Law School Outline- Entertainment Law

Entertainment Law Introduction to the Music Industry Tangible means of expression: when you have an original idea and fix it in a tangible means of expression then the artist now has a copyright within it. Notice that you do not get a copyright in an idea. For the class look to see if the person would have a copyright after performing whatever act is in the question. In the music business there are 4 means of income: 1) Publishing 2) Recording/ Record Sales 3) Touring 4) Merchandise. Copyrights Basic concepts- when you own a copyright you own the properties –not limited to any rent amounts you can charge what the market will bear. Definition- the legal definition-―a limited duration monopoly‖ purpose as in the constitution is to promote the progress of science and useful arts by giving the creators exclusive rights to their works for a while. What is copyrightable? 1-the work has to be original and 2-of sufficient materiality to constitute a work. How to get a copyright? US copyright Law- as soon as you make a tangible copy of something of an original expression, you have a copyright. (musical composition- written down or recorded-makes it tangible) Exclusive Copyrights: 1) reproduce the work 2) distribute copies of the work 3) perform the work publicly 4) make a derivative work 6) display the work publicly. §201-CR Act- joint work- either of the authors can deal non exclusively with the entire composition. –but they have to pay the other their share of the proceeds. Joint Work- law- to have a joint work need only an author who intends at the time of creation to merge work w/another, not even a specific other person- intent! Shapiro Berstein v Vogel-a wrote music, b wrote lyrics (which sucked) so c wrote new lyrics. The ct said that this was a joint work b/c a had intent to merge lyrics with a‘s music. So a, b, and c all had an interest in the music. Remedies for copyright infringement: 1-fair market value of the use they made of your work. 2-recover the infringer‘s profits. 3-get an injunction. 4-recover statutory damages. copyright original- where you cant prove actual damages.-willful vs innocent infringement. 5-ct can order destruction or seizure of infringing copies. 6-if willful- criminal penalties. 7-get ct costs. MP3 issues: Diamond Rio Case-result is similar to that in Sony Corp v Universal-Betamax case: holding that ―timeshifting‖ was a primary and legitimate reason why people use VCRs. The devices were not per se instruments of copyright infringement. Handheld rioport was not a digital recording device within the definition of the Audio Home recording Act of 1992-it copied from a computer not from a recording –statute intended to exclude computers. MP3 –rio-downloading okay b/c it is consistent with the act b/c consumers downloading for their personal non commercial use. Home Taping Exception- protects all non commercial copying by consumers Fair Use 1)purpose and character of the use –commercial, non profit, educational? 2) nature of the copyrighted work 3) Amount and substantiality of the portion used in relation to the copyrighted work as a whole; and 4) The effect of the use upon the potential market for or value of the copyrighted work Other relevant factors that may be considered since Fair Use is an ―equitable rule of reason‖ Also other affirmative defenses: 1)copyright misuse 2)abandonment 3)estopple 4)unclean hands Concluding Copyright and Copyright Infringement Whose rights have to be Bought out? 1) the record company owning the sampled recording 2) the publisher of the sampled musical composition. Beastie Boys Case- they paid 1k (the license fee) to use a sound recording. They bought the rights and this allowed them to use it as much as they wanted. But these don‘t really happen anymore. Why? b/c the record companies and others wanted to get paid for the use. Record companies own the copyright to sound recordings. So if you want to use them you have to go to the record company to get a license. They usually are 8-10cents per sale to use sound recording usually paid in advance for a set fee, for so many copies, etc…. This is also done usually in advance so – if a license is 10cents and project the song to sell 100k copies then the record company wants 10cents *100k (copies) in advance. Then if it sells 200k the record company gets another 10k, this amount is known as a ‗set-off‘. But if the song only sells 50k and the artists paid 10k (b/c they expected to sell 100k), they loose their 5k. –on the other side-have to have the music publisher who owns and administers the rights to music compositions. The difference b/n a sample and a cover- a cover is just re-doing an old song. Whereas a sample is lifting someone else‘s work and putting it onto a new one. 2 Doctrines: 1) 1st Use Doctrine: copyright law- once a work has been recorded the publisher who owns the copyright to the underlying musical composition-is reqd to license the work to anyone who wants a license to it . This is a ‗Compulsory License‘. Meaning that they must grant a license to anyone who wants to record it. but they have to pay for it, though the rates are prescribed by statute-9.1cents. Is it copyright infringement?- quantitative and qualitative test. 2) 1st Sale Doctrine: this allows you to re-sale text books, CDs after you used them. If you are the owner of a lawfully made copy of a work you can without the authority of the copyright owner sell or dispose of it. why? b/c you acquired it on the 1st sale. This doctrine s also what allows places like Blockbuster to exist. Grand Upright Music Ltd v Warner Bros Records, SDNY 1991 The sales of the album were enjoined –they pulled them off the shelves. The judge here says thou shall not steal and the judge suggests that they should be criminally prosecuted. This decision changed the way that sampling was done. Since the judged referred this case for criminal prosecution and all realized that they had to get a license under the copyright Act (which has criminal penalties and fines in it) Newton v Diamond-9th 2003- this is the Beastie Boys- fair use. The Issue: whether sampling requires a license to use the sound recording and the underlying musical composition embodied thereon. They used 3 notes. This case goes thru 3 issues though the sample was a 6 second and 3 note sample segment of the π‘s performance of his original composition. The Δ‘s got a license for the sound recording but not the musical composition. In the dist ct there was a summary judgment in favor of the Beastie Boys, the Δ‘s for 3 reasons: 1) the 3 note segment ―lacked the requisite originality‖ to be copyrightable. –even if it were sufficiently original to be copyrightable they would still rule in favor of the Beastie Boys b/c the use was ―de minimus‖. The 9th on the de minimus analysis said : A) the Copying must not be substantial and B) Copying –the use is de minimus if an average audience wouldn‘t recognize the appropriation. The sound recording use was authorized and we have to be able to separate what you are hearing (the sound recording) from the sheet music (the musical composition). There is nothing unique in the composition that says that it has to be played exactly the way that the π, Newton did it. it only mentioned the tempo. And did mention in a 4 ½ song –a call for improvement, they say that if Newton would‘ve finished writing it he would‘ve written into the music the Newton technique – he would have won then, but he didn‘t. so after recording the musical composition, the artist should go back and then put it on sheet music so they can get protection for it in the composition, not just the sound recording. So step back-the big picture from the story is are you reaping what you didn‘t sow? The point is whether or not the Beastie Boys, the Δ‘s, used a substantial portion of the original. The ct concluded on the 1) qualitative- no (but the dissent says yes and points to the fact that Beetheoven‘s 5th is only 4 notes). 2) quantitatively-no also. Bridgeport Music Inc v Westbound Records, Inc- 5th 2004- this involves George Clinton‘s song, ―get off your ass and jam‖ where it was used in a 4 second clip in a movie called ―I Got tha Hook-Up‖. The district ct granted summary judgment for the Δ‘s. this was a 3 note 4 second sampling of Clinton, the π‘s beats (sound recordings) as embodied on the recording, but not the musical composition. The main issue: Westbound –the owner of the copyright of the sound recording of ―get off your ass and jam‖ was suing Bridgeport –and the beats-the sound was looped and extended to 16 beats on the film. No Limit, the Δ‘s argued that the sample was not protected b/c it was not original. The sample was also de minimus so it was therefore not actionable under copyright law and the district ct said that the copyrightable portion of the song –then it went thru a de minimus and fragmented test. Westbound appeals to the 5th- they claim that the Δ‘s cant lift part of a whole w/out lifting the whole. They also do not like the de minimus test for sound recordings and say that this is Westbound‘s sound recording and they lifted it. they are saying that this is their work and the ct agreed with Westbound. **The Analysis that is appropriate for Music Composition copyright Infringement isn’t the same as that for a sound recording copyright infringement. No one has said this before b/c the copyright cases usually got settled. The district ct tracked the analysis where the musical composition is at issue and they say that they depart from that and they talk of the balance that Congress was trying to strike- they were trying to protect against the original recording –not replays though. You can prevent someone from using the original, that is that you cant sample or lift part of it, since you cant pirate the whole thing. **The 5th is saying that this IS the Bright Line Test: if you cant lift the whole thing then you cant lift a portion of it. Sampling is now treated with the utmost care and respect. Record companies wont release a record without assurances that any samples on it have been cleared and the artist should want the same! Clearing samples is a major pain: why? b/c there is nothing in the law that requires anyone to let someone use a sample and thus the record company or the publisher is free to make the artist pull it off their record. also cant clear the sample until the track is finished. This is b/c the publisher and the company want to hear exactly how the sample is being used before they will say how much they want to charge for the use. If there is no buyout the record company will want an advance against a royalty which is usually in pennies and payable on worldwide sales. The range is about 8-10cents. Sometimes the fee is a ―Rolling payment‖-a flat amount based on a certain number of sales. (Pay for 1st 100k copies, then pay for next 100k, etc…) Publishers almost always insist on owning a piece of the songwriting/publishing. The %age varies with how significant the sample is in the work, and it is settled after the publisher listens to the song and negotiates the deal. Ex: if lift an entire melody line, or their track is the bed of the song- publisher might get 50% or more. For less significant uses- 10-20%. With multiple samples-1 song-3samples-pubx wants 40%, puby-40% and pubz-30%=s 110% so the artist will make no money and pay 10% out of their pocket. Sometimes limit sample use to artists‘ records and promo videos. Also pubs might co-administer their portion of the composition (they have the right to stop the artist from granting a particular license, like for TV or a movie for example.) So when an artist samples they can lose control of their own song. Sound Recording Copyrights- Rights for sound recordings Before 1972-no copyright protection for a sound recording itself. Sound recording- physical sound recording not the musical composition. What happened? The age of the Lawful Duplicators: b/4 1972- nothing in the US copyright law made it illegal to duplicate a master recording. (other that permission was reqd from the owner of the musical composition who was almost never the owner of the sound recording). Anyone could make a recording of something in public domain and manufacture records from it without any permission and more importantly without paying the artist or the record company who invested the $ to create the recording. This is assuming that the composition would have to be licensed from the publisher and that there is no trademark infringement. Avoiding the Wrath of Publishers- Pirating music in the early days How did pirates get around infringing the copyright in the songs? pirates went to the publishers asking for the mechanical licenses for their unauth duplications and when they were turned down they got a ‗compulsory license‘ and proceeded to pay the publisher. The pirates slipped thru a loophole in the copyright law and this blossomed into a multi-million dollar industry at the expense of the artists and the cos. Anti Piracy Legislation 1972 gave sound recording right no more pirating by just paying the publisher, and omitting trademarks. CR law amended to stop the piracy. 1972-CR provision was enacted dealing with piracy (now §114 of the copyright act)-prohibiting the unauth duplication or dubbing of the sound recording itself, by creating a copyright in the actual recording. This is in addition to a separate copyright in the musical composition –called a sound recording copyright. –what the sound recording copyright didn‘t protect: 1)cant duplicate records without consent-the sound recording copyright does not prohibit a sound alike recording regardless of how closely it duplicates the original. So there is nothing in the sound recording ct that stops an artist or other from 1-hiring a singer to imitate the original, 2-or hiring a band that sounds like the original. –regardless of how close it comes to the original. But the artist Must license the song and they must disclose that the recording is not the original. –if the artist des not lable the work as an imitation there is clear violations of trademark and unfair practices acts which deal with the proper labeling of goods. And thus stops the artist from defrauding the public into thinking that they are getting the original when they are not! Copyright Notice: The copyright notice itself –the © -is followed by the year of the copyright –which was the yr that the work was 1st fixed in tangible form. copyright notice is much less significant under the 1976 copyright law than under the old law. Under the old law the artist could lose the copyright for failure to fix a notice. Know these things: 1) in music the copyright notice is significant primarily for printed music. b/c the law only requires notices on ―visibly perceptible copies‖ –so since you cant see a song by looking at a CD there is no need to put a copyright on it 2) so why copyright notices on albums? a)sometimes the lyrics are printed inside and since this deems them ‗visibly perceptible‘ you need a copyright notice. b)there is a copyright in the album cover artwork and c)there is the sound recording copyright notice Registration and Deposit Myth-only can get a copyright by sending –fixing the work in a tangible form and nothing more. The act of registration gives the artist remedies otherwise not available. So always register your work if you ever intend to commercialize your work.-but the failure to register does not affect the validity of the artists‘ copyrighted work and if they are a beginning songwriter it probably isn‘t worth the cost until someone bites! -the old trick of mailing the work yourself really does work. –it doesn‘t secure a copyright but does demonstrate the date which the wk was established as the date of creation. So if an artist uses this method-1-send it certified, and 2-only open it in ct or allow the ct to open it to prove your case—plus this is untampered evidence. Penalties for Failure to register If the artist‘s work is being exploited commercially (recorded on records, films, commercials, etc) the artist should register with the copyright office-if not the penalties apply: 1-cant collect for compulsory license royalties 2-cant file for an infringement action to recover damages or to stop another from using your copyright. You can wait and register b/4 the artist files an action-but it is a better idea to register b/4 you have knowledge of a recording. 3-if don‘t register w/in 5 yrs of the publication the artist looses the presumption that everything in the registration is valid. So if the artist registers within 5 yrs the ct will assume that it is valid and the infringer has the burden of proof to show that it is not. If the artist fails to register they have the burden of proof to show that the infringer violated their right. 4-you cant recover attorney fees nor statutory damages. Deposits: Another and separate reqmt from registration is the obligation to deposit copies of the artists‘ work within 3 months of publication. If not- no loss of copyright but there are penalties and fines. Can deposit in the library of congress- its full of copies of tapes, cds, or sheet music. Publicity Right of Publicity Definition: right of publicity-the right of each individual to control and profit from the commercial value of their own identity, or likeness. It protects unauthorized commercial exploitation of a celeb‘s actual or legal name, likeness, and other aspects of identity. Rational for the right of publicity-the protection of a celeb‘s proprietary interest in the development of a marketable image. The rights of publicity serve social interests by guarding against unjust enrichment and promote creativity by offering financial incentive to those choosing to cultivate a unique persona. Some jurisdictions require the celeb to have exploited the rights of publicity during their lifetime others don‘t. different approaches in jurisdictions- statutory provisions and cl relief. Another issue: whether rights of publicity survive the death of the celebrity. It differs by state, California is the place where you don‘t want to pick on dead artists. Defenses to right of privacy- available when subjects are public figures or a matter is newsworthy and in addition to media are permitted to utilize materials which might in other contexts violate rights of publicity where the use is designed to promote circulation. Congressional Enactments: §43a of the Lanham Act and other provisions of the federal trademark act have provided a nationwide remedy which in many instances is easier to achieve than relief under the state right of publicity. In statutes and cl doctrines the media is also afforded considerable latitude. Recording Agreements Introduction The World of Record deals and how they happen. –How music gets from garage to grammy. Distribution: •Artist  Record Co. (if you think of music as a product it goes from the artist to the record co) then •Record Co.  