The Artist & Record Label Relationship – A Look At the Standard “Record Deal” [Part 2]

[Editors NoteThis is a guest blog written by Justin M. Jacobson, Esq. It’s the second in a two-part series on the Artist/Record Label Relationship – read Part 1 here. 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 will continue from our prior installment on “The Artist & Record Label Relationship.” We will now explore some additional contract clauses included in most recording agreements as well as a few negotiation tactics for these clauses.

Once the artist and distributor agree on the advances and what constitutes “delivery” to satisfy an artist’s commitment, the negotiation of the actual royalty rate earned for each sale is next.

ROYALTIES – (1.) Artist shall accrue to your royalty account, in accordance with the provisions of this Agreement, as described below; provided, however, no royalties shall be due and payable to you until such time as all Advances have been recouped by or repaid to Label. Royalties shall be computed by applying the applicable royalty percentage rate specified below to the applicable “Royalty Base Price” in respect of the “Net Sales of Records” described in this paragraph. Label shall pay to Artist all-in royalties (i.e., inclusive of producer and artist royalties). The term “Net Sales of Record” shall mean all gross income actually paid to Label in connection with its exploitation of such Album less all expenses (excluding overhead only) paid or incurred by Label in connection with the exploitation, manufacture, sale, advertising, promotion and marketing of such Album.

(2.) (a) The royalty rate (the “Basic U.S. Rate”) in respect of Net Sales of Records of the Album made hereunder made during the respective Contract Periods specified above and sold by Label through Normal Retail Channels in the United States (“USNRC Net Sales”) shall be as follows:

(b) The royalty rate (the “Escalated U.S. Rate”) in respect of USNRC Net Sales of each Album recorded pursuant to your Recording Commitment in excess of the following number of units, shall be the applicable rate set forth below rather than the otherwise applicable Basic U.S. Rate:

As the above clause mentions, the royalty that an artist earns for the sale of their music is calculated as a percentage of either the “Published Price to Dealer (PPD)” or the “Suggested Retail List Price (SRLP).” The “SRLP” is the approximate price charged by the retailer, such as Wal-Mart; while, the “PPD” is the approximate price that distributors charge to the retailers (wholesale unit price). It is prudent for an artist to attempt to negotiate for the highest possible royalty rate they could receive, as the higher the rate, the sooner they recoup the amounts advanced and the sooner the artist will begin receiving funds again.

In addition to agreeing upon the royalty rate and what the rate is based on (“PPD” or “SRLP”), similar to the clauses above, an artist can create royalty rate “escalators” based on album sales. As described above, when an artist sells 500,000 units (R.I.A.A. certified gold) or 1,000,000 units (R.I.A.A. certified platinum), the royalty rate escalates or “rises.” This increases the royalty rate that the artist is entitled to. An artist should also be cognizant of whether the royalty rate escalators are “prospective” or “retroactive.” A “prospective” escalator is one that only applies to sales going forward after a specified sales level is reached. This means that the artist’s royalty rate only is increased for any albums sold after they reach the listed sales level, for example, unit 500,001 is paid at the higher royalty rate. Conversely, and what is the ideal scenario for the artist, is “retroactive” escalation.

This means that once the artist reaches a specified sales level (i.e. 500,000 copy sold), the royalty rate is increased to the higher rate for all the albums sold prior (1-499,999 copies sold) as well as those going forward (500,001+ copies sold). An artist should also be aware that any “free goods” or albums given away for “promotional use” do not count as royalty bearing sales as no royalty or money is earned in these instances.

As in the example listed above, most royalties are considered “all-in.” This means that the artist is responsible for paying the producer of the track from the amounts they receive from the label. For example, if the artist is entitled to a 15% royalty rate from the label and the artist entered into a production arrangement with the producer providing him with a 3% royalty rate, the artist must provide the producer with the 3% royalty from the royalty the artist is entitled to. Thus, the 15% royalty rate paid to the artist by the label is split with the artist receiving 12% after the artist pays the producer their 3% royalty from these funds.

Once the royalty rate is set, the examination of the “reserve against returns” clause is necessary.

Reserve Against Returns – Label shall have the right to establish, during each semi-annual accounting period, a royalty reserve against anticipated returns and credits, of up to twenty- five (25%) percent of the royalty earnings associated with the units of each Record reported as distributed to its customers in that period. Each royalty reserve shall be liquidated equally and in full over the four (4) semi-annual accounting periods following the accounting period during which the applicable reserve is originally established.

