An Updated Look at Neighboring Rights

[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. In 2012, we published an article titled “Neighboring Rights: What They Are & Why They Matter”This newest installment includes a current exploration of today’s neighboring rights, including which countries currently provide them and which don’t. It also explores recent United States’ legislation that has been discussed in an effort to extend “neighboring rights” to U.S. Citizens; as well as a discussion on the current financial impact these royalties have on the world-wide music business. It expands on the existing material while reinforcing the information it provides.]

 

Featured artists, session musicians and master sound recording owners, typically record labels, are entitled to an additional royalty stream that artists and sound recording owners within the United States are currently not receiving. This additional revenue stream is referred to as “neighboring rights” royalties. In recent years, this revenue stream has become a valuable source of additional income for non-U.S. citizen performers. It is reported that neighboring rights generates over $2 billion per year. 

It is well established within the music industry that there are two copyrights in music, the underlying musical composition (“PA”) and the sound recording (“SR”). The underlying musical composition is usually exploited by a music publishing company and songwriters. They receive public performance royalties from a Performing Rights Organization, such as ASCAP, BMI or SESAC in the U.S. The sound recording is typically owned by a record label, which receives their rights from the featured vocalist on the track.

“Neighboring rights” are monies distributed to musicians and master sound recording owners when a work is publicly broadcast or streamed. The concept of “neighboring rights” is derived from Copyright law and has been applied to many countries through the signing of the 1961 Rome Convention. The Rome Convention treaty was enacted to provide featured performers and session musicians with an additional revenue stream when their works are publicly performed.

To receive “neighboring rights” royalties, the Rome Convention treaty mandates that a featured performer, studio musician and master sound recording owner must be a permanent resident of one of the signatory countries. Some signatory countries include Canada, the United Kingdom, Australia, Germany, Japan, Greece, France, Hungary, Italy, Sweden, Switzerland, Spain and Poland.

In Rome Convention signatory countries, neighboring rights collection societies, similar to United States’ ASCAP and BMI, collect and distribute “neighboring rights” royalties to their members. Since collection societies vary in different countries, a musician must register the individual master recordings with each collection society in all of the countries that their track is receiving airplay in to receive full payment.

For example, the performing rights organization that distributes neighboring rights royalties in the United Kingdom is PPL; in Germany, it is GVL; in Spain, it is AIE; and, in Canada, it is The Recording Artists’ Collecting Society (RACS), which is a division of The Alliance of Canadian Cinema, Television and Radio Artists (ACTRA).

As discussed earlier, the United States is not a signatory to the Rome Convention treaty. Since the U.S. is a non-signatory country, U.S. citizen musicians do not receive any neighboring rights royalties. This is due to a concept called “reciprocity,” which means that because the United States does not pay neighboring rights royalties to non-U.S. citizens, those countries refuse to pay neighboring rights royalties to U.S. citizens.

This has put U.S. musicians, especially those who are solely featured vocalists and studio session players, such as many of today’s pop stars, in a bind by limiting most of their income to only record (which have steadily declined) and touring sales.

There are various reasons why the U.S. did not become an initial signatory to the Rome Convention treaty. One suggested justification is that radio station lobbyists fear that terrestrial radio stations would then have to pay additional license fees, essentially doubling its current fees. This additional expense may could result in a severe strain on their already dwindling business. The broadcasters are a significant lobby. Others counter this argument by saying that radio stations are predominantly kept in business by the music they play and without the master sound recording copyright owners, featured artists, and session musicians’ creations, the radio station would have nothing to air.

Although American law does not currently recognize neighboring rights for a terrestrial broadcast such as traditional radio stations, the “Digital Performance Rights in Sound Recordings Act of 1995” was established in an attempt to compensate featured vocalists for the digital public performance of their work. This Act allows U.S. musicians and master rights owners to collect royalties on digital performances of their work through satellite radio and Internet platforms.

This includes royalties paid by music streaming platforms such as Pandora and Spotify as well as satellite and Internet radio stations, such as Sirius XM. These royalties are collected and distributed through the licensing organization, SoundExchange. While American musicians can now collect digital performance royalties with the passage of this act, they still cannot collect royalties on terrestrial broadcast platforms. This means that U.S. musicians, who are only featured vocalists, still only receive half of the potential revenue streams available to them that other non-American vocalists do.

As recently as 2017, legislation called the “Fair Play, Fair Pay Act” has been discussed before the U.S. Congress with the intention of remedying the issue of neighboring rights. However, to date, no progress has occurred and it seems that no immediate movement is on the horizon. The lack of this income stream has widespread effects on U.S. musician’s earnings. In fact, according to Niels Teves, Co-CEO of Fintage House, the inclusion of neighboring rights could potentially “double the size of [the U.S.] annual market,” an industry severely in need of a monetary infusion.

Neighboring Rights are untapped revenue streams for many featured musicians and master sound recording owners. Unfortunately, most of this revenue is left unclaimed due to a lack of reciprocity between signatory and non-signatory countries. In order to help accelerate the music business’ recovery, copyright owners should attempt to apply additional pressure on the U.S. Congress to enact the “Fair Play, Fair Pay Act” or some variation of it. This would hopefully give musicians and sound recording owners their due royalties and compensation guaranteed under the U.S. Constitution.

This article is not intended as legal or business advice, as an attorney or other professional specializing in the field should be consulted.

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 examining 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.

10 Things You Should Legally Do As An Entertainer

[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.]

 

While there are no real bright line rules that an entertainer must follow, there are some essential strategies that a musician should take into account when conducting their music business in the new year. As we have already explored, a musician should approach their career as a business, which includes following the applicable state and federal laws, to ensure they adequately and properly exploit their works and receive the full intended benefit from them.

With that said, we have compiled a few guiding resolutions that an entertainer should take to heart and implement this new year.

1. Always consult an entertainment attorney prior to signing anything. When you sign something, it will generally bind you to the terms of the contract, whether you understand them or not.

While this might seem obvious and straight forward, many individuals simply sign what they are presented without fully understanding the nature of the document and what the terms actually mean in a practical sense. A musician also may fail to realize that most agreements are negotiable; so, a first offer isn’t usually a “take it or leave it” arrangement, as most situations should permit the discussion and negotiation of some important points prior to the signing. If it is presented as a “take it or leave it” proposition, that is an indication that an artist might want to avoid the deal. Hard sell salesmen usually indicate that an artist should run. An artist should always have time to consider the deal after “the heat” of the moment has passed.

This is also an important resolution as sometimes an entertainer may just search the Internet to obtain some standard template or form in an attempt to feel that they are properly secure. In theory, this might be good and might work fine; but, an attorney specializing in the field will bring an expertise and understanding that ensures you have the proper terms and the agreement you sign actually operates as you intended it to. An artist’s worst nightmare is signing something that doesn’t provide the artist with the rights they thought they had. This mistake prevents them from fully realizing their work’s worth. If the cost of obtaining an attorney is too high, there are many volunteer organizations, such Volunteer Lawyers For The Arts, that provide cost-free or reduced fee legal guidance to creators.

2. Always obtain a license to use a “sample,” i.e., anything used in a recording that isn’t yours and is somebody else’s. Failure to clear a “sample” can cause more liability on a potential hit to the sample’s owners than the hit makes.

This is a fairly straight-forward resolution as utilizing something that doesn’t belong to an artist can subject them to liability. It is essential to ensure that an artist has rights to whatever they use. A simple motto is that, if this isn’t the artist’s, then the artist should not use it without first obtaining rights. This will save an artist many headaches and potentially thousands of dollars. An artist who creates their own beats and samples can also reduce the issues. We explored “sampling” basics in more detail in a prior installment.

3. If you’re a songwriter, make sure to sign up as a writer with a performing right society and index your songs. In America, they are: A.S.C.A.P., B.M.I., and S.E.S.A.C.