Manufacturing Plant (which is usually owned by record co.) •Mfrg. Plant  Distributor •Distributor  Retail---the basic model is that there is Big $ in distribution. Ex- Handleman in Detroit-1.3 billion in revenue last year. •Retail  Consumer Record Deals – Distribution •Distributor – the wholesaler that sells records to stores. –Purchases product (records) from manufacturer (record company) at wholesale prices for resale (and profit) to retail outlets. There are Four Main types of distribution entities: 1) Wholesale Distribution Entities; 2) Mini-Majors; 3) Major Distributed Independent; 4) True Independent. 1) Wholesale Distribution Entities-this is the Major means of distributing records: major distribution companies (5) (see below) Meet the Big Five Distributors: 1)BMG Distribution (includes Arista, BMG Heritage, J Records, Jive/Zomba, RCA, Wind-Up Entertainment) 2)EMI Distribution (includes Blue Note, Capitol (Apple), Capitol Nashville, 20 Christian labels, EMI Latin, Virgin) 3)SONY Distribution (includes Columbia Nashville, Columbia Records Group (Columbia, So So Def), Epic, Sony Classical) 4)WEA Corp. (Atlantic (Nonesuch), Curb, Casey Kasem Presents, Elektra, Rhino, Time/Life, Warner Bros.) 5)Universal Music & Video Distribution (massive, includes Dreamworks, Lyric Street, Interscope/Geffen/A&M, Island Def Jam Music Group (6 labels and sub-labels under it, including Def Jam and Murder, Inc.) Lost Highway, MCA Nashville, Doggy Style, Mercury Nashville, Decca, Deutsche Grammophon, Philips, Motown, Polydor, Universal Music Latino, Verve, Walt Disney) **Universal is the biggest of the distributors but now that Sony and BMG are now together – these 3 comprise 2/3 of the music industry in the US. 2) Passman‘s ―mini-majors‖-these are fully staffed distribution companiess that do all but distribute to the stores. There is a lot of bookkeeping and accounting that goes along with distribution. These minis sign a deal with a major distributor to get their product out of the door. 3) Major-distributed independent-they sign with a major. 2 or 3 people get together and make a record company –then they sign 1 person and then sign with a major who takes the product to market. 4) True independent- this is a record company that is owned by investors and have their own means of distribution. Ex: Curb Records- this company was created and funded by Curb, in Nashville but Curb Records has a staff of only 15 people. Where Sony has a staff of 5k. and Curb has no distribution company or distribution capability so they enter into a distribution deal with WEA to get their product into market. Other Wholesalers: these are 4 of the more well known: 1) Bayside-they are wholesale and independent 2) Caroline Distribution-they are an independent but they are tied to Sony 3) KOCH Entertainment Distribution 4) RED Record Deals -- Distribution •Four types: a.) Wholesale Distribution Entities b.) One-Stops •Buy in quantities too small for the majors to mess with; sell in smaller quantities to ―Mom and Pop‖ record stores. They are a Dying breed b/c small record shops are declining. c.) Rack Jobbers-they are completely in charge of the music in these major stores. They Lease floor space from big box stores (e.g. Wal-Mart, Best Buy, Target) and put in racks of records. d.) Licensees –they license the master from a record company for a fee then they make their own record or collection and market it. •Actually manufacture and distribute records –E.g. Record clubs, TV packages, Foreign distribution of U.S. recordings. •Other types of distributors 5) Direct mail 6) Armed forces post exchanges-here the price is less so the artist gets less. 7) Sales to schools and libraries 8) Digital distribution via the Internet Which type you use if you are an artist dramatically affects your income! Ex: record clubs aren‘t good for $ but maybe they are good for exposure. Terms-Vocabulary: (some recording definitions) Masters- 2 definitions: 1) the original recording that is made in a studio. This is where the editor‘s listen to different takes-did vocals 4 times and we like the 1st 2 lines vs. 1 take 1 etc. with a computer they can take parts from different takes to make one vocal tracking. The Tuner shows the artist how close that they are to the pitch. Some artists need 2 or 3 times –this is a nice way of saying that they sing off key. The master is reduced from 48 or less tracks to a 2 track master 2) 2 track master this is usually digital and is what gets delivered to the record co. after editing (the above process) you then have to ‗mix‘ it. Mixing- this is the process of making sure that the master is doing what you want it to. mixers make a lot of money. EQing- equalizing- this is to make sure that the bass, mid-line, treble etc are balanced. Mastering- this is the final process that happens to recorded music. (b/4 it goes to radio or is ready for release). Royalties: SRLP-Suggested Retail List Price- this is the price at which the record company suggests that the album should be sold at retail. **this is important b/c all recording ks base the artists‘ royalty as a % against the SRLP. Packaging DeductionHow much sense does this make in the age of CDs? Now record companies just say that this is a part of their business model, and the marketing and the promotion –which all go under the ‗packaging deduction‘. But the Argument is: the artist wants to know how much they (the co) will spend on marketing and promotion. So then they get a ―Royalty Base‖: this is where the ―Royalty Rate‖ gets applied. Ex: hip hop/rap/urban music gets a lower royalty rate—But there is no reason for this. All –In: this means that the producer gets paid out of the artists‘ Royalty rate. The std producer fee is 3% of the royalty Base and this comes off of the artists‘ %age. Other Deductions: Sometimes the packaging deduction gets reduced if the artist goes ‗Gold‘ b/c the company has recouped their costs. “Free Goods‖- the std deduction for these is 15% -this is bogus and it is also non-negotiable. It was b/4 to promote records and the company would give out some free CDs. Language says royalties paid on only royalty bearing units. (they only pay the artist for CDs sold) “Special Free Goods‖ (Phony Free-Goods)- this is traditionally 10% - For ‗special free-goods‘you might to be able to negotiate away if you have bargaining power. usually the 1st contract for a new band will have this but if an artist goes ―Platinum‖Term for sound recording artistsThe std recording industry contract –b/4 7 albums-and the album cycle is 18 mos-so this totals to 12 yrs. Today it is in the artists‘ best interest to lower them to 5yrs. Some really successful artists can lower it to 2 or 3 yrs. Reasoning behind harsh contractual termsThe record companies argument is that every yr 3 thousand records are released-fewer than 100 of these sell more than 50k and many sell less than 10k. At the time of the initial contract the bargaining is so unfair to the artist, and the winners subsidize the losers. ReservesBecause records are sold on 100% return privilege, the record company will hold reserves for the product before the royalties are disbursed to account for the possibility of returns. Advances- this is revenue that the company paid to an artist in anticipation of future earnings. This is not a loan, it is not repayable if the artist tanks. Before rock groups could get 200k-300k in advances and what they didn‘t spend on recording they kept. Now closer budgets are the norm in the industry. Recoupment- how the record company gets their advance $ back. The record company receives and keeps royalties earned until the advance is paid off. So w/ a 300k advance and the gross revenue is 200k, then the artist is 100k unrecouped and doesn‘t have to pay this back to the co. but if the earnings are 400k and they got a 300k advance then the company gets their 300k back and 100k goes to the artist. The record contracts state that the artists get paid 2 times a yr –once on September 30th and on March 31st. this is 90 days after the 1st or 2nd -1/2 of the yr. so 1/1 to 6/30-90 days to compute the amount to artist from sales in the 1st 6 mos-based on the contract. If the artist in the 1st 6mos is unrecouped then- no check get statement saying the amount is unrecouped or an amount in brackets. What does this mean as an artists‘ representative? When you sign them you have to make them understand that it may be 18mos before they see any money and there is also the reality that most artists don‘t ever get recouped and get dropped from the co. What do you do as a record company to protect loss from the returns? Reserves- (against returns)- the companies put into the contracts ‗notwithstandng‘ everything that they will pay—the company will keep 35% of the royalties for (up to) 2 yrs to protect against returns. So with this the royalty gets reduced even more and then after 2 yrs the returns will get liquidated n 6 month cycles. Breakage- 10% deduction for breakage, which does not happen anymore but charged anyway. Superstars can get this out of the contract. The royalty statement- the mgr and the business mgrs have made mistakes not to show the attys the statements b/c they generally don‘t understand the nature of the attys work. all 3 should read this document. It is the business mgr‘s responsibility to make sure that the accounting is accurate. the atty makes sure that the artists are getting paid right. Cross Collateralization- the ability of the recording company to recoup advances from an earlier recording by taking the royalties payable on a later recording. **Never let them cross-collateralize a publishing deal with a recording deal.—the difference- a publishing deal- this is the exploitation of the musical composition. This means that the song writers will subsidize the recording artist –the company will give up on this easily. Why? This is b/c they are different. What controls the success of a song s different than what makes an album successful. Slide #9---Artist gets royalty on 14% on SRLP Notwithstanding the foregoing—reduce SRLP by 25% for packaging deduction –which isn‘t defined until the back pgs of the contract b/c the company buries it. then all in-3%- so then the artist only gets 11% of SRLP. Then only 90% of net sales /c of breakage and free goods of 15% special free goods of 10% and reserves of 35%--so then if the artist goes Gold—Turn into a whole chart Payola- this was paying radio stations in cocaine, hash, weed, and prostitutes to get their song played. It is illegal so they created the independent promoter to do this for them. Effective Royalty Rate- how much they get for a cd sale. Penny rate –this is the bottom line. So if an artist ends up getting 55cents a CD –this is grossthen they have to pay 15% to the mgr, 10% to the atty, and the business mgr gets 3-5%. As recording artists –they make it by 1) making it Huge! So when they make it to this status – renegotiate the k! 10% breakage goes- and the artist also wants to make the company show where the $ for the 10% they are charged for the ‗special free goods‘. 2) touring- artists keeps it all. Even if the record company gives them a recoupable advance for tours. Part II Record Deals USNRC-US Normal Retail Channels- contracts usually contain the royalties in §7. For Singles-75% of the LP rate, so this is 75% reduction of royalty (from previous discussion). You need too know the single rate to understand the MP3 rate-in ks, §7.02-‗with respect to CDs….or other new audio….‖ The artists have a 14% royalty rate for a single based on 75%. CDs were introduced in 1984 on the mass market –but up until 2000 the ―Big 5‖ companies considered CDs as ‗new technology‘. MP3-Single Sales- 99cents per download-still charged a packaging deduction despite the fact it does not cost anything to produce the CD. And also there are still other deductions and they only get the royalty on ‗royalty bearing units‘. The evolving definitions of new technologies: so an artists only gets 5cents per 99cent MP3 download. *The pressure point for successful artists is ‗special free goods‘- they may be able to get them reduced. The more that record companies try to keep the artists happy by providing planes, etc. and when the band gets more successful they can negotiate a lower %age for the special free goods stuff. –they can negotiate the 35% reserves on digital downloads. Why? b/c this makes no sense for digital downloads! After all of the deductions –only 2 cents per 99 cent MP3 downloads that the artist gets. This is 2cents on actual liquidated earnings. Music Videos- 100% of the costs involved in making the videos are advances. ‗notw/stdg‘ 50% of such costs……hereunder, …This means if the video sells (which most never do) and generates its own independent stream of revenue, ½ of the costs for the video are paid back from the royalties. What do these Companies Do? 1) Bankroll artists: so they want a return on their investment b/c 9 out of 10 fail. 2) They have connections w/other parts of the entertainment world. Lately the industry has gone thru a loss of revenue! But the music industry goes thru cycles! Formulas for Advances: SLIDES LP 1----------100k-----(advance) LP 2 the advance amount is the contract may be increased LP 3 in the contract after LP 1 –but it doesn‘t make sense LP 4 if LP 1 goes multi-platinum. LP 5 So frequently…..LP 2 the range of the advance is 150k-300k but it is still an insult if the advance is this much for LP 2 and the company made 30 million on LP 1. So they should try to tie the advance formulas on LP (album) sales. Ex: LP 1 sales up to 499k-Gold get x amount. If the album goes from Gold to Platinum get 2 times the rate. Escalation Clauses: these are similar but they are based on royalty rates –you can negotiate these clauses, even if the artists not have much bargaining power! Ex: LP 1 -14% so get this amount to Gold. But if the album goes from Gold to Platinum-the artist gets 14.5%, so then the rate starts for LP 2 at 14.5%. Recoupable advance-Tour Support-not recoupable against touring revenue but applied against royalty revenue. Pay or Play provisions- If they don‘t release the album they have to pay the artists a sum of $...so pay us x amt then let us go (from the k). Most record deals don‘t require the company to even make a record. almost all ks contain a provision, whereby the co, instead of recording the album, they can merely pay the artist a sum of $ equal to (in the 1st draft of their agreement) min Union Scale for an album, or (after negotiating) the difference b/n the recording fund and the cost of the last album, (which would be the amount the artist would normally get to put in their pocket…). The record company according to this pay-or-play provision has the option to either allow the artist to ‗play their music‘, or ‗pay the artist off‘. If they pay the artist off the artist should then make sure that their deal w/the company is over, and without making sure it is over, the company in theory could hold the artist without making records. Part III Chapter 10: Other Major Deal Points How much? And How long? How much (not meaning royalties and advances, but rather the number of albums that an artist has to record). How Long –has taken a strange twist over the yrs. Options: deals are usually structured with the company having the ability to get as much product as possible with having the smallest obligation to negotiate. Firm albums: ones that the company is committed to recording. Optional/Option albums: the other ones that the company in the contract can require from the artists.- companies can also commit to 2-3 masters and that they‘ll release as singles b/4 deciding to go forward with an album. (here the company has the option to acquire the rest of the album, then options to continue for an additional 4-6 albums) Options in new Artist Deals: company usually would like to commit to only 1 album. But insist on the right to acquire 5-7 over the course of the deal. (b/4 they wanted 8-10). Optional albums may be 1 at a time for the 2nd and 3rd but after that the contract should make the company take 2 at a time or else let the artist go-allowing the company to opt out. Another trend, companies committing to 2 albums at the beginning of the deal –Two Firm, but then also giving the company the right to bail out if the 1st album tanks. (these albums are newly recorded studio albums that the artist will have to deliver, not including live or greatest hits albums). Farm Teams: in the music industry they are ‗demo deals‘ (also called development deals). Under these deals the company gives an artist some $ to go to a studio and record demos. (demodemonstration recording-which is less than a full master, but gives the company what the artist will sound like on a professional record. then the company listens to the demo and decides whether or not to sign the artist-deals are then like those for new artists). Options in Mid-range & Superstar deals: midrange or one in a bidding war- the company typically commits to 2 albums Firm, and gets an additional option for 1 or 2 albums each. Usually company gets the right to 4 albums and 5 is the norm. Superstar- deals of only 3 albums are possible but the norm is 4 with 2 or 3 being Firm. Options are Not Good for the Artist!: why? b/c if the artist is a flop they will never see the money. If they are a success its probably less than the artist is worth. Making the Best of Options: all artists (excluding superstars) have to live with them. But since they give the company the right to drop the artist after each album or 2 if they suck, the artist should be entitled to more if the company keeps them. This can be done in 2 different ways: 1) Royalties and 2) Funds. 1) Royalties: for optional albums, the artist should get increased royalties. Usually an increase of .5-1.0%, both in the basic rate and in any escalated rates. So under an example, if any album achieved an escalation, the next album would start at the escalated level. 