet” also does not discuss the party’s right to approve any finished work or the right to approve any marketing or promotional campaigns and budgets for the track. Finally, it does not address which state law to apply to a particular situation and does not specify where any disputes or claims would be adjudicated.

Clearly, the traditional sentiment and reliance on the outdated and minimal “split sheet” should be disregarded and all the contributors should enter into more formal and elaborate agreements. This is necessary to ensure all the important issues are addressed and that each party is properly protected and aware of their rights and interest in the finished work.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted when drafting any formal agreement.

© 2015 The Jacobson Firm, P.C. All Rights Reserved.