If an individual is a songwriter, they are entitled to various streams of income when their works are publicly performed. In order to obtain some of this income, the songwriter must “sign-up” with a performing rights society. These societies collect public performance royalties on behalf of their songwriters. In order to be properly paid by these organizations, the songwriter’s works must be completely indexed. This means that the songwriter’s compositions are properly listed in the performance rights society’s databases with all the appropriate ownership information. To sign-up and index a songwriter’s music, visit ASCAP, BMI or SESAC. My further discussion on “Publishing” monies is available on Hypebot.

4. Always file your federal and state income taxes, and consult with a tax professional to ensure you are in compliance with all state, city and federal tax laws.

This resolution is one that an artist should already be complying with in their personal life. In addition, if an individual started their own corporate entity to create their music empire, they must ensure that their yearly corporate taxes are also filed. An accountant should be consulted to make sure that all appropriate state, federal and/or city corporate taxes are properly filed. We explored corporate and tax matters as they related to the music business in prior articles.

5. Always register your copyright in a work with the U.S. Copyright Office because failure to register a copyright will prevent the recovery of certain damages for infringement, including attorneys’ fees.

While a creator can simply mail themselves a created work without opening it as a way to prove copyright, this procedure does not afford the creator with all the rights a registered copyright confers. Although the Berne Convention provides for a “copyright” in a work upon the creation and fixing of it in a tangible medium of expression, the lack of federal registration limits an owner’s available recourse if their work is infringed. My further discussion on why an artist should register their “copyrighted” work is available on Hypebot.

6. Always do a trademark search prior to selecting a company or entertainment name, and have a qualified attorney do so.

Before embarking on this wonderful voyage called “music,” an artist should ensure that the name and corresponding social media and website domains are available prior to creating and marketing works under a particular name. The worst situation is building a following with a certain name to only receive a “cease and desist” letter from another similarly named artist demanding that an artist stop utilizing this name. Ensuring that a name is clear prior to using it will save the artist from a significant amount of headaches and potential costly legal bills.

7. If you’re in a band or a group, make sure to have a signed band agreement that details the members’ rights and responsibilities.

Band members should resolve to ensure that all applicable band members’ matters and procedures are discussed and agreed to in a writing signed by all the members. This is necessary to avoid any misunderstandings. This document should list the proper mechanisms to ensure the continued profitability of a band, especially if certain internal situations or relationships begin to deteriorate. My further discussion on what should be included in a band member agreement is available on Hypebot.

8. If you have a manager, make sure you have a signed agreement with them.

In most situations, an artist’s first manager, or sometimes only manager, is their friend, family member or significant other. While, familiarity and trust may exist in these relationships; when money and in particular, substantial sums are involved, it is prudent to have a signed agreement. That document would outline who is entitled to what and under what circumstances. Since this is business, it is vital that all the parties understand the nature of the relationship and that all parties are adequately protected. Having an executed agreement listing all of the agreed upon matters ensures that a neutral arbitrator (the document) exists to hopefully resolve any differences that may arise.

9. If you are a performer or producer of a recording, always make sure you register with SoundExchange and the Alliance of Artists and Recording Companies to ensure you receive all the royalties you are entitled to.

All artists should resolve to ensure that they receive all the funds they are entitled to, including certain royalties they may not be aware of. Two of these royalty streams that many artist’s neglect to properly manage are SoundExchange and D.A.R.T. royalties from the Alliance Of Artists and Recording Companies (A.A.R.C.). These entities exist to obtain royalties on behalf of an artist that signs up with them. An artist signs up with these entities enabling these companies to collect royalties on the artist’s behalf. My further discussion on why you should sign-up for SoundExchange is available on Hypebot and for additional information on A.A.R.C., visit my prior article available  and their official website.

10. If you are working on a recording with a producer or a performer that isn’t you, then you need an agreement with that person to clarify ownership of the recording.

An artist should always remember that if a contribution isn’t theirs, then the artist cannot use it unless they have rights from the creator to utilize it. This applies to any beat, vocals or other material that the artist didn’t personally perform and is included in a final sound recording. An artist should make a resolution to obtain an agreement with every individual they work with to ensure they have all the rights to utilize the finished material. We explored the need for an agreement with a producer of a “beat” and for any co-creator or co-writer.

As 2017 begins, an artist should remember that following these simple resolutions will be a great start to getting their music business house in order and running properly.

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

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.

After You Create An Entity: The “Loan-Out” & Music Production Companies

[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.]

 

In Part 1, we explored the potential benefits an artist receives from establishing a business entity such as an LLC or corporation. We also discussed some other administrative matters related to the operation and continued maintenance of these entities.

In this installment, we move forward to discuss the next steps and possibilities after a musician creates such an entity, including utilizing this entity as a “loan-out” company and/or as a music production company. While every aspiring musician thinks of themselves as an entertainment or media mogul, the new business entity created by them is instrumental in creating the umbrella to make this vision a potential reality.

In order to build toward this dream, an artist can utilize their new entity in a variety of ways. The “loan-out” company (corporation/LLC) formed by the musician provides the musician’s services (recording, production, live performance) as an “employee” of the company to a third-party such as a record label, a music publishing company, a performance venue or a sponsoring brand. As the name indicates the entity “loans out” the services of the “employee” (musician) by contracting with another party (e.g., “record” label) instead of this party contracting directly with the entertainer.

Therefore, the loan-out company signs the agreement with the third-party and the company then “hires” the artist to do the job that it is contracted for. This gives the artist the added level of insulation and personal asset protection that an artist should desire and is inherent in these types of entities.

However, before the “loan-out” company is able to enter into agreements on behalf of the artist, the musician must first sign themselves to this entity. This means that the artist will actually be signing themselves to a recording, management and/or music publishing agreement with the entity they are an owner of.

Typically, these standard music industry agreements provide the loan-out company with the right to license the artist’s musical compositions and master recordings as well as the right to enter into subsequent recording, distribution, publishing or other music business arrangements with other companies, such as a recording label or music publishing company, for the distribution of the artist’s work and for the artist’s other related services.

As we have discussed, these “loan-out” companies also provide the artist with the ability to easily manage all of its intellectual property (i.e. trademarks, copyrights, sound recordings, audio-visual works, photographs, logos, websites) for licensing and distribution. The “loan-out” company is perfect to organize and utilize traditional “work-for-hire” arrangements and other rights assignment documentation to ensure that all the rights that any ancillary parties, such as studio mixers, studio engineers, photographs, videographers and third-party vocalists and producers, may possess are properly owned by the company for whatever purposes required.

This entity can also own and operate as an ASCAP, BMI and/or SESAC publishing company. This allows the entity to directly collect its public performance rights royalties as well as to administer or enter into co-publishing arrangements with other music publishing companies for the exploitation of the artist’s works. The entity is also used to easily collect and account for all of the artist’s SoundExchange and other royalties and related income.

While signing yourself to your self-managed company is one use, another important feature of the “loan-out” company is that it provides the artist with the flexibility to sign other artists to this entity. That allows an aspiring music mogul to create his own music production company and start to build his/her entertainment empire. This situation most frequently arises where a producer signs an artist he is producing for to his “own” label or production company.

This signing permits the owner to more easily manage, distribute and license the recording catalogue on behalf of the artists it produces. This also ensures that the production company receives just compensation by ordinarily facilitating all the third-party transactions through this entity. This could enable separate accounting and royalty portions distributed directly to the entity rather than to the artist who is then responsible for paying the producer his share of the royalties.

As with any corporate entity, more than one owner can possess an interest or shares of the created business. If there are multiple parties involved, it is prudent to get an agreement in place that outlines each party’s ownerships rights as well as management or other powers.

This agreement between the parties is crucial.

Corporations have shareholder agreements and LLCs have operating agreements. A unique situation may arise when a music business professional, such as a manager and an artist create an entertainment company together and sign the artist-owner as well as other artists.

It is prudent that each party have its own attorney to ensure all parties are adequately represented in this type of arrangement and that each party understands how this situation works. This often does not happen, especially due to financial considerations. If only one lawyer is used, care has to be taken as to the variations and decisions to be made.

While there is no guarantee of success, utilizing proper agreements and procedures are essential to achieve progress in the music business. As they say, this is a business and you need to run and treat it as such.

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