2) Funds: the artist should get increased recording funds for optional albums. How Long? . Olivia Newton-John case: she argued that her deal should be limited to the actual number of yrs stated in the k, w/out regard to any extensions. Her contract was for a 2-yr term w/3 1yr options=5yrs, she argued that MCA could not enforce the deal beyond 5 yrs from the start date, even though she did not give them all of the product due. The ct sort of agreed. The ct reduced the duration of MCA‘s injunction (which said she couldn‘t record for anyone else for the 5yrs), rather than allowing any extensions. But b/c the 5yrs were not over the ct did not deal with the issue in full. Now- terms of record deals are not stated in specific time periods, but rather the ks state that each time period ends 6-9 months after delivery of the last album reqd for that period and can be no less than a specified time period (like 18 mos). So if the artist has to make 2 albums, the period might start upon the signing of the deal and end 6 mos after the delivery of the 2nd –but no sooner than 18 mos after signing. –this language solves the Olivia problem, but companies had to add additional provisions to deal with other historical cases and issues. Dean Martin v. Warner Bros case: 1970 D signed an agreement with the company (normal today- the term continued until the delivery of all of the albums). About 6yrs later- D announced he was about to start recording for a new album, though his stardom had diminished. Warner tried to find a way out and D sued them. Though the case was settled, companies were thought that the contracts should not be geared only to the delivery of albums, b/c this would allow them to go on forever. Now- provisions that state that if an artist has not delivered an album within a certain period of time after the delivery of the previous album (usually 9-18 mos depending on bargaining power), the company can get out of the deal. Frank Zappa v Warner Bros case: FZ showed up with 4 albums one day, stating that he was delivering all of the remaining product required under his deal, thus making him free to sign elsewhere. Now: This lesson is now handled in the contract, stating that the artist can not begin the recording of an LP until the prior album has been delivered, and that the new album can not be delivered sooner than 6 months after the delivery of the prior album. Co‘s have a legitimate point in saying that they do not have to take more than 1 album at a time b/c a) they cant reasonably market more than one album at a time; and b) if they put an album on the shelf for later release, it may not be in touch w/the trends in the music business at the time of release. Mega Deals: Background: what happens when an artist reaches super-stardom? Companies take options for new artists for up to 8 albums, this coupled with the more successful an artist is, the time for a new album (to fulfill the commitment) takes longer. Also, most new-artist deals have low royalties and low advances and as soon as the artist has any success, they show up at the company‘s door asking for more $ on royalties and advances. What does the company want? More albums from the artist. So companies end up extending their deals and artists rarely get in a position to change the companies (although their deals can improve). This explains why most artists end up spending their entire career at one co. –but when artists do get free, and if they are important at the time, they can set new benchmarks in the industry. The Deals: what makes a deal ‗mega‘? 1) advances- in the multi-million $ range. At this level the deal becomes a banking transaction (the company makes a guess at what the artist will sell and then computes their potential profit against the risk). 2) royalty-superstar‘s royalty are usually 20% over retail. 3) product- amt of product here has 2 aspects: a) there will be many more Firm albums, at least 3 or 4 with maybe only 1 option, which is normally for more than 1 album-for ex, 2 or 3 Firm. b) total amount of product tends to be less. –less applicable to a superstar who owes a lot of product to the existing co. but if the deal is with a new company –or if there are only a few albums left, the company will get fewer albums than a normal deal. Different risks when moving to new company without catalog to cross collateralize from: The Hype: what is in the press isn‘t always reality. Also a distinction b/n an artist who is resigning with their record company and an artist who is signing w/a new co. re-signing- the company has its entire catalog of old product from which it can hedge its bet against the future, and if the deals are Cross-Collateralized, and often are so that the artist can push up the advances, the companies risk is substantially different from the risk of a new company that has no catalog against which to get back its $. Delivery Requirements Besides the # of recordings, contracts also talk of the Kind of recordings an artist can deliver. Delivery is a magic word, meaning that the company has to accept the recordings as complying with the artists‘ deal, and the contract will specify the stds that the company can use in deciding whether to accept the recordings. What the stds are depends on the artists‘ bargaining power. the extremes are: Commercially Satisfactory: if the contract says that the artist must deliver ‗commercially satisfactory‘ recordings, then the company only has to take recordings it believes will sell –those it finds satisfactory for ‗commercial exploitation‘ –those it likes. If the contract has this language and the artist gives the company recordings that they do not like, then a) at best, they send the artist back to the studio at the artists‘ expense; or b) at worst, they take the position that the artist has not delivered an album that as reqd by the deal, and thus is late so the company can terminate the k. OR Technically Satisfactory: if the artist only has to deliver these then as long as a recording is ‗technically well-made‘ then the company has to take it. Technically Satisfactory is very rare today b/c of prior abuses. *newer artists- get commercially satisfactory. *mid-range/bidding war artists- may get a technically satisfactory std-subject to the companies approving of the songs and the producer, plus the same limits described—superstars: more favorable version of the technically satisfactory (MAY ALSO INCLUDE - language saying that the recordings must be of a ‗style‘ and perhaps even a ‗quality‘ similar to the previous recordings. This will also exclude any ‗specialty or novelty‘ recordings, so the artist can not give the company a children‘s record etc.). Other Delivery Criteria: other requirements regardless of an artists‘ level, which are that they must be : 1) studio recordings (as opposed to live concert recordings); 2) recorded during the Term; 3) songs not previously recorded by the artist; 4) recordings that feature only the artists‘ performance; 5) not wholly instrumental selections (unless that is what the artist normally does); 6) material that doesn‘t cause the company any legal hassles, such as infringing on another‘s copyright(CR), defaming one, or using obscene language; 7) songs of a minimum playing time- usually 2 minutes. Controlled Compositions Controlled compositions are one of the most important parts in a record deal, known as a ‗Controlled Composition Clause‘, which limits how much an artist can get paid as a songwriter. (which to fully understand refer to publishing). But we need the background 1st. Greatest Hits (Not counted against artist delivery requirements) Greatest Hits/ Best Of album is a compilation of songs that are from an artists‘ prior album, sometimes with 1 or 2 new songs. Traditionally, releasing a Greatest Hits album was a company‘s way of getting $ from an artists‘ career that was over. But now a Greatest Hits album is common at any part in an artists‘ life cycle. –if the artist does not say anything about this the companies can and will, whenever it likes, put out these without paying the artist any advance. Some things about greatest Hits albums that are Important: 1.) No company will count a greatest Hits album against the artists‘ delivery requirements. 2.) For mid-range level and up (sometimes new artists can also do this) –limit the number of Greatest Hits albums a company can compile from the artists‘ material. The usual limit is that the company can release no more than 1 or 2 Greatest Hits albums during the term of the contract with the artist, plus 1 or 2 after the term. *artists should never assume that there is a limit on these unless there is contractually a limit-need a limit in the contract! Greatest Hits Advances: an artist should be able to get an advance on their GH albums. Amount depends on the artists‘ bargaining power and will typically be reduced by the amount of their deficit if the artist is unrecouped. The artist wants the date of determining the deficit as late as possible, so they can get in the max # of sales in to reduce it! the date of the GH album is the best! –Typical advance for GH album for a new artist signed to a major might be 75k (less the recouped deficit). Independents will pay nothing, or perhaps, 10k (less the deficit). Midlevel/bidding war artists- amt closer to 150k (less the deficit); superstars-250k -500k (less the deficit). Midlevel and up deals often have a “Floor‖ on the GH advance, regardless of the deficit. Here is how it can work: 1) if the artist is unrecouped, the advance would be 400k. 2) if the artist was unrecouped 100k, then 400k minus the 100k deficit =s 300k for the advance for the GH album. 3) if the artists‘ deficit is 350k then 400k minus the 350k deficit =s 50k, But the ―Floor‖ is 150k so the artist gets a 150k advance. 4) if artist is 200k unrecouped, 200k advance, 400k minus the 200k deficit. If the artist is 600k unrecouped, 150k advance, 400k minus the 600k=s less than 0, but the ‗Floor‘ is 150k no matter what!! New Songs for GH: more common now for companies to require 2 or more new songs on an artists‘ GH package released during the term (not after b/c the artist can and may be signed with someone else). This is in the best interest of all concerned b/c if there is a new hit single that is on the GH (which is the only place for consumers to get the new song), at a min, the company should agree to pay the recording costs of the new masters, even if the artist is unrecouped. But the artist should not assume that the form agreement will state this, and the artist should also get a higher advance for the GH albums that contain the new tracks. Live Album: this is recorded during a live concert, rather than a studio. Live albums go thru periodic ups and downs. Before companies did it to make an artist happy b/c they didn‘t make $ off of them. *But Peter Frampton broke all of the rules with an album titled, ―Frampton Comes Alive!‖ which was not only a live album but also a ―Double-Live Album‖. (double albums are a traditional handicap in retail). But this album sold multi-million #s and therefore blew out the traditional wisdom. But after this there was a glut of live albums and the sales of them faded. If the artist does not have a lot of muscle, companies wont let them deliver a live album (or even one live cut on a studio album) w/out the companies consent. Rarely, superstars can get the right to deliver 1 live album during the term of their deal, (usually it will be for a reduced advance both b/c 1-of the live records‘ dicey sales history and 2-the fact that most of the material will have been previously recorded). Guaranteed Release Very few form record contracts guarantee the release of an artists‘ records-and few build into an obligation to record, much less release. With moderate bargaining power, an artist can get a ―Guaranteed release‖, and should always be able to ask for it. *But, this clause will never obligate the company to release the product; rather it will only say that the artist can get out of the deal if the company does not release the product. w/more bargaining power the artist can sometimes get the right to ‗buy back‘ an unreleased album. How it works, and how artist can eventually leave the deal: Guaranteed release clauses basically turn the artist into a notice factory. So if w/in a certain period (usually b/n 90-120 days) the company hasn‘t put out the artists‘ album, the artist has then earned the right to give the company a written notice stating that: ―you have not put out my album‖. After this the company has another period (usually 60 days) w/in which to actually put out the album. If they don‘t, the artist then has the privilege of sending a 2nd notice, (usually w/in 30 days after the 60 days) and if the artist does not meet this period they lose their rights. The 2nd notice usually states that the company has failed to put out the album; and that the artist really meant it when they stated that they wanted the company to put it out; and that the artist is now terminating the deal. So at this pt the artist can say ‗good-bye‘-noting that the company still does not have to put out the album. –also note that the period after that the delivery in which the company must release is usually extended if any of it falls b/n Oct 15th and Jan 15th. This is b/c no-one –except the most super of superstars release product after Oct 15th –why? b/c starting in early Dec radio stations start thinking of vacations and they ‗freeze‘ their playlists-not adding any new records until after Jan 15th. So the industry closes up around mid- Dec and since a record by an artist who isn‘t well-known does not have the time to make the climb b/4 the Dec shut-down, all have to wait until the next yr. Also notable is that these guaranteed record release clauses only let the artist out of their record deal if the company doesn‘t release in the US. As an artists‘ bargaining pwr increases (and their intl fame), they may be able to negotiate a similar provision for foreign territories. Normally an artist cant get out of an entire deal for a failure to release outside the US-the artist can only terminate for the particular territory the company didn‘t release it and only for the specific album not released-so the artist can get another distributor to release the album in that territory. If the artist keeps pushing they may be able to get the company to agree that if they fail to release 2 consecutive albums in that territory, the artist gets back that territory for the rest of the term of the deal. Deal Peculiarities For Independents When an artist is recording for an independent who is not a ―true independent‖, there are additional concerns. Distribution: can the company get anyone to distribute the album? These companies aren‘t distributors, so they have to use others to get them into the store, so how does the artist cover themselves? 1)-put a clause into the contract that states that the independent must enter into an agreement to distribute the product w/in a certain period of time. 2) with more muscle- the artist should have it in the contract that the company must enter into an agreement w/ a major distributor. –get approval from the distributor, and if the independent agrees, it will say that the artist has to be ‗reasonable in their approval‘ so the artist cant use this clause to get out of the deal-when they get an offer for more $. 3) What if the deal with the independent is for 2 albums ‗firm‘ but after the 1st the distributor drops the company and artist? How does the artist make sure that the company doesn‘t hold them liable for the 2nd even if the company has no way to put it out? –guaranteed release (if they don‘t put out the album the artist can terminate the deal). But companies don‘t even have to make a record to hang an artist on their contract, and if the company does not ever record any product the ‗guaranteed release‘ never comes into play. So the artist can cover themselves by saying that he independent has 6-12 mos after a distribution deal lapses w/in which to get a new deal, or else the company is out. The Great Publishing Grab: independent companies are the most likely to take an artists‘ publishing (their earnings as a song-writer, as opposed to their earnings as a performer on records). Producers 3 Types of Producers in the Business: 1) This type acts as a technician-goes to the studio (they check the mixing, and they act as a technician). The producer as a technician- this lets the artist direct how their music is going to sound. 2) Producers that pull the art out of the artist- but they add some creativity to the process. the artist records and then the producer gives advice –like take the tone down here, etc. and then they develop a relationship with the artist so that the end result is better –than the individual productthis is what most producers do. 3) Producer as an artist-the artists go to the producer b/c they may be the best link in the process. What is a Producer? A record producer: combines the roles of a director and a producer in the motion pic field. The producers are responsible for overseeing and bringing the creative product into a tangible form (a recording), meaning that they are : a) responsible for max the creative process –finding and selecting songs, deciding on arrangements, getting the right vocal sound, etc. and b) taking care of all admin (such as booking studios, hiring musicians, staying w/in budget, filing union reports, etc.) often- the ‗mechanical aspects‘ of admin are handled by a ‗production coordinator. History: A&R –―Artists and Repertoire‖-b/4 these people were execs of companies whose job it was to find, sign, and guide talent, including matching songs to singers and running recording sessions (doing almost exactly what producers do today). Today-A&R are among the most important people but they usually don‘t produce the recordings, and are still responsible for finding and signing talent, finding songs, matching producers and artists and generally overseeing projects. Producers and Royalties Producers‘ royalties are computed more favorably than artists‘ royalties ―Record One‖ Royalties: biggest diff b/n producers‘ and artists‘ royalties are that at some point the producers are paid for All records sold-(meaning that recording costs are not charged against their royalties). *recording costs are always charged against the artists‘ royalties. These are called Record One royalties- b/c they are paid from the 1st record (record one) that the company sells. *all producers have to recoup any advances that they have received –but if you think of these advances as a pre-payment of royalties –this is the same as getting a royalty on all records. Most producers‘ royalties are paid-‗retroactive to Record One‘ after recoupment of recording costs at the ‗net rate‘. This means that a) recording costs are recouped at the ‗artists‘ net rate‘ (the ‗all-in‘ artist rate after deducting the producers‘ royalty-ie-the artist‘s rate ‗net‘ of the producer‘s royalty); b) b/4 recording costs are recouped, the producer gets ‗no royalties at all‘ (just like the artist); but c) once the recording costs are recouped, the producer gets paid from the 1st record sold (‗record One‘), and this payment is ‗retro-Active‘ b/c the company ‗goes back‘ and pays on sales previously made that did not bear the royalties at the time of sale. Different situation- (non record 1 deals) no royalties for record one but gets to royalty disbursements quicker because the all-in rate (combined) vs. the net rate (artist – producers rate) is used. Called ‗Prospectively‘ after recoupment at the ―combined rate‖ -meaning that once the recording costs are recouped at the all-in rate (the combined artist and producer rate) the producers then get paid on sales after that point (but not retroactive to record one). Meaning that the producers will get paid sooner –but it is only a better deal if the record sales die after the pt where recording costs recoup at the ‗combined rate‘, but b/4 recoupment at the net rate. Otherwise, under the normal ―Retroactive-at-the-net-rate‖ deal, the producer will be way ahead when they get to recoup at the ‗net-rate‘ at that ptoint they are not only paid on those sales b/n the level of combined recoupment and net recoupment, but also on all the records sold B/4 the recoupment. Hot producers- retroactive to record 1 after the recoupment of recording costs at the combined rate. Reductions, deductions and the rest: Other Royalty Computations: besides the ‗record one‘ Producers‘ royalties are customarily calculated in the exact same way as the artists‘. Meaning that they get the same: 1.) Packaging deduction 2.) Free goods reduction 3.) Same proportionate reduction for foreign, budget, midprice, etc. 4.) And other reductions for breakage, special free goods, etc… In situations that the artist gets a %age of the companies net receipts, the producer gets a pro-rata share of the artists‘ earnings, based on the ratio that the producer‘s royalty bears to the ‗all-in rate‘. UNLESS THERE IS ANOTHER ELEMENT THEY ARE BEING PAID FOR: Home Video Royalties: for home video devices, producers generally get ½ of their otherwise applicable rate. The theory is that the master is only ½ of the product and that the video portion is the other ½. Recoupment of advances- follow producers only if the same company and the same artist. The producer can start earning money even when the artists don‘t! Do not allow a deal with crosscollateralization between different artists even if the same company. (Say the prospects of each artist are different, and you should be paid that way). Producers, like artists get advances. These advances are recoupable from the producers‘ royalties –regardless of how the producer‘s royalties are calculated. The range is something like this: 1) New Producers: anywhere from 0 to 2,500 to 3,500 per master (25k-35k per album). 2) Mid-Level: 3,500-5k per master (35k-50k per album). 3) Superstar: 10k-15k plus per master (100k-150k per album). If a major producer is doing a major artist, advances in the 150k range aren‘t uncommon. Lil‘ John level- There is a distinct category of producers who are considered by the industry to be as or more important than the artists. These are those who often write songs as well. For their services, mid-range producers can get up to 7,500 per master and at the ‗superstar‘ level advances can run from 75k-150k per master, and sometimes even more! –some producers at all levels like to do ‗funds‘. This means that they get a chunk of cash that includes the recording costs and the producer‘s advance. The important issue w/funds is to allocate how much is treated as recording costs and how much is for the producer‘s advance. Who Hires the Producer? Who gets to select the producer is important b/c this is indicative of who is in control. There are 3 options and the most prevalent kind is the 3rd kind. Record companies want the artists to be happy and it is important on who the producer works for. As the trend moved from 4-5-or more producers per album, companies hit on the idea that the artist should hire their own producer –thus shifting the paperwork and financial burden to the artist. Issues: **Producer Deals –Summary1) Most paid at the artists ‗net rate‘ –retroactive to record 1 after recouping after recouping recording costs (which is included in the producer‘s advance). 2) some are paid at the ‗combined rate‘ retroactive to record 1 after recouping the recording costs. 3) super producers get paid from record 1 after recouping only their advance. If more than 1 producer, they are paid on a pro rata basis depending on how many producers are working on the project. A Major Point-Pay Attention If the artist does not do this right it can cost them a lot of $-out of their own pocket! Because if an artist is unrecouped they are still required to pay the producer-but the artist may have received substantial advances-in which the producer did not share. Ex-artist gets 120k on recording costs, and 100k in advance and the artist will not get any until the 220k is recouped. But the producer who didn‘t get any of the 100k advance is still owed royalties after the recording costs are recouped, so the artist should put a part of their advance on the side to pay the producer‘s royalties for those sales after recording recoupment, but before all recoupment. So thinking of advances as ‗pre-paid‘ royalties, the artists has already received a part of the total royalties and is only required to pay as part of them to the producer. *But it Can Get Worse if the artist deal is cross collateralized between different albums they may go longer paying back the recoupment, and if the producer might be entitled to royalties on a later album that is still paying off a failure. So what happens in real life? A producer with any idea of what they are doing will insist on the company paying their royalties. And any artist with any idea of the situation will insist on the same. And any company will avoid these situations like the plague! –it is simple enough to get the company to pay the producer after the artist is recouped. If the artist or the producer has bargaining power they can get the company to pay the producer and treat the payments as additional advances under the artists‘ deal. Even though this makes the artist more unrecouped this is better than having to pay the producer out of their own pocket. Mixers Mixers are similar to producers. Mixers take multi-tracks and put them together to produce a mystical potion of music. They often get paid on a one-time payment-meaning that there are no royalties. For lower level mixers the $ paid to them is often a fee. (fees aren‘t recoupable from royalties). Higher level ones- usually 50% of their up-front $ is recoupable. From what? ½%-1% paid exactly like a producer-retroactive to record one after the recoupment of recording costs at the net rate. Advanced Demo Deal Negotiation First Refusal: in exchange for the company giving the artist $ for the demo the artist has to give the company a period of time after it gets the demos (30-60 days) before it has to decide whether or not it wants the artist. If the company decides that they want the artist, 1 of 2 things happens: a) many companies in their demo deals spell out the terms on which they have the rights to the artists‘ services if they go forward-these terms will be w/in the parameters of new artists‘ deals, so if the company wants the artist the deal is set; b) some companies instead require the artist to negotiate w/them and try to make a deal (called a 1st negotiation right). If they don‘t make a deal, the company gets a 1st refusal (aka last refusal or matching right) so if the artist gets an offer from another company they cant just accept –instead the artist has to go back to the original company and give them a chance to match the other company‘s offer. What to negotiate in an artists‘ 1st refusal? 1) Only have to go back to demo company if the other co‘s offer is less than the demo co‘s last offer. –this is next to impossible to get! 2) Only have to go back to the demo company if the offer that the artist gets is less than the last offer that they made to the demo co. this is a little easier to get- but the demo company may insist on your coming back with any offer, higher or lower. 3) In any event you should limit the time that the demo company can accept or reject the offerfor the artist, the shorter the better-hope for 5 business days but probably will get stuck with 1015. Some companies may want as long as 45-60 calendar days, but never try to let them have more than 30 calendar days. Cost Reimbursement: if the demo company doesn‘t want the artist after the demos or they pass on the artists‘ deal after the 1st refusal, the artist can go elsewhere. But when the artist does sign with another company the demo company will want their $ back. The company will want it from the artists‘ new record deal. Most companies (2nd in line) –the ones that follow the demo co- will reimburse the cost of the demos. This cost is recoupable from the artists‘ royalties. How to protect the artist? 1) Provide that the demo company should only get its $ back if the artist makes a new record deal. 2) There should be a time limit-about a yr, that the demo company can recoup from an artists new deal. Non-Record company Demos: recording studios, producers, engineers, etc fund demos too. but non-record company sources cant make and distribute records so their contracts don‘t look like demo deals offered by majors or independents. Here are some common examples1) If and when the artist gets a deal they reimburse the cost of the demo-and then the demofunder ―funder‖ gets a 1-2% retail royalty on the artists‘ records. This royalty is known as an „override‟ (b/c it rides on top of the artists‟ deal). 2) the artist should limit the participation to as few records as possible. Min- where the funder gets an override only on the specific demos that are finished into masters on the record. also – smaller sometimes when the demo is re-recorded as opposed to being turned into a master. 3) At the other extreme the funder may ask for an override on every record under the artists deal. The artist should say that the funder only gets the override until they get paid back twice or three times their investment. 4) If the funder only gets a royalty based on the use of specific recordings or songs, specify that their royalty is ‗pro-rata‘. 5) Funder‘s royalty should only be payable after recoupment of the amounts charged to the artist in connection with the records that they have a royalty. 6) The artists if they make one of these deals should be very careful b/c they could end up owing the funder $ on the override, b/4 they are recouped. Ideally, when the artist makes the record deal try to get the company to pay the override obligation even though it is taken out off the artists‘ royalties. Exclusivity Exclusivity restrictions: record companies want their artists to only record albums for them! 1) Re-recording restrictions- the artist doesn‘t get the masters back –either b/c they get dropped, negotiate their way out of the contract, or the contract has expired. Why? b/c the company wants to be sure that the artists don‘t re-record the Masters and release it on another‘s label. –after 5yrs the artists can usually get this modified, but it is rare to get them to come off of 2 yrs. 2) Movie and tv restrictions- revenue is split, and they want soundtrack amt of $ that they get from other contracts like the other contracts. Sideman/ side person- this happens when an artist from another label wants to wk w/the artist from another label. But these performances have conditions! Usual restrictions include: a.) Can‘t interfere w/the contract, or with delivery obligations b.) Must notify the company in advance c) The record company says that we are the world for the other company and you can do it for us! And d) The company wants to know how the artist is getting paid b/c they want their fair share. (Exclusivity Again) Re-recording restrictions: all contracts say that you cant re-record any song recorded during the term, and for a certain period of time after the term. This is known as a re-recording restriction. The usual period is 5 yrs from the date of the recording-but w/ a min of 3-5 yrs from the end of the term. The min keeps the artist from re-recording an album delivered in year 1 of a 6-yr deal immediately after the term, even though it is more than 5yrs since recording it. While the 5yrs from the recording is carved in stone, an artist can almost always get the period after the term down to 2 yrs. These re-recording restrictions used to apply only to ‗records‘, but now apply to movies, and TV shows as well. Recently many companies have gone even further stating an artist can never re-record songs to sound just like the masters that they have given the co-for records, pic, commercials or any other purpose. So now- after the re-recording restriction expires, the artist can only record a wholly different arrangement of the songs. Motion Picture and Television Soundtracks: Exclusivity clauses apply to all ‗records‘ made during the term, and most companies now define ‗record‘ so broadly that the term includes motion pic and tv soundtracks. So the companies can stop an artist from recording for a motion pic or tv w/out their consent –and therefore they can get a portion of the artists‘ proceeds, even though there is no phonograph record involved. An artist can sometimes negotiate some slack in these clauses –the most common compromise is to allow the artist to perform 1 or 2 songs in a film w/a laundry list of restrictions such as: 1. Keeping the size of the artists‘ name the same as other artists 2. Requiring a credit to the co, etc. (courtesy of….) With more leverage an artist may be able to do more songs for the film, so long as they are not on the soundtrack album. What about soundtrack albums? This is where it can get sticky-companies don‘t want their artists freely dropping recordings on other companies b/c a) the company wants to be exclusively identified with the artist and b)they don‘t want another company to release an artists record at a time that would conflict with one of the artists singles or albums they are selling. So soundtracks are usually handled one of two ways, discussed in the record deal: 1) Forget it! Some companies will not allow the artist to have the right to let anyone else put out a soundtrack with the artists recording on it, in this case every time that an artist is asked to be perform a song for a movie, they have to beg the co- and the company will agree- with restrictions or not. Another choice is to force the film company to give the soundtrack to the artists‘ record company because then there is no conflict of interest. If the company allows the artist to go elsewhere and provided that there is no conflict with the artists‘ own product, the album can be released on another label. Companies have been historically reluctant to allow an artists‘ single to come out on another label, though this is changing as singles become less and less profitable. The artist should try to get the single released by the same company that is releasing the soundtrack album –this is b/c the artists‘ incentive is greater b/c they make $ on the album, even if they lose on the single, which helps to sell the profitable album. Contractual Exclusions: with clout the artist can negotiate an ―automatic contractual soundtrack exclusion‖ in their deal w/some cos. These exclusion clauses usually have a list (which applies also if the artist has no exclusion clause but the company consents): 1) the artist cant perform on more than 1 (or 2 at most) selections for inclusion in the album. 2) the artist cant do more than 1 of these during any 1-yr (or 2yr) period of the term. Sometimes this is an overall limit, such as a max of 3 cuts over the term. 3) the artist must not be late in delivery of the artists‘ product at the time. 4) all of the royalties and advances must be paid to the artists‘ record co. Some companies try to get a part of the artists‘ fee for performing. After the company gets the artists royalties or advances they‘ll want to keep 50% of them for releasing the artist from the exclusivity clause and allowing them to go elsewhere. The other 50% is credited to the artists‘ royalty acct (and if the artist is unrecouped they will not get any of the $ but it will reduce their deficit). If the soundtrack album is being released by the artists‘ company they should be able to get 100% of the $ credited to their account (to reduce their deficit) or paid out if they are recouped. With a lot of bargaining power an artist can get 50% or more of the royalties paid to them even if they are unrecouped –on the theory that this recording is in addition to the product they are entitled to get under their deal and thus should be handled separately. 5) the company having the exclusive contract must receive a courtesy credit in the film and on records, such as ―[Artist] appearing courtesy of Atlantic Records‖. 6) The artist must get the right to use the recording on one of their own albums, perhaps also on a GH album. If the film company gives the artist these rights will ask for a ‗holdback‘ period b/4 the artist can release their song on their own album. Creating an artist websites most deals now provide that during the term, the company will have an exclusive license to set up the artists‘ website and that the artist is allowed to set up an ‗unofficial website‘. After the term, the rights go back to the artist, although the companies keep the right to have a section on the artist on their own site. Now some companies have recoup the costs of creating and maintaining the artists‘ website. Artists can limit the amt that the company can chg over the life of the deal, like 25k. Webcasting, TV, and Radio Broadcasts: Webcasting- is essentially a broadcast over the net and there are 2 kinds: 1) Music played by self-declared DJs, and by regular, over-the-air radio stations that put their signal on the net (doesn‘t have much to do with an artists‘ record deal-and not real significant to artists yet) and; 2) artists who broadcast their concerts over the net (which immediately gets into the artists‘ pocketbook, as people will sometimes offer artists $ to put their concert on the net). Now companies have made their exclusivity provisions so broad that they cover all transmissions of a concert-airwaves, the net, or any other means. This is b/c the contracts define ‗records‘ to include any delivery of music to consumers –whether it is a CD or a package of electrons! Thus, a webcast, tv, radio broadcast of an artists‘ music is a ‗record‘ (b/c it delivers music to consumers). Since the company has the exclusive right to deliver the artists‘ records during the term of the deal, the artist has to go to the company and get their permission-and pay them –if they want to do a broadcast (of an unrecorded performance). Sideman Performances: (again) This is when an artist works or wants to work with another artist from another label. these are non-featured appearances where superstars sing and play instruments on other artists‘ records. There is a trend calling these sideperson performances. Don‘t these performances violate the exclusivity provisions? There is a strong custom in the industry (which the artist can have the provision inserted in their contract by asking) that ‗sideman‘ performances are permitted, on the following conditions: 1) The performance must be truly a background performance, w/out any solos, duets, or ‗stepping out‘. 2) The artists‘ exclusive company must get a ‗courtesy credit‘ in the form of ―[Artist] appears courtesy of __ Records‖. 3) The artist can not violate their re-recording restriction for any selection, even as a background performer. 4) If the artist is a group, no more than 2 can perform together on any particular session. (b/c the company doesn‘t want the groups distinctive sound showing up on another label). 5) Some companies require the artist to get the other artists‘ company to give up ‗sideman‘ clearance in exchange for letting their artist go. –these matters are usually handled by correspondence b/n companies and it is usually a ‗rubber stamp‘ process. Videos MTV, VH1, BET- and are paid for by the company to promote the sales of an artists‘ records and the provisions concerning such videos are contained in the artists deal, contract. these don‘t usually make a profit for the co. History: they started in the 1960‘s in Europe but only became popular in 1981 w/MTV in the US. They were invented b/c it was cheaper for artists to make videos than to tour Europe. Commercial market: little profit in single-song (MTV type) videos. b/c most of the uses of such videos are promo-“free”-or for a nominal chg (which covers only duplicating and shipping) to gain exposure for the record. the artist only gets $ from home video sales using music videos either as: 1) A ―compilation‖ (a program compiled from a number of video clips from the same or different artists); or 2) Occasionally a video plus a ‗making of‘. But with rare exceptions, these usages don‘t generate a lot of income. The Issues to Cover in an Artists‟ deal: 1-is the company going to make a video of the song? If the answer is no-there isn‘t much to talk about. w/bargaining power an artist can require the company to do 1 or 2 videos per album –but the company will probably say that they only have to make videos for as long as they do it for other artists of a similar stature. (Just in case they drop it completely) 2-Control- this concerns 2 areas: 1) the content of the videos and 2) the manner in which they are exploited. w/out a lot of bargaining power, an artist can not generally control the commercial exploitation of their videos. Why? b/c the company wants every opportunity to get their $ back –so the artist may get the company to agree that they will not commercially exploit a video if the artist repays the company the cost of it. For ex w/some clout the artist might be able to prevent the company putting their videos in a home video package that also contains the videos of other artists. 2. Creative controls – when it comes to the content of videos tend to be very limited. Except at the highest levels the artist gets only a bare bones approval of the story, song, director, and perhaps producer. w/serious bargaining power a artist may be able to get approval of all of the elements of the final edit, or take complete creative control of the making of the video. 3-Budget-for shooting videos, the budgets are either designated or approved by the co-but if the artists‘ stature grows they may be able to require a min amt. today videos are above 50k and the maj of new artists spend 125k-150k. mid-level videos-250k-500k and superstars-500k-750k and occasionally some that go to the 1 million plus range w/the record amt being about 3 mill. 4-Recoupment- usually the record company charges 50% of the cost of the video against the artists audio royalty & 100% against the artists‘ video royalty. Make sure that the company doesnt ‗double up‘-meaning that once they chg 50% against record royalties, they cant take the same 50% against video royalties and vice-versa. Most companies have a ‗bright line‘ beyond which they will chg 100% against an artists‘ audio royalties, even if the costs are w/in an approved budget. Independent Promotion Independent promotion is an important phenomenon, promo people get records played on the radio and they have relationships with the station programmers to help ensure this. ―independents‖ –promoters who are hired by the company but are independent from the company. Promoters can be paid from 350k -700k per single and what they spend will be 50100% recoupable against the artists‘ royalties. Its almost impossible to get companies to commit in an artists‘ contract to pay for independent promotion, though it is always worth asking for it. Whether they commit or don‘t it is always beneficial for the artist to ask for a ‗cap‘ (max limit) that the company can charge the artist for independent promotion. w/out a cap it is a blank check out of the artists‘ royalties. It is worth putting up a fight to keep the company from recouping more than 50% of independent promo costs. Also promotion has taken a new twist over recent yrs, w/what are known as ‗radio-promoted concerts‘. The acts are paid much less than normal to show up and this is done to generate goodwill with the radio station-so artists here are paying for promo of their own recordings. Merchandising Rights Some companies have tried to take artists‘ ―merchandising rights‖. These rights consist of the artists‘ rights to put their name on a T-shirt, poster, etc. this isn‘t the same as the rights of the company to put out promotional things –which are distributed free to promote records-and for which all companies have the rights. The following is about the companies wanting to the rights to sell merchandise at stores, concerts, etc. if the companies get „merchandising rights‟, they pay the artist the royalties if they exploit the rights themselves, or else they pay the artists 50% of their receipts if they license the rights to a merchandiser. The company will also try to ‗cross-collateralize‘ the merchandise earnings with the artists‘ record deal. *The artist should resist these if at all possible b/c these are valuable rights and the companies shouldn‘t have the ability to grab them! So the artist should try to say that-the company only gets the right to match a merchandising deal if they have an affiliate actively engaged in the manufacture and distribution of merchandise. If the artist cant knock out this provision completely, they should try the following: 1) the company gets no merchandising but keeps a matching right. (meaning the artist can shop around but must come back to the company and give the company a chance to make a deal on the same terms as the artists‘ best offer. This system isn‘t ideal: b/c others wont be interested in negotiating a deal when another can waltz in and take it away. –but it is still better than giving away the rights. 2) Some companies want a matching right plus a discount on the bid 3) If all else fails, the artist should try to make the best possible royalty deal and do not let the company ‗cross-collateralize‘ merchandise earnings w/their record deal. The artist can usually knock out the cross-collateralization by asking. Tour Support Cross collateralized against royalties, usually to help sell the album, don‘t let the record companies get a piece for touring. Publishing Delivery Random House v Gold- ―in content and form satisfactory Can they reject it b/c they don‘t think that it will sell? Yes Goldwater- The publishing company cant have ‗unfettered‘ discretion b/c otherwise the contract would be illusory and make no sense at all. If the company does nothing bad faith Obligation to deal in good faith, and be reasonable in their dealings with the artists. Tony Curtis v Double Day- you need reasonable editorial work, but as long as the company was reasonable, and acted in good faith you can reject a book like they did here, and ask for the advance back, because in the publishing world you can get your money back. do it with good faith). Duty of Record Company to clients RodgersFacts: this guy was a very successful as a recording artist but he made almost no $ and this was common in the industry –especially earlier on. Levy never wrote a song in his life –he coerced artists and bought their copyrights-which are the most great creations –and he earned money constantly with no problems. Does a recording company owe a fiduciary duty to their clients? (Important because of damages: In tort- breach of contract –the remedy is to make you where you would be if the contract was performed. In tort-breach of fiduciary duty –then you can get damages also. the ct said here that there is no fiduciary duty –instead this is a contractual relationship and the difference b/n them is –with a fiduciary duty there is a special relationship and trust and a contractual relationship-this is bargain for exchange. Mellencamp case- this has the same concept b/n him and the publishing case-royalties earned on the exploitation. Record company has contractual relationship with the artist. Implied Obligations Wood v Lacy- Lady Duff case- exclusive contract –Wood alleges she broke the exclusive part of their agreement. Looks like lack of consideration and therefore the contract is illusory, but it is not. There is an implied obligation that a company licensed to promote and market [her image- but it applies broadly] has a duty to use reasonable efforts to promote such material. So if the company does not use reasonable efforts than there is a breach. Zilg v Prentice Hall-Zilg – READ THAT CASE AGAIN Compulsory Licenses The Copyright act provided 6 rights – There are Compulsory Licenses-this means that you have to license the work. Mechanical Rights- you know this, underlying comp. after 1st published can be used under compulsory license from the Harry Fox Agency to be used in sound recording. Rate is 9.1 Requirements: 1) song must be a ‗non-dramatic musical work‘; 2) been previously recorded; and 3) previous records…. The Cable TV license was an early one: if the cable company didn‘t have permission to rebroadcast network shows then they were infringing on the copyright (CR)of the show. So now they can re-broadcast these shows by getting a license and paying certain fees. Another ex: Jukeboxes, and radio stations also work this way. The radio stations enter into blanket licenses with performer‘s societies so they can play the music. Record companies have tried to place a cap on mechanical payments- (Controlled Comp) There are 2 creations of this formula/pymt: 1) 75% of the stat rate and 2) an artificial cap of 10 songs. So if the person is the artist and the songwriter the company wasn‘t going to pay them allthey only would pay 75% on each song and if the CD had 15 songs on it then they would only pay the artist/songwriter the mechanical royalties on 10 of them. Why? b/c they can and this tends to be a take it or leave it deal. Nmpa.org- national music publishers association Music Publishing Agreements Music Publishing- the exploitation of Musical Compositions? 4 Main Sources1) Mechanical Royalties –aka mechanicals 2) ―Small‖ performing rights –Note: general rule –except for digital sound recordings –there isn‘t royalties paid for the performance of sound recordings. Radio and other performances 3) Royalties 4) Synch Fees 1 and 2 make up 85% of the royalties. ? if the music is on a video game which one is it? if the music is synchronized with the action then they pay a synch fee but if it just plays in the background then it would just be a performance royalty. Music Publishing- Revenue Structure (reserves are high because they can‘t be recouped inc cross collateralization, and they can‘t get back overpayments of royalties) Co-Publishing Agreements: songwriter/artist These are pretty std now. The artist/songwriter creates their own publishing companies. Then they enter into an agreement with a music company-publisher. And b/c of this agreement the split in royalties ends up being 75%-artist and 25%-publishing co—but you have to ask for these ‗co-pub‘s – 50 to artists company 25- publisher, and 25 to artist personally Controlled Compositions Clause: There are 2 types of songs as far as the record company is concerned –mechanical royalties-1) artist controls in whole or in part the controlled compositions 2) non-controlled/outside songsthese are either songs under a compulsory license, or under a deal with the publisher. Usually with controlled compositions the song is licensed at 75% of statutory, also on albums the record company may put a total cap at 10 times the applicable statutory rate, if the songwriting costs more than that than the artist will make up the deficit from their own songwriting royalties or sound royalties. (Superstars may get this higher, say 11, or 12 times the rate) Different renditions of the song will receive only mechanical payment, (remixes do not get paid royalties if sold on the same album) Who is the Songwriter? The old definition says : melody Plus lyrics=s a song In the rap/hip-hop genre it is more difficult b/c beats that are not melody but do become an integral part of the music. Also what happens when someone like the band‘s guitarist throws in something unique? When does something like this become something worth copyrighting? Clearance Forms: (they Say) 1) the name of the composition; 2) the author(s) names; 3) the %age of the composition that each of the authors contributed (baby bands usually will divide the %ages up equally b/c they don‘t fully understand the difference b/n songwriter royalties and CD sale revenue). 85% of the cases where the artist didn‘t do a clearance form what happens? These are fact specific cases and lead to intense situations, and expensive litigation. Controlled vs. Non-Controlled-75% of the min stat rate Ex: if an album has 8 songs on it- 4 controlled and 4 outside what are the figures? 4 controlled (4*75%*8.5cents=26cents) 4 outside (4*8.5cents=34cents) Why do the outside compositions get paid at the full rate when the artist who are under the contract with the record company get only 75%? b/c they have a deal with the company and the others (outside/non-controlled authors) have a deal with the artist. –so on this 8 song CD the amt of total mechanicals is 60cents per CD. *But since the company only pays on 75% of the min stat rate which is 51cents per CD (8*75%*8.5cents)-then subtract the 34cents for the outside songs so the artist only gets an effective rate of 17cents for their controlled compositions. This is one impact of the companies paying 75% of the stat rate. 11 song maximum- this shows the impact of deduction. The max allowed is 11 songs so- 11*75%*8.5cents=70cents-so here the artist would still get the full rate-26cents. What about a 12 song album? Compare the controlled compositions with outside ones. 6controlled 6-outside-total of 89cents. But the max under the controlled compositions clause in the contract is 70cents. This is the record company saying ‗notwithstanding the foregoing ‗ we are not going to pay more than 70cents for mechanical royalties. So 70 cents maximum and the artists have to pay outside amount of 51cents –if the aggregate mechanical exceeds that provided herein then it comes out of the artists‘ end. –so if there are 4 outside then this is 51cents and the max that the artist gets paid for the controlled compositions is 19cents. This type of result is prevalent in genres like country where the recording artist usually doesn‘t write their own songs. *mechanicals are different from synch fees and public performances etc. More on PublishingAdditional Sources of Income 3 types 1) Printed Music (the exploitation of musical compositions). Folios these are collections of songs and there are different types of them. What if there are excerpts of a song on a video? Tablature- sheet music. When printing music the range is wide- from $150 to $25k. Synch licenses-get more money if the music appears with the main title like at the beginning of a movie than if the song is at the end of a movie. The range for these is $15k to $20k which is paid from the movie studio to the publishing company or co-pub. $ from having a song on tv commercials is huge. Ex: I Tunes –IPOD- they had to pay U2 to have their song, ‗Vertigo‘ as a part of the national IPOD campaign-like ½ million dollars. **The songwriters only get the synch fees- not the artists (who get performance fees). TV theme songs- think of the songs that are getting played on shows even ones that are being re-broadcasted –like the Brady Bunch. Another song that is still under copyright is Happy Birthday-it is not in the public domain yet and this is why restaurants don‘t sing it they make up their own. Foreign Sub-Pub- this is the industry that collects the publishing revenue for American publishers. *If an artist is doing well overseas then they need an aggressive US publishing company to monitor what is going on so they get their $. The charge for this is usually b/n 15%25%. And this practice made since when there wasn‘t international or multi-national record cos. But today companies like Sony have headquarters in NY, Paris, Japan, etc. so now some of the justification for these fees has evaporated. 75/25- 25 stays in the local country publishing company and 75 goes to the main pub company in the US. Be aware of the calculation of royalties. –At Source: royalties earned are computed where collected-put this in the publishing agreement. Ex: France (At Source)---15%-------UK------15%------NY-70%-----this is on $1. But it should just go from France (At Source)—15%------to the US (NY) w/an 85/15 deal. DART-as in the Diamond Rio case-computers are not digital recording devices. This is b/c of the theory that what will be used to reproduce parts that wont be able to get royalty on. There is a big gap w/ computers not DART devices so there is no taxes on computers. Touring Touring in General Passman Ch 23: Personal Appearances -Touring Key Players and Concepts  Plan the tour  Promoter: entrepreneurs who assume full risk of show Book venue, advertise, and supervise. Can be local, national, even international. Different types: small, medium, and large. Payment types: door/gate; guarantees; split based on attendance or receipts. Clear Channel now owns a lg majority of local promoters and they as well as other national promoters purchase entire tours. –Cf Promoter deals. Over the last couple of yrs –Venues (the owners of the physical buildings, arenas, etc) have begun to buy shows themselves. ―Venue Deals‖-under these deals the building owners directly deal and contract w/the artists-acting as promoters themselves and competing w/promoters who rent from them. Sometimes these deals pay more than the other deals b/c the middleman(promoter) is eliminated and they will make $ from vending sales of food, parking, etc   Booking Agent: Books tour; works with promoter on deal. Receives and holds half of deposit from promoter.  Tour Manager: Road boss, responsible for everything.  Responsibilities of the Manager The ceo of the professional team, they are in charge of the tour. Get the artist on the right tours and make sure that the agent is making the best possible deals, and once the tour is set up they mechanically make it happen. they coordinate 1)transportation of people and equipment; 2) hire and smooth functioning of crews; 3) book hotels; 4) collect $; 5) deal with and supervise promoters; 6) fix problems—bigger artists delegate some of these tasks to Business mgrs and Tour Accts. Agent and Personal Mgr also make other decisions: 1. Itinerary-route of tour and where artist plays. If artist is the opening act they show up for the headliner. If the artist is the headliner the itinerary is critical-for time and money. 2. Image- how does the tour work with the image? 2fold 1) if opening act then is the headliner compatible with the band‘s audience? 2) what venues is the band playingwhere and what kind of place? 3. Skating Through the ―Radio Promotion‖ Jungle-careful planning in picking stations so not to offend others in the market 4. When to put the Tickets on Sale-can vary from market to market. Not too late and not too soon-some markets buy in advance some are walk-up, also make sure days don‘t conflict with days other venues that are big go on sale. 5. Pricing of Tickets-have to look at the market, groups image etc 6. Deposits-paid in advance by promoters. To hold artist for particular date-historically 50% of the total price, now many promoters are trying to only pay 10% or so. – deposits are held by the agent and paid to the artist after they perform the gig-the amount is minus the agent‘s commission  Business Manager/Tour Accountant: checks the Promoter and follows the money. Business Mgr: in charge of all financial aspects of the tour. 1st ‗forecast‘ (predict) the income from the tour, the expenses and then the projected profit. 2nd when tour starts the road personnel (set up crew, supervise etc) are on the payroll and the business mgr makes sure they get paid. Also collects performance fees from promoters (Tour mgr does this if the artist has one). Pays all bills, travel, accommodations etc- and makes sure w/in tour budget. Touring Mgr: makes sure everything runs smoothly. Making and confirming reservations, etc. reviews promoter‘s acctg on the night of the show ―settling the box office‖ or ―the settlement‖ and putting $ where it needs to be. Higher ups have touring accountants. Personal Appearance Deals 1) New Artists: can play in clubs as a headliner or be an opening act on a major tour (which can be very political) Opening Acts: sometimes pay, sometimes paid. Traditional touring season May thru Sept. Fees-$250 to 1,500 dollars a night. Splits/Guaranteessome places pay artists no up front $ but split some of $ charged at the door-splits run from 2060%(depending on popularity and #of other bands playing). If the band is the draw-(the biggest gig that night)they can ask for more than 50% or even 100% (after the promoter gets back their expenses). Not much money here. 2) Mid-Level Artists: 750k-1mill records. Should be able to break even from the tour. Increase the ticket price –increase the profit-10-15 dollars per ticket usually covers the expenses. Midlevel can also get into splits –like superstars. Difference is that splits are lower than at the superstar level. About 7,500-25k per show –more if charge more for tickets. 3) Superstars: Splits-instead of being paid flat fees, they get a guarantee against a %age of the net profits or gross of the show. (artists share is a split b/c they have to split it with the promoter). Guarantee works the same way as an advance against record royalties. So if the artist makes no profits they keep the guarantee- if they do then the promoter deducts the guarantee and pays the rest to the artist. Arenas-12k-20k venues –guarantees b/n $100k and $500k. usual split is 85/15 to 90/10. top#=% of net profits of the show and the bottom is the % the promoter gets. Ex: Gross tix sales=250k minus promoter expenses(150k)=s 100k (this is the net profits)* 85%=85k this is the artists‘ share. Then minus the guarantee (60k)=s 25k payable to artist on night of the show. Computation of net profits: defined as gross receipts less the promoter‘s expenses. Determine by-gross receipts: gross $ from ticket sales minus selling costs (ticket agencies, taxes, facilities chgs). Expenses (IT IS IMPORTANT TO LIMIT THESE): promoters deduct everything they can think of from the gross (advertising, rent of facility, personnel, rental equipment, insurance, security, stage crew, ground transportation, catering, public performance license fees, medical, etc). Everyone know that promoter‘s try to get whatever they can get away w/ so there are acceptable and not acceptable forms of stealing. Its bad form for: a) the promoter to steal more than is customary or for b) the artist to catch them for stealing what is customary. Splits based on Gross: recent trend to get %age of gross income-as ticket prices go up so does the artists‘ share of the gross. Hall Fees: amount charged by the building for selling tour merchandise-it is a %age of gross sales. Riders the actual contracts for each appearance are customarily handled by the agency, lower levels-AFM std form. Mid-level and superstars have these AFM with an attached rider (an addendum that rides on another k). atty w/mgr puts the rider together and this is the guts of the deal-contracts usually 1 or 2 pgs but the riders can be 30pgs. Points in the Rider:  Expenses – limit or cap promoter‘s expenses  Tickets – provide for security, accounting, etc.  Complimentary tickets – have procedures and limits: free tickets (comps). Papering the housewhen the promoter gives away tons of tix to make the house look full-promoter‘s free tix cant be in the 1st 10 rows.  Publicity/Billing-want 100% of it  Recording – don‘t allow unless that‘s your culture  Merchandising – protect your merch dealer with exclusivity  Interviews/Promos – promoter cannot obligate you  Catering – how to keep your crew happy and fed  Technical – very specific details and permit requirements  Payment - must be timely  Enforcement – include attorneys fees Corporate Sponsored for all dates on a tour- The economic difference is that all of the dates are „cross collateralized‟ so the promoter gets back their losses from the profits of successful shows. (not good for artists b/c w/out the cross artists get $ on good dates and promoters eat it on the bad). But usually get a larger overall guarantee. Lining Your Pockets with More Gold: $ in General –More income versus cutting expensesmore costly to put another $ of income in artists pocket than it is to cut costs. Why? b/c the more artist earn the more they have to pay their teams %age out. Example Earn 100k more Save 100k (income) (in expenses) ______________________________________________________________ Earnings 1,000,000 1,100,000 1,000,000 Less Commissions - 350,000 - 385,000 - 350,000 650,000 715,000 650,000 Expenses 400,000 400,000 400,000 NET 250,000 315,000 350,000 (65k more) (100k more) What to do? How -artist spends less! Areas of abuse: salaries, stage, sound, and lights, travel –do it cheaply and try not to hub, catering, and just watch the spending. Tour Merchandising –Passman Ch 24 Merchandising- selling the artists‘ name or likeliness on products. 2 Kinds: 1)Tour Merchandising-stuff sold at concerts-more significant, 2) Retail Merchandising-same stuff but sold everywhere else except concerts-more visible than tour kind. Merchandisers- merchandising is handled by licensing the right to use the artists‘ name and likeliness to a merchandiser. They manufacture the goods and oversees the sales at the concerts and pays the artists a royalty. Royalties: just a %age of the gross sales. The range is generally 30-40% of gross sales –this is in the US and Canada (we don‘t have VAT-value added tax like other countries). Foreign royalties are about 80% of the US rate, some foreign deals are splits (merchandiser takes gross sales, minus costs of production and splits the rest-usually 75/25 and 85/15). Some superstars have designer goods- which are more costly b/c they have to pay the designer a royalty. Hall Fees: as artists have pushed the royalties higher the merchandisers have put in caps on hall fees. Hall fee is %age from $ made from selling the goods. Std hall fee is 30-35% of the gross $ collected superstars can get it to 25%. b/c artists have pushed for higher royalties the merchandisers have made the artist responsible for hall fees beyond a certain %age. *artists should always ask to get a %age of the savings from keeping the hall fees at a min. another trend is to pay the artist a combined royalty/hall fee –about 65-70%. The fees are negotiated by the agent. Advances: advances for merchandise are almost always returnable and sometimes they bear interest. they are usually paid over the course of a tour. w/ a merchandise advance, merchandisers require the artist to perform for a min # of people and at a min # of shows. Tour is to start w/in a reasonable period after signing (90 days) or else they can get out of the deal and charge the group interest. Term: usually one album cycle, or until advance is recouped (whichever is longer- so it could last 4ever). 2 cycles—1-Album cycle-from date of release of album to and ending 60 days prior to release of the next album. (if this is the deal add in a provision making it last only 3 yrs in case there is never a next). 2-tour cycle- till the end of tour or recoupment. Try to get the right to repay so the artist can terminate the contract during extensions on non-recoupment so they don‘t get stuck w/ the same merchandiser. Ex: tour cycle term w/extension until recoupment and at the end of the cycle 10k of 200k is unrecouped, and w/out the right to repay-the merchandiser gets the artists‟ next tour w/no advance. Or w/out right to re-pay threaten to pay merchandiser off so that they have to negotiate for next tour and pay new advance. –this repay provision is getting harder to get. Advance Repayment: contracts require repayment w/interest for conditions like: the tour doesn‘t start on time; disabled/unable to perform complete tour; don‘t meet the ‗performance min‘. most want back entire advance if artist doesn‘t meet the performance min-try to get prorata formula based on how many people the artists actually played for. Sometimes can negotiate that artist gets pro-rate of %age of performance guarantee- whatever happens make sure not to have to pay more than advance! Performance Minimum: aka performance requirement. Success of merchandise sales is based on per-head amts (avg $ spent by each at shows). Because this is estimated, the merchandisers setup deals that say you must play in front of so many paid attendees for a head count. Some situations like stadium and foreign shows will bear less sales so the merchandisers will try to say these people don‘t count. Don‘t let them, say that they count as 2/3, or 1/3 of a person. If you are popular in a foreign market, you might have particular head counts in certain markets. Exclusivity: merchandisers will want exclusive rights to sel your merchandise. Make sure to get exceptions for retail sales, and promotional material. Also it is important that you require venues to cut down on bootlegging if possible, and stop recordings, (use harsh language as it could get artist in trouble with record company). Creative Control: right to approve the design, artwork, photos, and quality. Usually give this (as opposed to the struggle artists have for it w/ the record cos). If the artist has federally registered „service mark‟ (like a trademark-it is the group or individual‟s name)-artist need to approve the quality to protect the marks legal status. Sell-Off Rights: at the end of the term the merchandiser wants the right to sell off any remaining merchandise. Usually for a period of 6 mos and they should have no right to re- manufacture. If they sell it thru wholesale then the artist gets royalty on the sales as in retail deals. Other things to ask for (which are similar to the sell-off rights under print music deals): 1-must be totally non-exclusive so the artist can have another merchandiser in place; 2-merch cant stock pile goods, meaning that they cant manufacture a lot b/4 the end so they have a lot left to sell. Want language in the contract that restricts the manufacturing to ‗only such quantity of goods as necessary to meet reasonably anticipated sales reqmts‘. 3- merch cant have „distress sales‟ meaning that they cant sell the merch at low prices to get rid of it (known as dumping)-but this is harder to get in the k; 4-right to purchase left over merch at cost at the end of the term, and if the artist buys it then merch has no buy off rights. Never take the obligation to repurchase, but always take the option to. 5-at the end of the sell off period anything that the artist doesn‘t buy or they don‘t sell they have to destroy it or give it to charity. Trademark Law (the Lanham Act) General Concepts  Trademark: a ―badge of identification‖ that protects the goodwill attached to a particular product; Designed to prevent public confusion as to the source of goods. *Note: ―service marks‖ do the same for particular services.  Once registered with federal government (state registration available, too) creates prima facie presumption of validity of, ownership of, and of exclusive right to use mark. Go to www.uspto.com for trademark applications and guides. Presumptive right to use means owner can prevent others from using.  43 different classes (e.g. audio recordings; entertainment services; paper goods; jewelry; clothing)  Examples of registered music trademarks: Phish (8 registrations); Nelly (4 classes); 50 Cent (3 classes; registration pending); Spice Girls (2 registrations, 11 classes (including nail polish)) Key Provisions of the Lanham Act 15 U.S.C. § 1115. REGISTRATION. ―[A] mark registered on the principal register provided by this Act and owned by a party to an action shall be admissible in evidence and shall be prima facie evidence of the validity of the registered mark and of the registration of the mark, of the registrant‘s ownership of the mark, and of the registrant‘s exclusive right to use the registered mark in commerce on or in connection with the goods or services specified …‖ Trademark Law (the Lanham Act) § 1114. REMEDIES; INFRINGEMENT. ―(1) Any person who shall, without the consent of the registrant – ―(a) use in commerce and reproductive, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or ―(b) [same provisions regarding reproduction and application of unauthorized marks in commerce]: ―shall be liable in a civil action by the registrant for the remedies hereinafter provided.‖ § 1116. Injunctive relief ―(a) [Gives federal district court jurisdiction to grant injunctions] ―according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark…‖ [Also gives jurisdiction for violations of 15 U.S.C. § 1125 (unfair competition)] ―(d) Civil actions arising out of use of counterfeit marks. ―(1) (A) In the case of a civil action arising under… 15 U.S.C. 1114… with respect to a violation that consists of using a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services, the court may, upon ex parte application, grant an order under subsection (a) of this section pursuant to this subsection providing for the seizure of goods and counterfeit marks involved in such violation and the means of making such marks, and records documenting the manufacturer, sale, or receipt of things in such violation.‖ - Normal injunction requirements (post a bond, inadequate remedy at law, likelihood of success on the merits, irreparable harm) -Hearing within 10 days  Substantial Damages (§ 1117) including: Seizures we‘ve seen; Counterfeit profits *Need only prove sales; burden on Defendant to prove costs and set offs  Other Damages suffered by plaintiff (e.g. lost goodwill); Treble damages; Or statutory damages of %500 - $1,000,000 (higher for willful infringement); Attorney‘s fees Examples of Gross Revenue - $6-$9 per head George Strait, Dierks Bentley Pepsi Center Denver, company 3/5/05 Sold out: 18,015 Gross merch rev: $108,090 - $162,135 If 60 dates ……….……………….$6.5 million - $9.7 million If 200 dates ………………………$21.6 million - $32.4 million ====================================================== Hypothetical: Assume 50 bands, touring for 150 dates, averaging $6 per head, playing for 10,000 people per show: 1 band, 1 show………….. $60,000 50 bands, 1 show ………. $3 million 50 bands, 150 shows ……$450 million Merchandise Injunctions Joel v. Various John Does, 499 F. Supp. 791 (E.D. Wisc. 1980) Issue: Can a court enjoin behavior over unknown persons over whom it has no personal jurisdiction? Rule: ―A court does not have the power to order injunctive relief against a person over whom the court has not required [sic – meant ―acquired‖] in personam jurisdiction.‖ - Court cannot enjoin behavior of world at large. - Federal courts disfavor ―John Doe‖ defendants. Ruling: Injunction granted. Why? - Adequate protections because defendants will be served and can appear in court. - Use of court’s equity power; ―Were the injunction to be denied, plaintiffs would be without any legal means to prevent what is clearly a blatant infringement of their valid property rights.‖ Retail Merchandising: Passman Ch. 25 Retail merchandising means all of the non-concert ways of selling merchandise. Retail stores, mail order, internet, fan clubs, etc. Retail merchandiser acts as the manufacturer, distributor, middleman b/n artist and other merchandisers. They are apparel manufacturers and sub-license smaller rights to other companies who make stuff like stickers, buttons, etc. Royalties: range that merchandisers pay1) sales through retail stores: top of the line retailers-15-25% of the wholesale price. (T-shirts, hats, posters, etc). 75% at mid-level stores, mass marketers-50%. 2) mail order sales-25% of the price charged. 3) internet sales-treated like retail stores. If they can present the artists‘ ‗experience‘ they deal w/the artists directly and give them an additionally royalty-about 10% of retail- the artist gets paid twice. –Foreign royalties are about 80% of the US rates. Other Deal Points: many considerations in retail merch deals are the same as tour merch deals like- approval of the merch, likeliness, designs and layout; restrictions on sell-out rights; right to purchase at the end. Particular points to retail-1-approval of sublicenses –right to approve all agreements merch company makes w/others and 2-Cross- collateralization-if the retail agreement is w/the same company as the tour merch (which is almost always so), the artist has to deal w/whether the advance under either agreement is cross collateralized w/the other. This isn‘t good for the artist. Representing Talent Artists‘ Team of Advisors: Team, Personal Mgrs, Business Mgrs, Attorneys, Agents How to Pick a Team: Passman Ch 2 Getting the team together: the professionals to max the career and net worth-personal mgr, atty, business mgr, agency, groupies. Business philosophy: 1) you (the artist) is a business-capable of generating $; 2) most artists don‘t like business; 3) success hides in a multitude of sins; 4) the career of an artist is going to have a limited run. Hiring a Team: 1) pre-team strategies: 1st get music down on a CD w/3 or 4 songs w/the best song at the beginning. Add photos w/it. most majors don‘t take unsolicited songs because of potential liability, there may be exceptions if it comes from a business mgr or atty b/c they get so many so they restrict them by requiring this. –find an atty or mgr to shop the CD. 2) who‟s on First? Attys want to keep their credibility w/the industry so will only shop Cds they believe in. business mgr usually last-b/c it is expensive for them to take on an artist. 3) the search for team members-suggestions for building the list: 1-all access (a website), 2Hits Magazine, 3-Billboard International Talent and Touring Directly-guide to mgrs etc. 3) screening the Sharks- how to protect yourself? 1-references-have the potential team member check tem out. 2-use your other team members-and ask why they are recommending someone. 3look beyond the sales pitch, 4-who is actually going to be doing the work?, -5-ask what the fees are, 6-personality, 7-decide now, confirm later. Changing a Team Member: deal with problems head on. Talk about problems w/them. If nothing changes or you loose confidence in them its time to change. Representing Talent Personal Managers Duties Critically important team member Contractual duties: ―advise‖ and ―supervise‖ Artist‘s career in the entertainment industries Actual duties include: – Artist‘s point person to the industry – Does everything except accounting and legal – ―Everything‖ includes: marketing, promotion, publicity, coordinating with label, deal shopping, arguing with label, approving/disapproving license requests, coordinating with other team members, tour planning, radio work, personal counselor and therapist, rehab leader, babysitter, mom, dad, punching bag, scapegoat, Obi wan Kenobi. –Requires special personality: Sancho-complex Role: the personal mgr is the single most important person in an artists‘ professional life. When they do the job right they are the general mgr and chief operating officer of the enterprise. The major aspects of their role: 1) help w/major business decisions; 2)help in the creative process and help with picking a producer; 3) promoting the career; 4) assembling and heading the professional team by introducing the artists to attys, bus mgrs, agents and overseeing their work; 5) coordinating tours (w/agent), working w/business mgr to develop a budget, assembling the road crew, and supervision; 6)pounding the record company to make sure that they are maximizing the advertising and marketing; 7) being a buffer b/n the artist and the outside world. The structure of a deal with the Personal mgr: Commission overview: mgrs usually get 15-20% of the gross earnings-(before deductions) and this has softened over the yrs. How? Negotiating the Manager‟s Deal: points1) compensation-the mgrs‘ %age, try to limit it to 15%. Sometimes they will share in the net rather than the gross-if they have a net deal sometimes they‟ll ask for a limit on the expenses. Sometimes they‘ll get a %age of the gross but their amt is capped out at 20% of the net. Typically receive 15% - 25% of gross. Higher in urban and country (20% - 25%) than rock and pop (15% - 20%). Lots of variations, such as different commission rates for different streams of income Important deductions before determining commissionable “gross‖: - Monies which go into product (recording costs, producer fees, tour support, payment to opening acts)- Artist wants commission only on monies Artist actually earns and keeps (advances, touring net, royalties once recouped) Non-commissionable costs 2)exclusions-sometimes can reduce or even exclude certain types of earnings. Generally, should be anything that does not put income or in-kind income into Artist‘s pocket –Recording costs-how to determine? Sometimes advisable to put a cap on them-so not commissionable as long as they don‘t exceed x amt. –Funds paid to producer –Royalties earned by separate co-writer –Tour support and other recoupable advances –Sound and lights –Opening acts for your band Maybe try to negotiate different amounts for different areas. Mgr promoting records, publisher promoting songs. Agreements are usually for sales volume- if don’t sell this much can terminate. Baby bands sometimes say-your our mgr but you have to get a record deal w/in 180 days or we can terminate. 3)losing tours- sometimes they‘ll agree that if a tour looses $, they get no commission. Manager wants touring gross Commission on Touring Balancing divergent interests in determining commission on touring –Artist wants % of net Argues manager should never earn more than band member Manager‘s earnings could exceed band‘s if gross was $250,000, expenses were 60% ($150,000) 4-piece band earns $100,000, or $25,000 each –Manager wants % of gross Under above scenario, manager would earn 15% of gross, or $37,500 Manager argues he or she cannot control expenses (hotel room, limos, catering, after parties, etc.); only band can. Term: b/4 3-5 yrs want to make their term as short as possible. The recent trend is terms geared to album cycles (commencement of recording to the end of promo activities surrounding itusually a tour). It is common to say that if an artist doesn‘t earn a min amt they can terminate the contract. another approach is to use album sales figures, instead of dollar amts. Exclusive deal for time-based Term with Options vesting in Manager or album-cycle-based deal. E.g.: 3 years with two 2-year options; or E.g.: 2 album cycles with two options. Compensation after Term – Generally, commissions payable on projects completed, begun, or ―substantially negotiated‖ during Term Earnings after the term-the gift that keeps on taking! Important to negotiate what the mgr gets paid after the deal is over-most management contracts say that they get paid on earnings after the term if they are generated under ―contracts entered into or substantially negotiated during the term‖. This means 2 things: 1) as to records made during the term-the mgr gets a commission of the sales occurring after the deal and; 2) the mgr is paid on records made after the term if they are recorded under a contract signed during the term. –managers argue that they were an integral part in the process so they should keep getting paid Protections from Overreaching Compensation After Term Sunset clauses, De-escalating commission rate-deal with the problem in a clause-, Final cutoffE.g. 3 – 5 years after Term -Sunset clauses-these are ways to cut back on the mgr getting paid forever-sunset clauses end the day for commissions: 1)records a)mgr gets paid only on those recorded and released during the term, b) or get ½ commission on records recorded but released after the term. 2)publishing: a)mgr paid only on songs recorded and released during the term, b)1/2 commission on them if they are released after the term, c)1/2 commission on songs written during the termthis cuts of the commission of songs written after the term under ks made during the term. 3)Final cut-off-a)some date where the commission ends(3-5yrs after the term take no more than 7), b)even w/an overall cutoff sometimes can reduce the commissions(like full for 2 after the term, ½ for the next 3 then they end for good).—these approaches are not mutually exclusive. Double Manager Problem: in some cases one manager will want money for a record that was recorded during their term, (or partially) that the new manager will claim. Make sure you get a sharing agreement so that there is little or no overlap so the artist does not have to pay two commissions for two long. Key Man: the mgr might work for a company so have a provision in the contract that states that the contract is w/them-the person that the artist has a relationship w/ and they must personally act as the mgr and if not then the artist can terminate the k. try to make the language of this as broad as possible. ―Key Man‖ [Key Person] Clause-That person acts as personal manager; if not, deal‘s terminable. Double Commissions: if the artist sets up a corp for tax purposes, make sure it doesnt trigger a ‗double commission‘. Specifically state that the mgr‘s commission is based on the artists‘ earnings at the corporate level, and that they don‘t get to take twice. Power of Atty: state that the mgr has the power of atty (power to act for the artist)-like the right to sign ks, hire and fire other reps, cash checks, etc-try to get rid of all of this nonsense! -Risky and ill-advised for both parties -Protections: Limit scope, such as brief, imminent personal appearances, Artist unavailable but gave verbal approval Picking the right Manager: ―Passman‘s Treatise on Managers‘ Careers‖. Managers are unregulated unlike attys-maybe set up a company and have the mgr be an employee of the co. Business Managers: General: Their role is to handle all of the artists‘ money. Duties: Watch, verify, and regulate the money flow; No special training needed; unregulated; Willingness to audit and be audited; Can morph into personal duties, such as tax returns, paying personal bills while on tour, investment advice, insurance planning, etc.-smart people have accountants do it. when its people who are family it is sometimes harder b/c the record companies have to train them- but sometimes they don‘t stick by the old ways and can get things done. There are big mgmt firms, more common in sports than music biz. Big firms tends to be the booking agents in the music biz. Compensation: Custom is 5% of gross, Less if superstar act that can pay own freight, Fees should be capped b/c what they do from quarter to quarter ends up being the same. the custom is a %age (5%), hourly rate, flat fee, or some combination. And fees are always negotiable. – doesn‘t make sense for superstar to hire mgr on gross! How to Pick a Business manager: 1) References, 2)Wheeler-Dealers-trend recently is for the business mgrs to farm out their investment advice to specialists-but ask how these outsiders are getting paid. 3) family-the artist shouldn‘t involve them in their financial life. Business Mgr Checklist: 1-What are the financial reports they get and how often? 2-What is their investment philosophy? 3-Are they a CPA 4-Their charge. 5-What exactly are they going to do-investments, bill paying, taxes, budgeting, insurance needs? 6-Do they want a written agreement? Don‘t agree to a term. 7-Do they represent music clients? Want someone in the business. 8-Have they handled people similar to you? 9-Do they have E&O (errors and omissions) Insurance? This insurance pays off if the mgr mishandles the affairs. And how much does the insurance cover? 10-Do they have any international experience? 11-Do they get referral fees? These are amts paid to them for putting the artists‘ $ w/a particular broker, company etc. 12- Carefully set up the check signing process. The artist should try to sign all they can. 13- Can you audit them? 14-Make sure they want to educate the artist. Picking a Lawyer Attorneys Duties Lots of types of advice: Legal implications and exposure-day to day basis, Music, Career guidance, Style Attys role has evolved, they have inside knowledge of what kind of deals that are being done. They often also have a large client base so they work with many different record cos. Some attys will shop CDs some wont. Shop discs means that you try to get a deal for an artist that doesn‘t have one. If they shop discs they do it for a %age of the profits from that project. Attys also give business advice-about business structures and negotiate ks. Fees: usually a %age about 5%. Ground floor representation: 5 – 10% of gross Other forms of compensation: Flat fee (e.g. $7,500 to negotiate offered record deal), Hourly rate, Value billing – Percentage (3% - 5%) of value added to deal Some do ‗value billing‘, often w/an hourly rate or retainer against it. a retainer is a set monthly fee (either credited against the ultimate fee or a flat fee covering all services). Value billing means that when the deal is finished the lawyer asks for a fee based on the size of the deal and their contribution to it. Ex atty has client that has 4 songs that are being recorded by different artists in different genres and contract is up and they anticipate they are worth x- try to get big advance in exchange for 3-5% -this is the value added. Attys don‘t really add a lot of value unless at superstar level-then different things. Conflicts of Interest: when 2 clients of the same atty sue each other or even make a deal w/each other. Attys are ethically reqd to disclose their conflicts of interest-the client can either 1-choose another atty or 2-waive the conflict and continue to use the same one. Most of the deals that an atty‘s clients have made w/each other can be handled easily by 1-each client gets a new atty (rare unless serious conflict), 2-one gets another atty, 3-the clients work out the agreement themselves and the atty draws up the paperwork not representing anyone‘s interest. problem nowadays is that some attys are selling the fact that there are conflicts of interest as benefits to their clients. Ex: 4 people in a band go to atty (2 are songwriters) someone is expressing interest in being their personal mgr. who is the client? -the atty says I am giving legal advice to the band as a wholeand at this point they are all happy, and attys don‘t get no harm no foul rule in this regulated industry. –even if clients are unharmed still can be disciplined by the bar! a) directly adverse b) not directly adverse Conflicts (Rule 4-1.7(a), Rules Regulating The Florida Bar) ―A lawyer shall not represent a client if the representation of that client will be directly adverse to the interests of another client, unless: –―the lawyer reasonably believes the representation will not adversely affect the lawyer‘s responsibilities to and relationship with the other client; and –―each client consents after consultation.‖ The answer of reasonableness- it is almost always going to be no! Conflicts (Rule 4-1.7(b), Rules Regulating The Florida Bar) ―A lawyer shall not represent a client if the lawyer‘s exercise of independent professional judgment in the representation of that client may be materially limited by the lawyer‘s responsibilities to another client or to a third person or by the lawyer‘s own interest, unless: –―the lawyer reasonably believes the representation will not be adversely affected; and –―the client consents after consultation.‖—assume that this always means in writing! Ex: 2 people go to office, 1 starting record label (they have 5k) and the other is a student who is talented and they want the new company to produce their demo and the company wants the exclusive right to shop the students record (in the event they make it). if they want the atty to do a deal there is a conflict of interest. but there is the Intermediary rule--Conflicts (Rule 4-2.2, Rules Regulating The Florida Bar) Allows lawyer to act as intermediary between clients if: –Consults with clients about advantages and risks and obtains each client‘s consent; and –Reasonably believes the matter can be resolved on terms compatible with the clients‘ best interests with little risk of material prejudice; and –Reasonably believes the common representation can be undertaken ―impartially and without improper effect on other responsibilities‖ the lawyer has to the clients. ----so as in ex how to do the deal? If they know the deal they want to do- like exclusive agreement for 6 mos terminable if they don‘t get a deal or distribution the artist gets 25% after costs after every record sold-no advance b/c company has no money- under the rule the atty can put the deal together as long as the reqmts of the rule are met. Attorney Checklist: 1-expertise in the biz? 2-fees? Charge for costs? 3-written agreement? In California they have to and it is a %age arrangement that can be terminated at any time. 4-ask for references-do they respond, return calls w/in a reasonable amt of time? 5-any conflicts of interest? Agents: Role: agents in the music business are very different than those in the film business. Film-they are major power brokers. Music- almost exclusively involved in booking live personal appearances, sometimes commercials, tour sponsorship, tv specials, and other areas but they don‘t participate (or get paid for) records or songwriting, their sphere is limited. Fees: generally 10% of gross and this should be only on touring gross!! b/c they aren‘t involved in recording or songwriting they shouldn‘t get a part of the income from these. Agents are regulated by the unions: AFM (American Federation of Musicians) for musicians; AFTRA (American federation of TV and radio Artists) for vocalists and taped or live tv actors and actresses; SAG(screen actors guild) for film; and Actors Equity for live stage. These unions put a cap on what agents can charge- namely 10%. The union regulation of agencies is called ‗franchising‘ and unions only allow their members to be represented by franchised agents (who agree to the union‘s restrictions). One restriction is that the agent can only use contracts approved by the union-resulting in the union having its own printed form. The agency contract ends up looking like a small telephone book-actually it is separate contracts, 3 for SAG (1 for film, 1 for tv and 1 for commercials); 1 for AFM; 1 for AFTRA; 1 for Actors Equity; and 2 called ‗general services‘ and ‗packaging‘ to pick up everything that isn‘t covered by a union. Deal Points: negotiate 1-the term: they ask for 3 or more yrs but only give them 1. if its more than a yr them you should have the right to get out at the end of each yr if you don‘t earn at min levels. 2-scope-if in music and film business trend is for the agency to represent the artist in all areas. Can negotiate some but some require the artist to sign a full package. 3-exclusions-similar to personal mgr deals can exclude some $s from commission. a) earnings from records and songwriting and publishing-if the artist asks. b) exclude commissions from things like commercials and book publishing and record producing. c) costs of collection b/4 applying the commission. 4-termination of the agency: each union form has a clause stating that the artist can terminate if the agent doesn‘t get you work or offer of it w/in 90 days. Since they are separate provisions with separate terms want a provision that says that the artist can get out of all of them if the artist has the right to get out of any one of them. 5-territory-diffcult to give an agency less than worldwide rights if the artist is new or mid-level. No double commissions! Contracts w/Minors Contracts with Minors Avoiding Landmines: Lack of Capacity to Contract •Generally governed by statute-these have been designed to supercede or override the cl rule that minors cant k. •Distinguish between two types of contracts involving minors: –Personal Services Contracts (record deals, management, publishing deals)-any contract that requires the minor to provide a service –Releases (rights to performance or likeness)-modeling release, ads •Public policy: to protect minors from their own improvidence and from exploitation by others Child Protection Statutes – The Coogan Act Jackie Coogan-this is who these ks with minors issues began with, he grew up to be uncle fester on the Adams family.-cogan act designed to supercede the CL rules, at cl the earnings of a child belong to the parent. General Common Law Rules •Due to the disability of minority, a minor can disavow a contract both before and after reaching 18, but can‘t breach it to the extent of unjust enrichment. –Impact: Impossible to enter into a legally binding contract with a minor •Earnings of a child belong to the parent, not the child. •Supercedes common law on capacity to contract. •Minor‘s earnings: •All states have some form of Coogan Act. Contracts with Minors Releases Statutory Responses – The Coogan Act •Procedures created for judicial approval of personal services contracts for minors. –Courts set aside a proportion as it deems necessary for the minor‘s best interests. (NY) –Provides all earnings belong to the minor. (Fla.) •Consent to use an image or likeness of a minor can be given by a parent. •Leading case: Shields v. Gross, 58 N.Y.2d 338, 448 N.E.2d 108, 461 N.Y.S.2d 254 (1983). behalf by her parent where Brooke modeled nude at age ten. •Issue: Whether Brooke Shields could disaffirm a prior ―unrestricted consent‖ executed on her •Held: Parental consent was valid. –Note: child protection statute covered child performers, not child models. •Note different policy reasons in personal services contract versus releases Florida‘s Statute (Fla. Stat. §§ 743.08, 743.09, 743.095) Probate Court has jurisdiction Minor must be Florida resident or services must be performed in Florida Approval may be sought for contracts already in existence Approval of contract does not emancipate minor or approve other contracts Contracts with term greater than 3 years from the date of petition shall not be approved Approval may be revoked if the Court finds the physical or mental well being of minor is being impaired by performance Once a contract is approved, ―all earnings, royalties, or other compensation earned or received by the minor pursuant to said approved contract shall become the property of the minor.‖ Court has discretion whether to require establishment of a guardianship of the property If guardianship of property is established, Court shall set aside a proportion of ―Net Earnings‖ for the minor. Court has discretion to decide percentage. Procedure for approving contracts with minors varies significantly by judge Florida‘s Statute Appointment of guardian ad litem is discretionary unless parent will receive compensation from performance of the contract Scott Eden Mgmt v Andrew Kavovit- Disaffirming infant is not entitled to be put in a position superior to such as one as he would have occupied if he had never entered into his voidable agreement. He is not entitled to retain an advantage from a transaction which he repudiates. The privilege of infancy is to be used as a shield and not a sword. Group Issues Groups: Passman ch 22 Group Provisions in record deals: whole separate section in contract –it deals with what happens when the group is no longer a group, or when an individual decides they don‘t want to be in the group anymore. Key Members of the band: most contracts say that a breach by one member is treated as a breach by all-so if one refuses to record w/the others, all are in breach. This is why the concept of the ‗key member‘ is important. Under this system some are key members –if they leave the group or breach then the company can treat this as the entire group being in breach and then exercise various options, if anyone else does then it cant. The artist has to ask for this-no company uses the ‗key member‘ concept in its form agreements. The company‟s rights to leaving members: what can a company do if a member (key or not) leaves the group? 1) if a member leaves the group all companies provide that the company has the option to their services as a solo artist and if they become a member of another group. Even with the key member concept the company may want the right to pick up any leaving members . 2) the company also gets the option to keep the remaining members as a group. 3) the company has the option to terminate remaining members –note that if they don‘t exercise their option for the leaving member then the deal is over so make sure that only a key member‘s leaving can trigger this right. Leaving member deals: the person leaving is called the ‗leaving member‘. Terms of the leaving member‘s solo agreement are spelled out in the group‘s deal and are almost always less favorable than the deal for the group. Deficits: what happens to the unrecouped amount when a solo artist sets out on their own. Many companies at least in their 1st contract draft take the right to 1-take solo royalties to recoup the group and 2-if the group was recouped but the solo flops use the groups royalties to recoup the unrecouped solo. If the artist asks the company will generally agree that only a pro-rata share of the groups deficit can be charged to the soloist. Ex: if there are 5 members in a group only 1/5 of the groups deficit can be charged to the solo artist. Conversely can ask for only the pro-rata share of the soloist‘s deficit to be charged against the groups royalties. Be careful to provide that if the group continues to record without the soloist, no future group deficits can affect the soloist‘s acct. also make sure that this cant affect their group royalties. Most companies will agree not to charge future costs against a person that has left b/c the leaving member doesn’t participate in the future record’s royalties and shouldn’t bear the costs-but be sure to ask! Internal Group Deals: need internal contrcats (b/c of disagreements, etc). Corporation Versus Partnership: the major differences b/n a corp and a partnership are the taxplanning aspects, the liability limitations, and corps are much more expensive to set up and run. Liability limitations- corps limit what assets someone can grab when they are suing you. w/ a corp its only the assets of the corp, but with a partnership-they can grab the partnership‘s assets and the personal assets of every partner. Most states now have LLCs (limited liability company)these are basically partnerships w/ the limited liability of corps. w/a partnership-need a partnership agreement, with a LLC or a corp –need 1-written shareholder agreement (an agreement among the shareholder‘s of a corp or owners of the LLC who are called members) and 2-employment agreements b/n yourselves and the corp or the LLC. Principles built into Corps, LLCs and Partnerships: 1) The most important asset-the group name.and usually the least protected! figure out 1st what to do with it before there is a fight. Deal with it on a written agreement. Also think about what will happen to the group if –the lead singer and songwriter leave the group, the drummer who doesn‘t write the music leaves, 3 out 5 leave and form another group, the group totally breaks up and everybody leaves. Most common solutions: 1-no one can use the name if the group breaks up- regardless of how many are still performing together, 2-any majority of the group members performing together can use the name (ex- 4 of 7 still performing together so they can still use the name), 3-only the lead singer can use the name regardless of who she is performing with, 4-only the songwriter who formed the group and thought of the name can use it regardless of who they are performing with, 5- the lead and the songwriter can use the name as long as they perform together. Many groups operate on a ‗majority rule‘. 2)Percentages: decide who gets what. 3) Conrtrol-try not to have an equal # b/c it allows for a deadlock. Other issues: 1-firing, 2-hiring, 3-quitting, 4-contributions, 5-incurriing expenses, 6-amendment of partnership agreement, 7-death or disability, 8-ex-partners. Buyouts: 1)price-price of the buyout equals the leaving partner‟s percentage of all „hard‟ assets owned by the partnership. Hard- all goods that you can touch and feel as opposed to intangibles-like group name, ks, etc. so if the assets are worth 100k and the partner has a 25% share the value of the assets is 25k- this is usually done on value as opposed to cost basis. It can also be done on ‗book value‘ accounting concept that means that it is on the value of the books of the partnership-it is usually the cost minus some scheduled factor of depreciation that is worked out by the accountant. of the 3 methods, book value is usually the lowest, though the real value could be lower and cost is the least accurate measure of anything. Different approaches to intangibles. 2)cash payout-the value of hard assets is paid out over a period of 2 yrs, and the leaving partner gets interest. 3)contingent payout-the leaving members get their continuing %age from activities of the partnership in which they participated (royalties on records they participated on, $s from merchandise, concerts and shows they performed on) But there are special record contract provisions about leaving members that may affect their continuing royalties. 4)Legal ethics- w/counsel that represents the partnership if a member leaves there is an automatic conflict of interest. What Is In A Name? how to protect your rights in a name from people outside of the group: Rights in a name-group name is protected by a ‗service mark‘ which is similar to a trademark (trademark is a name that is used for goods, whereas a service mark is a name used for services like airlines, etc.) Rule: get the rights in a mark by actually using the name and having it associated with you in the mind of the public. –in fact can stop people from using different but similar enough names that confuse the public.-cases: Charlie Chaplin stopped someone from using the name Charles Aplin and Dallas Cowboys Cheerleaders stopped Debbie Does Dallas from saying that the star was an X Dallas Cheerleader. The artists‘ association with the name doesn‘t have to be nationwide, it can be locally. Chapter 7: Literary Publishing I. The Business of Literary Publishing a. Started as family business w/ intimate relationship btw company ownership and group of authors as norm b. Many pub houses absorbed by multinational conglomerates. Potentional negative consequences for authors i. b/c publicly held/ must answer to stockholders and public markets, greater hesitancy to gamble on moderate sellers or unknowns ii. less one-on-one involvement between editors and authors than in past b/c of need to generate steady, sizeable profits. iii. 50 largest publishing houses account for 75% of U.S. sales c. 2005 U.S. net sales $25 billion (music was 14 billion) d. #s are going up every year (9.9% increase from 2004) e. Trade books main increase f. Mass market paperbacks, book clubs, and mail order have gone down g. E-books and audiobooks have big growth rate h. Common for authors to keep copyright The Scope of Literary Publishing Contracts a. Paperback Licensing i. Generally publishers want both hardcover and paperback rights ii. High $ writers can usually get someone different to do paperback b. Foreign Licensing i. Issue becomes translations—who does it and who has approval of them. Usually the author doesn‘t get approval. ii. Precise limits of territory within which foreign translation can be distributed must be included c. Merchandise Licensing i. Important to maintain that right in the author (if you work for them) ii. Merchandise licensing agreement must 1. define precisely for what purposes the license is granted in terms of what product can be produced 2. what degree of quality control exists 3. how long the license runs 4. restrictions on territorial areas and types of marketing should also be negotiated d. Motion Picture/ Television Licensing i. If publisher part of major media conglomerate, may want to work out something to share. Otherwise, author probably wants to keep rights ii. Prospective producers usu first obtain option on the work, pending decision as to whether work is translatable to film/ $ and talent can be obtained. 1. initial option period typically one year with one or two potential renewal periods II. III. 2. set fee for option, with further payment if option exercised. Sometimes option fee works as advance. 3. option agreement should define length and cost of option and terms of ultimate agrmt if exercised. Define creative control retained by publisher or author, time limits on license, outside date when film must be made or rights relinquished, scope of license, royalty, fee arrangements. 4. ability to exercise option often conditioned on occurrence of specific event(s) like preparation of first draft of script, signing of name director or actor, etc. e. Other Media Licensing i. New technologies clause has some newfound importance—audiobooks, etc. 1. watch out for reduction of royalty rates under new technologies clause—see where industry is going Publisher-Author Contract in Detail a. Rights Granted and Assigned i. Publisher wants exclusive worldwide perpetual rights in work, incl right to issue trade paperback editions; book clubs; reprint licensing; mass-market paperback reprints; selections for anthologies; textbooks; abridgements; condensations; periodical and broadcast selections; digests; transcriptions; special editions for handicapped, theatre, motion pictures, television, radio; educational pictures, merchandising, foreign language; export and ―all others‖ ii. Author wants to limit such grants and at a minimum retain roylty rights in all such possible uses of the work. Consider each item separately negotiable. Audiobook and online distribution rights are of increasing importance. b. Delivery of Satisfactory Manuscript i. Typically agrmt requires that manuscript be ―satisfactory in form and content‖ to the publisher ii. Where such clause appears, the good faith decision of the publisher is determinative c. Noncompete Clause i. Publisher requires author to agree not to publish a future book based on material of book under k or that interferes or competes with that book ii. Author should grant no more than limited, specific noncompetition procisions d. Publication i. Publisher has implied duty to promote work ii. Have a kind of guaranteed release clause: If you don‘t publish my book within 18 months, all rights revert back to me. 1. if author does deal with P1, $25K advance, but P1 doesn‘t publish, P2 gives advance, then part of author‘s right to get back manuscript form P1 is to pay back the advance. Doesn‘t work that way in other industries. IV. V. e. Copyright i. Usu retained by author f. Royalties and Other Payments i. 50,000 sold is considered a success ii. Standard rates 1. hardback: 10 percent of SLRP on first 10,000 copies 2. paperback: 6% first 100,000; increase to 7.5% thereafter iii. expenses incurred by author in marketing book (i.e. tour) are reimbursed by publisher in a standard k g. Future Revisions i. Rights of author to participate in them should be carefully negotiated h. Option for Next Work i. See Pinnacle. Publisher usu just gets a ―first right of negotiation‖ or a ―right of first refusal‖ (right to match a third party offer) i. Other Provisions i. K usu not assignable by author but is by publisher ii. If suing pub for breach have to notify and give opportunity to cure iii. Pub usu has right to publicize book by using author‘s name and likeness The Impact of Custom and Usage a. Geisel (Dr. Seuss case) i. Oral agrmt with publishing co for series of cartoon essays in 1932 ii. Does that allow publisher to later manufacture toys from those cartoons? iii. Court said that at the time, custom and usage implied agreement to transfer all rights in work, so they could do that b. Stein and Day, Inc. v. Morgan i. Publisher seeking to recoup advance not covered by royalties gave author $35k for 2 works. First was accepted, $20K in royalties, Second was rejected in good faith ii. Author had to pay back. Explored custom, but said custom can‘t overcome express language of the written agreement iii. This case offsets the Dr. Seuss case c. Tasini v. The New York Times Company, Inc. i. Deals with ownership of copyright in works published online in early days of interent ii. There is a difference under copyright law between a collective work and a contribution to a collective work iii. Periodicals= collective works. NY Times entered deal with Lexis Nexis to put their stuff online, but authors retain the © to their articles. Times tried to claim these are ―revisions‖ of collective work. Court said they were not. The publisher could not relicense article pursuant to express licensing agrmt iv. Authors win. Since then, everyone gets language in agrmt to allow publisher to post electronically. The “Next Book” Option a. Pinnacle Books, Inc. v. Harlequin Enterprises, Ltd. i. ―best efforts term‖: when people can‘t agree on performance obligation, they throw one of these in. Here court said it was too vague and unenforceable. ―Best efforts‖ must set forth definite and certain terms of every material element of the bargain. Need objective criteria. ―clear set of guidelines against which parties best efforts may be measured.‖ ii. So, usually noting objective in ks re best efforts, so if need to use one, make some shit up i/e best efforts shall include the following… (when trying to get around dealbreaker). Films I. Producing films: The Studio Model a. Acquisition of underlying rights i. Prospective producer begins by obtaining rights to existing play, book, screenplay, or treatment for a screenplay ii. Purchase of rights usually made with option agrmt calling for initial 1 yr period + one or more 1yr extensions iii. Big people get large option payments and options subject to conditions precedent (such as obtaining funding commitment, leading actor or director, creation of final script) iv. Most cases option payments small, no conditions precedent v. Usually agrmt for purchase of rights of an idea calls for payments in range between five figures and millions. vi. Past record of writer, marketability of idea, whether major actor/director interested are all factors that determine value. vii. Producer wants broadest possible grant of rights viii. Need rights in characters embodied in property for remakes, sequels, etc ix. Proven writers get deals on basis of outlines or treatments b. The Production/Financing/Distribution Deal i. Next, The PF&D deal is secured from studio. ii. Typically, studio engages producer to oversee development of script, recruitment of director, lead actors, and if they decide to go forward, to produce the film iii. Studio puts up funds to develop script, produce iv. Typically studio has right to abandon project at any time and reserves total control over all decisions concerning distribution and marketing. v. Studio, not producer, is really in charge vi. Producer‘s fee rangers between $100K and $2 million; usually entitled to 50% of some k‘ally determined net vii. Matter proceeds as follows 1. pre-production a. budget key step in this phase (established when script is finished). Studios usu reject first one, so producers usu overload them b. once budget, actors, directors set, producer is accorded ―pay or play‖ status, meaning studio has to pay him off whether or not film made. II. c. full cast/crew assembled, locations scouted, sets built, costumes, props, etc 2. principal photography a. film is actually shot 3. post-production a. re-shoots, overdubs, effects, edited, scored, titeled, trailers, billboards, commercials, press releases, deliver film to exhibitors c. Dealing with Directors, Actors, and Writers i. Three major talent unions: 1. The Directors‘ Guild 2. The Writers‘ Guild 3. The Screen Actors‘ Guild ii. Each union has basic agreement for its members. iii. Ass‘n of Motion Picture and Television Producers is the bargaining branch of studios and producers; enters into basic agreements with the unions iv. Directors: key issue is creative control 1. Directors want right of ―the final cut‖ -- studio cannot alter the picture once delivered. 2. Rare v. Actors: key issue is billing (credit) 1. Ancillary issues: approval of script, director, studio and on-site perks. vi. Screenwriters: no creative control 1. May not even get writing credit d. Gross Receipts/ Net Profits i. General rule: participant is paid fixed fee; if there is contingent compensation, paid only after recoupment of fee and project achieving ―break even‖ status. ii. Net profits generally are calculated this way: 1. Determine Gross (studio receipts from theatrical runs, tv licenses, parts of ancillary income) 2. Less ―distribution fees‖ – 30% film rentals in U.S. & Canada 3. