[Editors Note: This is a guest blog written by Justin M. Jacobson, Esq. Read Part 1 of this series 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 now continue our examination of some of standard clauses contained in the music publishing company’s exclusive agreement with a songwriter.
Below is another clause included in a major publishing agreement.
ROYALTIES – Provided that Publisher has recouped any and all monies payable to Writer under this Agreement, Publisher shall pay to Writer the following royalties with respect to the exploitation of the Compositions:
(a) Mechanical Income – fifty percent (50%) of Publisher’s Net Receipts derived from the license of the Compositions.
(b) Synchronization Income – fifty percent (50%) of Publisher’s Net Receipts derived from the license of the Compositions for use in commercials and synchronized in audiovisual works.
(c) Print Income – fifty percent (50%) of Publisher’s Net Receipts derived from the licensing of the right to print, publish or sell printed editions or other printed reproductions of the Compositions.
As the paragraph heading states, the above language describes the royalty rate that the writer earns. It is important to note, similar to most agreements in the music industry; the music publisher must first recoup “any and all monies” already paid to the writer, such as advances or other costs or expenses incurred on behalf of the songwriter, prior to the songwriter earning any of the above listed royalties. This means that until the writer’s account is balanced, they will receive no additional funds from the publisher.
However, once the songwriter recoups the outstanding balance, they will begin to earn royalties based on the above listed percentages. For instance under the above language, the writer is entitled to fifty percent (50%) of the “mechanical income” (CDs, Downloads), fifty percent (50%) of the “synch income” (song used in motion picture or television show), and fifty percent (50%) of the print income (printed or digital sheet music).
The listed percentages are fairly standard and are applicable to most exclusive publishing deals. Nevertheless, it is prudent to at least attempt to negotiate for higher percentages or better provisions; ultimately, the publisher may not agree to any increase.
Writer warrants he is a writer member and publishing member in good standing of ASCAP, BMI or SESAC. In the event that Writer is in breach of Writer’s warranty of being a member in good standing of ASCAP, BMI or SESAC, Writer hereby warrants he will become a member in good standing of ASCAP, BMI or SESAC.
In addition to the above listed clauses, most standard publishing deals require the songwriter to be a member in good standing with their respective country’s P.R.O. This is typically due to the publisher requiring the P.R.O.’s assistance in collecting the public performance royalties due for the licensing of compositions. If a writer is not in good standing or is not a member of a P.R.O. at all, it could potentially cause issues in the publisher receiving payments, which they want to avoid. The above language helps obviate the issue by requiring that the songwriter warrant they are in good standing with their P.R.O. and will stay as such.
OPTION TO PURCHASE – In the event that Writer desires to grant, sell, license or otherwise transfer any right, title or interest in or to any of the Compositions, for a period of thirty (30) days, Writer hereby agrees to negotiate in good faith exclusively with Publisher, and to exert best efforts to reach an agreement with Publisher for Publisher’s acquisition of such rights in and to the Compositions. In the event that Publisher and Writer fail to finalize the terms of such agreement by the end of the thirty (30) day period, then Writer shall thereafter be free to negotiate with any third party for the sale, license or other transfer of such rights, but only on terms and conditions that are no less favorable to Writer than those last offered by Publisher. Furthermore, if Writer receives an offer from a third-party at any time (the “Third Party Offer”) to purchase all or any portion of Writer’s interest in the Compositions, or any one of them, and Writer desires to sell such interest, Writer agrees to first offer in writing to sell such interest to Publisher (the “First Offer”).
The First Offer must specify all of the terms and conditions of the Third Party Offer. In the event Publisher does not agree to match the First Offer within fifteen (15) days after Publisher’s receipt thereof, then Writer will have the right to accept the Third Party Offer. However, any sale to such third party must be consummated upon terms no less favorable to Publisher as those contained in the First Offer. If such sale is not so consummated, Writer will not sell all or any portion of Writer’s interest in the Composition(s) or any one of them without again offering such interest to Publisher as provided hereinabove.
One way a publishing company ensures that they can potentially retain rights to lucrative materials after the expiration of the agreement is through a right of first refusal or a “matching right.” As described above, a right of first refusal provides the publishing company with the option to purchase a composition and/or all of the compositions, if the writer is attempting to sell the rights to the material. This language provides the publisher with a proscribed time period (30 days) where the writer must present any third-party offer they receive for the material to the original publisher.
The publisher then has a specified time period (15 days) to either match the third-party offer or to pass. If the publisher matches the offer, then a deal will be finalized on those terms; however, if the publisher fails to match the third-party offer, the writer is free to enter into a new arrangement with the third-party on the same terms as those presented to the original publisher. The above specific language requires that the deal must be consummated no later than a specified period of time (15 days). If the deal with the third-party is not finalized by the end of this time period, the original publisher has an additional opportunity to purchase the composition(s) for the same terms as those offered by the third-party to the writer.
Since “publishing” money is one of the most lucrative and consistent streams of income in the music business and music publishers are the top facilitators of licensing in this space, it is prudent to fully understand how they function and the best way to approach them. Overall, most standard deals are negotiable and should be viewed as so.
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.
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