While the above clause has begun to become obsolete in most instances, it is still important to examine and understand. The “reserve against returns” specifically applies to any physical record music as there is currently no way to “return” a digital downloaded MP3. This means that the label shall “reserve” or set aside a specified portion of the royalties the musician would otherwise be entitled to in case of any “returns” or “credits.”

For instance, in the example above, the label shall reserve twenty- five percent of the royalties the artist is entitled to in case any retailers must provide any refunds to its customer, which the label must in turn refund to the retailer. After a specified period of time, the “reserve” funds are “liquidated,” thereby, releasing the royalties to the artist. The frequency of “liquidation” is determined in the contract. As the above clause states, the reserves will be liquidated in “four” accountings, meaning every semi-annual accounting period. An artist should try to negotiate for a lower reserve percentage as well as a more frequent liquidation to earn as much of their royalties as quickly as they can.

Finally, one more clause that is included in many recording agreements is one that addresses the artist’s non-musical obligations, such as publicity and marketing for the released album.

Publicity – As Label reasonably requests, Artist shall appear for photography, poster, cover art, and the like, under the direction of Label or Label’s designees and to appear for interviews with representatives of the media and Label’s publicity personnel, at Label’s expense. As Label reasonably requests, Artist shall perform for the recording of brief audio, visual, and/or audiovisual spoken-word recorded messages and fan greetings suitable for use on and in connection with digital products and services and/or digital media platforms (e.g., Internet and wireless). In addition, as Label reasonably requests, Artist shall perform audiovisual works (e.g., so-called “B-roll” and “behind-the-scenes” footage) suitable for use on and in connection with Records embodying the Artist’s performances.

As the clause above outlines, the artist has to make themselves available for any public appearance, audio or audio-visual fan greeting or other audio-visual work as requested by the label. This is fairly common and in most instances, the artist will not receive any additional compensation for these services. However, an artist should try to negotiate for some of their expenses to be covered, such as transportation and/or meals, especially if the artist is required to travel further than a specified distance from the musician’s home.

Overall, the artist and label relationship is one of the most important ones and the next step in an artist’s quest for stardom. Since these agreements typically span many years and many albums, it is prudent that an artist fully understand the contract they are signing and ensuring they enter into an arrangement that works for them as this could be the document that makes or breaks an artist’s entire musical career.

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. We are also aware of the importance of streaming recordings; but, we will need to leave that for another day.

The Artist & Record Label Relationship – A Look At the Standard “Record Deal” [Part 1]

[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.]

 

In our prior installment, we examined the artist and manager relationship and explored a variety of standard clauses as well as negotiations tactics. We now start our initial examination of a few selected clauses from a standard recording industry agreement, better known as a “record deal.”

Once a musician has finished its product (music), the music is then distributed to the public for sale, either physically (CDs, vinyl), digitally (MP3 downloads, internet streams) or in both formats. Distribution is generally handled by a third-party on behalf of the artist unless the artist independently distributes their own music themselves. If an artist utilizes a third-party distributor, one of the industry’s most dominant distributors of recorded music is the recording or “record” label. These companies dispense the musician’s recorded music through a variety of channels, including to “Big Box” Retailers such as Best Buy and Target. Record labels are also involved in digital distribution by providing the work as digital downloads (MP3 format) in digital stores such as iTunes Store and on digital music streaming platforms, such as Spotify and Pandora.

Today’s recording industry landscape has significantly changed from its earlier roots, with many of the older, independent labels being sold and merged into each other. For instance, there are still a variety of major recording labels, such as Capitol Records, Columbia Records, Interscope Records and Atlantic Records; however, most of these are owned by other larger entertainment entities such as Warner Music Group, Universal Music Group or Sony Music Entertainment. In addition, many major labels have also established “vanity” labels. These act as smaller distribution companies where a producer or an artist signs additional artists or producers to this imprint and the “vanity” label then is dispensed to the public by a larger entertainment entity. For example, “Cash Money Records” is a “vanity” label distributed by Republic Records, which is under the Universal Music Group umbrella. There are also a variety of independently owned record labels such Sub Pop Records, Epitaph Records and Norton Records, who operate and distribute works on their own. In addition, there has been a recent rise in “digital only” record labels that function like traditional record labels; but, solely distribute music digitally.

Once an artist selects the appropriate distribution entity, it is standard practice for the parties to enter into an agreement outlining the deal points. To better comprehend this contractual relationship, let us now review a series of common clauses included in many standard record label agreements.

Similar to management agreements, the “term” or length of the agreement is of paramount importance.

TERM – (a) The Term will consist of an initial contract period (“First Contract Period”) and each of the renewal contract periods (“Contract Periods”) for which we will have exercised the options set forth in the next sentence. LABEL will have three (3) separate and successive irrevocable options, each to extend the Term for a further Contract Period. Each option to extend the Term for an additional Contract Period will be exercised automatically. The second Contract Period will be called the “Second Contract Period,” the third Contract Period will be called the “Third Contract Period” and the fourth Contract Period will be called the “Fourth Contract Period”.

(b) The First Contract Period will commence upon the date of Execution and will continue through the later of:
(i) The date twelve (12) months from the date hereof; or
(ii) The date six (6) months after the last day of the month in which Record Label
commercially releases the Album made in fulfillment of the Recording Commitment for the first Contract Period in the United States.

(c) Each subsequent Contract Period will run consecutively, commencing upon the expiration of the immediately preceding Contract Period, and will continue through the later of:
(i) The date twelve (12) months from the commencement of the particular Contract Period; or
(ii) The date six (6) months after the last day of the month in which Company commercially releases the Album made in fulfillment of the Recording Commitment for the first Contract Period in the United States.

This language states that the record label shall have one “firm” or “committed” album release with the “option” for up to three additional albums, totaling a potential four album deal. As it is written, these options are in the label’s sole discretion. In addition, this provision means that the agreement shall commence upon signing and shall end at either the expiration of one year from the signing of the agreement or six months after the last commercially released album. It also states that any subsequent option shall run for a similar period of time.

Since most record distribution deals contain similar language, an artist can attempt to negotiate specific parameters that are required in order for the record label to exercise one of its options. For instance, an artist could provide language that affords the label with the right to exercise an option for an additional album if the prior album reaches a specified sales figure (i.e., selling 20,000 copies of an album) or if the release recoups a certain specified percentage of an advance provided to the artist by the label (i.e., 75% of the preceding advance was recouped).

Once the “term” of an agreement is established, another important clause to decipher is the definition of what constitutes “delivery” of an “album” to satisfy an artist’s “recording commitment.”

Delivery Requirement – During each Contract Period, Label will cause the Artist to record and Artist will Deliver to Label Masters sufficient to constitute one (1) Album (the “Recording Commitment”). An “album” shall consist of approximately twelve (12) tracks with a total duration of approximately seventy five (75) minutes (the “Album”). In order for an Album to be “Delivered” under this Agreement, it must be contained in such format of which the Label advises the Artist, in the proper form for the production of the parts necessary for the manufacture of commercial Records, which shall be delivered to Label together with all materials, clearances, consents, approvals, licenses and permissions necessary to commercially release the applicable album. Each Album shall be subject to the Label’s approval as being technically and commercially satisfactory.

Further, unless Label otherwise expressly consents in writing, Artist will ensure that the Artist does not record Performances in fulfillment of the Recording Commitment that are: (1) not recorded in a recording studio (i.e., “In Concert” or “Live” performances); (2) instrumental Performances; (3) solely speech or spoken word; (4) not in the English language; (5) remixed or re-edited or mixes (e.g., extended mixes of an Album Master) or otherwise altered versions of Performances previously recorded; (6) based on an overall theme (e.g., a Christmas Album); or, (7) Performances of more than one Composition (e.g., a medley).

Under a recording agreement, the “delivery” of an album is an important point of contention between the label and artist. For instance, traditional language, such as in the clause above, requires that any album submitted to the record label must be both “technically” and “commercially” satisfactory to constitute a “delivered” album under an artist’s “album commitment.” An album is “technically” satisfactory when the master is technically well-made and able to be utilized to manufacture CDs, records, etc. This is fairly easy to satisfy, as any track that was recorded, mixed and mastered at a reputable recording studio or by a reputable professional, should suffice. Conversely, an album is only “commercially” satisfactory, if and only if, the label believes the album will sell. This means that the album is “satisfactory for commercial exploitation,” which is highly subjective. In negotiating this clause, an artist could try to limit the satisfaction of the “delivery” with an album that is “technically” satisfactory as opposed to one that is both “technically” and “commercially” satisfactory. This is especially important in emerging musical genres, such as electronic-dance music, where there are often quick and unpredictable listenership shifts whereby an artist or a type of musical genre which was once highly marketable is now no longer. If the label rejects an artist’s delivery of an album, it prevents any additional progress within the contract, such as the issuance of additional monetary advances. This situation may also arise where an artist is signed to a record label and then takes several months to finalize their album. If during this time period, the entire musical landscape shifts, the artist’s music may become outdated and not commercially satisfactory to the label, who feels they can now no longer sell this material.

In addition, the above clause defines one “album” as approximately twelve songs totaling seventy-five minutes; however, there are a variety of recordings that do not constitute a “track” sufficient to count toward an artist’s “album commitment” to the record label. For example, the language above states a “live” recorded performance does not constitute an acceptable track unless the record label permits it. Furthermore, a track that is solely instrumental or solely acapella will not count unless the label says so. Additionally, any foreign language tracks, remixes of original tracks or “theme” tracks, such as a Christmas or holiday album, will not count without approval from the label. An artist can always attempt to negotiate that a particular “live” version of a track counts toward the “album;” but, ultimately, the label may not agree or may only agree to allow this one particular track as opposed to removing the restriction entirely.

Another essential clause in a standard recording contract is the “advance” or “advance of recording funds” section. The negotiation of this paragraph has the potential to severely impact an artist’s career as this is the “money” the artist gets for signing the deal and are the funds the musician has available to actually record and finalize their album.

Advances/Recording Funds: Label will provide to Artist the following Recording Funds (inclusive of all producer advances and recording costs), which shall be recoupable from any and all royalties and any other agreements between the parties hereto. “Any other agreement,” in this paragraph, means any other agreement with Label relating to Artist’s Recordings or relating to Artist as a recording artist or as a producer of Recordings of Artist’s own performances.

(a) “Recording fund” advances for the Albums shall be subject to the following “minimums” and “maximums”:

(b) No respective recording fund shall exceed the “maximum funds” set forth in Paragraph(a). If the Artist fails to earn an amount which is the equivalent of one hundred (100%) percent of the proceeding “Recording Fund” advance as earned artist royalties in respect bearing units through normal retail channels in the United States of the Album, then the “Minimum” amount listed in Paragraph(a) shall be provided to Artist by Label. If the Artist earns an amount which is the equivalent of at least one hundred the proceeding “Recording Fund” advance as earned artist royalties in respect bearing units through normal retail channels in the United States of the Album, then the “Maximum” amount listed in Paragraph(a) shall be provided to Artist by Label.

(c) Label shall pay Artist one-half (1/2) of each Recording Fund advance listed in Paragraph(a) hereunder upon commencement of recording for each respective Album. The balance of each respective recording fund advance will be payable to Artist within thirty (30) days of the technically and commercially satisfactory delivery of each completed Album to Label.

As it is stated above, each album released by the label coincides with an additional “advance” of recording costs so that the artist may complete its album obligation to the label. Typically, most labels want approval over the recording budget; and, if any money remains from the recording funds after paying all the associated recording, mixing, editing and mastering costs, the artist gets it. If the musician requires additional funds to record and finalize the album, the artist must usually go into their own pocket to pay the difference. However, in select situations, the label may choose to pay the difference; and, in those instances, the label treats the additional payment as an additional recoupable advance. This situation could arise when there is no other way for the artist to obtain the funds to finish the album; and, the label would rather accept a finished album that costs a bit more than originally budgeted for than an unmarketable, unfinished album. The “minimum” amount listed above is known as the “floor.” As the above clause states, if an artist fails to fully recoup their entire prior advance from the label, they will only receive the “minimum” amount listed for their next album. Conversely, the “maximum” listed above is known as the “ceiling.” This is the highest amount that the label will provide to the artist for their next album no matter how good the prior albums sales were. As the proceeding clause states, if an artist does fully recoup their prior advance, they will receive the “maximum” amount listed for their next album.

In most instances, any advance provided by the label to an artist is fully recoupable from the royalties earned on the material. This means that after the label advances a specified amount to the artist, the label keeps any and all royalties earned by the artist for the recordings until the original amount is paid back. This is further exemplified as most clauses state that the amounts subject to recoupment by the label include “all amounts paid to you or on your behalf, or otherwise paid in connection with this agreement.” Thus, all the expenses the label pays including, to name a few, any
recording costs, music video production costs, studio session players and marketing and promotions for the album. They are generally all recouped prior to the artist receiving any additional monies. This is why the actual “minimums” and “maximum” are subject to extensive negotiations, since the amount the artist initially takes subsequently impacts what they will receive in the future, if anything.

The royalties earned by an artist under this agreement and in most standard ones are typically subject to cross-collateralization. This means that any monies advanced by the label “under this or any other agreement between the parties” shall be recouped from any and all streams of income that the label is entitled to. For instance, if the label has a publishing deal with the artist, the recording company could recoup the funds it advanced to create an album from the artist’s publishing monies. Similarly, if an ancillary income arrangement exists with the artist, the label could potentially recoup the funds it advanced to create the recorded music from the artist’s touring monies or from the artist’s merchandise sales, or any other income that is included in the agreement with the artist. Conversely, an agreement that is not cross-collateralized permits the label to only recoup the funds it advanced for the creation of recorded music from the funds earned from the sale of the music instead of the label recouping the funds of any potential stream of income the label is entitled to. Ideally, an artist should attempt to negotiate that the agreement not be cross-collateralized; but, this may be a hard bargaining point, as the label may insist on cross-collateralizing any income earned to reimburse itself for the costs it has already advanced to the talent.

In addition, it is a common industry practice that in most every recording deal that an advance is non-returnable. Therefore, there is no need for the artist to re-pay the money provided to the artist by the record label. This is true even if the artist ends up “flopping” and never recouping the original advance amount from the royalties it earns from the sale of its music.

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 recording 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. We are also aware of the importance of streaming recordings; but, we will need to leave that for another day.

October News From Our Store Partners

By Stefanie Flamm

As everyone ramps up for the music industry’s busiest time of the year, both our store partners and the music publishing world at large have some exciting new updates:

  • Amazon amplifies their existing digital music platform with a brand new streaming service, specially designed to work with their Echo devices.
  • Kesha has dozens of releases in limbo as her legal battle with Sony and Dr. Luke continues.
  • Spotify defends their “freemium” price tier in the face of criticism from competitors and publishers.
  • The upcoming US election is more important than ever for songwriters and music publishers.

Amazon’s long-anticipated interactive streaming service has finally launched this month.


Yet another streaming competitor takes to the stage this month with the launch of Amazon Unlimited, an on-demand music streaming service developed to work in tandem with Amazon Prime. This service has been a long time coming, as Amazon launched Prime streaming for select releases on the Amazon Digital Music store a few years ago, but Prime and Amazon Echo loyalists have been especially excited for Unlimited’s launch.

Amazon is also posing a strong threat to other services like Apple Music, Spotify, and TIDAL. While Amazon Unlimited is priced at $9.99 /mo for its base-tier users, the pricing goes down to $7.99 /mo for Prime users, and even more for owners of Amazon Echo ($3.99 /mo).

The Amazon Echo also brings another potential advantage to Amazon over its competitors. While the new iPhone design will eventually render your $10 headphones useless, Amazon Unlimited is currently the only streaming service to offer a complementary listening device, integrated with their service right out of the box.

“The first phase of [streaming] growth was driven almost entirely by smartphones,” said Amazon Music VP Steve Boom. “We believe pretty strongly that the next phase of growth in streaming is going to come from the home.”

Amazon might seem a little late to the party, with Apple Music and Spotify both quickly becoming unstoppable Goliaths of music streaming, but Amazon does bring a fair share of weight with its new product. After all, it does have the unique advantage of being associated with the widely popular Amazon Prime. For the 63 million people already using Amazon Prime, the extra $2 a month savings may be worth it to make the switch over to Unlimited.

With their widely-anticipated launch, and exclusive streaming deals coming down the pipeline, it looks like Amazon Unlimited has already hit the ground running.

Kesha and Dr. Luke are back in the news with recent updates on their legal battle.


In recent weeks, the NY Times has pointed its spotlight back on the contentious lawsuit between Kesha and Dr. Luke. While the story has been in the news for some time now, their coverage has reignited a debate about one of the industry’s most complicated litigations to date.

For the last two years, pop star Kesha Rose Sebert (popularly known as Kesha) has been buried in an exhaustive legal battle with both Sony and her producer Dr. Luke (né Lukasz Gottwald) over the restrictiveness of her contracts. You may remember the #freekesha hashtag trending on Twitter a few months ago, when Kesha and Dr. Luke met in NY State courts to fight for Kesha’s right to abandon her contracts. And while this is one of countless lawsuits that have stemmed from artists being locked into governing contracts with their record labels, Kesha’s current struggle stands out.

Back in 2014, Kesha sued Sony and their subsidiary Kemosabe Records, asking to be released from the many contracts that obligated her to work with Kemosabe’s CEO and lead producer Dr. Luke. Dr. Luke is one of the biggest producers in pop music today, boasting a producer credit on works from Nicki Minaj, Pitbull, Miley Cyrus, and Katy Perry (to name a few). Kesha is under several contracts that bind her to working with Dr. Luke, including that he produce six songs on every album she releases. Her reasoning behind this request is that Dr. Luke has allegedly been emotionally, physically, and sexually abusive to her.

“I cannot work with this monster,” Kesha wrote in an affidavit in 2015. “I physically cannot. I don’t feel safe in any way.”

In February of this year, NY State courts denied Kesha’s request for a judicial order that would end Kesha’s legally-binding professional relationship with Dr. Luke. Two months later, the same NY State judge determined not to pursue the claims further, due to reasons including Kesha’s sexual assault claims having passed the statute of limitations, lack of evidence, and Kesha’s claims that the sexual assault was a hate crime. Dr. Luke is now pursuing a countersuit for defamation, which is currently awaiting trial.

And that brings us to now. Kesha’s career has been at a standstill since she first took legal action against Dr. Luke, and as she has lost her case in both New York and California, there is no end in sight. In that time, Kesha has written more than 20 songs that she is legally forbidden from distributing without the permission of Dr. Luke.

“Kesha has been trying for six months to record and release new music,” Kesha’s attorney said in a statement. “Kesha still has received no commitments on promotion, songs or even a release date. We hope things turn around fast.”

It’s an extremely tricky situation for both parties, who refuse to budge on their initial stance. Dr. Luke’s reputation has been badly damaged, resulting in backlash from fans and low charting numbers. But it looks as if either of them dropping their cases would give the public the impression that they are admitting defeat or accepting responsibility, so for the time being Kesha is caught between a rock and a hard place.

Disputes like this are a great example of why it’s increasingly common for artists to choose independent distribution over foregoing their rights to a label. And like many artists who’ve been in a similar predicament (Paul McCartney, Michael Jackson, Prince, etc.), we’re likely to see Kesha insisting on a lot more control of her music once this situation is resolved.

Check out the NY Times podcast for more detailed information on the dispute.

Spotify’s Global Head of Creator Services goes on record to defend their services “freemium” price tier.


As music streaming becomes more and more popular for listeners worldwide, the biggest names in the industry have wide range of subscription models. While they are all fairly similar in terms of price, the way each store specifically shapes their subscription tiers and terms of use is unique. Especially as each new streaming service comes onto the market, it’s hard to ignore how much the subscription model dictates the culture behind each service.

For example, TIDAL and Apple Music are both available only to paying subscribers. The exclusivity of their service to those listeners who are willing to shell out as much as $19.99 a month has spawned a congruent exclusivity of their product. Beyoncé, Drake, Nicki Minaj, etc. have forgone more popular streaming services in the name of exclusivity.

The catalyst for this exclusivity? Freemium price tiers.

“Freemium” refers to a pricing model in which consumers can use a service for free, as long as they listen to periodic ad placement. The eventual hope is that they will become a paid subscriber, in exchange for removing the ads and adding additional features. It’s pretty simple: the store has to make money for both profit and royalty payments, so they earn that either through ads or through customer subscription payments. Freemium is separate from 30-day trials, which most subscription-only models offer before either billing you or locking you out of the service.

Freemium has received a lot of flack over the years because it’s said to lower per-stream payouts. “Consumers are blissfully ignorant, mostly content to endure a few ads to listen to unlimited free music,” said Taylor Hatmaker for The Kernel. “Considering how many people are sharing the pie, the ad-supported ‘free’ streaming model remain a bonkers excuse for a business plan, no matter how you slice it.”

Ask a lot of people in the industry, and freemium streaming is a bad idea. But in spite of that, Spotify stands firm that they will retain their free pricing tier for the foreseeable future.

From Spotify’s point of view, the advantage to a free pricing tier is clear: afford more listeners an opportunity to hear your music, and the royalty difference will balance itself out in ticket and merch sales. Unfortunately, since the era of pirating began, people don’t like to pay for music, and Spotify’s defense is a way of making lemonade out of 55 million lemons.

“I don’t think we’re ever going to get to a world where everybody on the planet is going to pay for music,” Spofit exec Troy Carter said. “[A freemium user] may never convert to a paid subscriber…but they’ll be able to afford a concert ticket, they’ll be able to afford a t-shirt.”

In spite of criticism, Spotify doesn’t stand alone in this fight for free, ad-supported streaming. Martin Mills, Co-Founder of Beggars Group, stood behind Spotify’s pricing model, saying, “The use of free [price tiers] to transition fans from piracy to monetised has clearly been a success – very visibly so in markets particularly challenged by piracy. And the industry would be insane to throw that away right now.”

Streaming is still very new territory for the music industry, and while there are obvious flaws to the free price tier, freemium pricing still has its merits. And whatever you think of this, at the very least you can continue to stream the Saturday Night Fever soundtrack to your heart’s content, free of charge.

In the wake of the most heated US Presidential election in history, music publishers and songwriters are more eager for Congressional reform.


As we draw ever closer to November 8th, it feels like all anyone in the US can talk about is the upcoming election. With two controversial candidates at the top of the ticket, tensions are high with talk of the future of the country.

However, for music publishers and songwriters, there’s far more to their ballots than just Trump versus Clinton. With over 450 Congressional seats up for grabs this year between the House and Senate, folks in the music industry are focusing their efforts on reshaping the Legislative branch.

As far back as the Clinton Administration, publishers have been advocating for policy reform to accommodate the digitization of music. In 1996, the Digital Millennium Copyright Act (DMCA) was passed as an effort to reinvigorate some seriously out-of-date legislation, but this was only a tiny push in the right direction. The last time any major music royalty legislation was passed, we were still in the throes of World War II, so publishers and songwriters have justifiably been frustrated with the slow progression of licensing and royalty reform on the side of Congress.

For publishers, this election is an opportunity to win on several fronts, all surrounded by this outdated legislation. “Music creators today face extreme hurdles in their ability to seek a fair value for their work thanks to music licensing laws that have not kept pace with the advent of new technologies,” said ASCAP CEO Elizabeth Matthews. “We need to modernise the 75-year old consent decrees that govern how ASCAP and BMI operate to ensure a strong collective licensing system. We need a set of laws that give the PROs and our songwriter, composer and music publisher members more flexibility to adjust to wherever the marketplace takes us.”

It may seem like there are bigger fish to fry in today’s political climate, but music copyright reform can’t change without the help of legislative support.

Want to do your part to help sway the US Legislative branch in favor of copyright reform? Check out the platforms for the Congressional nominees in your state here.

For assistance collecting 13 different royalties from around the world, check out TuneCore Publishing Administration.

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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.

March Songwriter News

By Dwight Brown

Spring forward. Get ahead.

The publishing industry is becoming an investment goldmine. Artists who applied to a songwriting competition TV show get a wakeup call. A Berklee professor sues Spotify, while Spotify settles with NMPA. A hot debate over the length of copyright terms erupts.

There’s a lot going on for songwriters.

Michael Jackson’s estate scores $750m payday through publishing.

“An important, unrealized asset in this business is music publishing,” says Paul Young, a music industry studies professor at USC’s Thornton School of Music. “You’re giving permission to use a song … to a radio station, film company, TV company. Transactions that are far less threatened by music’s digital revolution.” His remarks are quoted in Marketplace.org’s article “Why Music Publishing is Still Lucrative,” which highlights the $750m mega deal Michael Jackson’s estate scored for selling its 50% share of Sony/ATV.

The Guardian breaks down impressive numbers for a company that owns the publishing rights to some works by The Beatles, Taylor Swift, Beyoncé, Lady Gaga:

1985: Jackson buys ATV Music for $41.5m ($11m cash investment).

1991: Jackson sells 50% stake in ATV to Sony for $100m.

2016: Jackson estate’s sells 50% share of Sony/ATV to Sony for $750m.

Publishing gave Jackson, posthumously, his most massive payday ever. Way bigger than Thriller. And Billboard is quick to point out that the lifetime earnings from the original deal are closer to 1.31b, when annual dividends and other fees are included. Making Jackson’s song “Don’t Stop ‘Til You Get Enough” sound prophetic.

Controversy regarding Songland TV show stresses songwriter rights.

March 20, 2015, Billboard ran an article spotlighting a new NBC show for songwriters called Songland, that would be produced by Dave Stewart, Audrey Morrissey (The Voice EP) and Adam Levine (The Voice coach). “While artists make money on songs that they record, songwriters have multiple avenues and points at which they can generate hefty revenue from their works.”

In March 2016, Hypebot featured a guest post by entertainment attorney/blogger Wallace E.J. Collins III Esq., in which he delved into onerous details on the Songland Submission Form.

Key areas of concern:

  • NBC owns all rights to use and exploit all songs involved in show. Songwriters lose rights to songs that weren’t even selected.
  • Songwriters waive rights to royalties and rights to sue.

Wallace, never assuming malicious intention, still made clear points:

  1. Most songwriters make their life’s savings off just a few big hits and giving away their best work for free is extreme.
  2. Writers should read all of the language in any agreements and decide if the risk is worth the reward.

Shortly, Billboard relayed an exclusive from NBC which stated that the language on the submission form had been changed to alleviate writers’ concerns. Morrissey clarified, “We wish to be abundantly clear that by signing the casting application, songwriters do not transfer ownership of any of their original songs. This show is truly a celebration of songwriters and their craft.” Problem solved and several lessons learned.

Berklee Prof. sues Spotify. Spotify settles with NMPA. Now what?

Billboard notes that singer-songwriter Melissa Ferrick (an associate professor at the Berklee College of Music) and the law firm Gradstein & Marzano filed a class-action suit against Spotify. “They’ve infringed on 127 of my copyrights. Infringe-now-and-pay-later cannot become the norm,” says Ferrick. Her lawsuit follows one by Cracker frontman David Lowery. Both are complicated by a recent settlement…

The National Music Publishing Association (NMPA) announced its $30m settlement between Spotify and its members over over unlicensed and unpaid mechanical royalties due to publishers and songwriters. Billboard.com reports the agreement covers the period between Spotify’s inception through June 30, 2017. This settlement, together with the pending class action suits, serves to highlight the absence of (and real need for) a centralized and reliable database covering all music rights. In the wake of these legal actions, several companies have come forward with proposed solutions to this problem. 

To reduce or not to reduce Copyright Terms? That is the question.

In a guest post on Hypebot Stephen Carlisle, of Nova Southeastern University, contemplates the possible demise of the current copyright term: Life plus 70 years after death for a human author, or 95 years for a corporate author. Post 70/95 years, a song enters public domain and is available for anyone’s use—free.

The rationale for supporting shorter terms:

  • If copyrights are in public domain earlier, the public benefits.
  • A copyright length of 14 years is close to that in the first copyright law.
  • Protection offers negligible incentives to authors.

Carlisle counters with reasons for the longer copyright terms:

  • The Berne Convention, signed by U.S. and 170 nations, commits to a minimum copyright term of ‘life of the author plus 50 years.’
  • Terms begin upon death and a 14-year term cheats heirs out of viable income from songwriters who die young. (E.g. Kurt Cobain died at 27.)
  • The 5th Amendment to the Constitution states that “…private property [cannot] be taken for public use, without just compensation.”

Shortening copyright terms may not be such an easy feat, all things considered.

It’s now common knowledge: Publishing is a really, really smart investment. Writers should read agreements carefully before signing. The fight for proper compensation for songwriting is a work in progress. Copyright terms make a big difference.

This spring is a great time to have TuneCore Music Publishing Administration in your corner, and remember with TuneCore, songwriters always retain 100% of their songs’ rights.

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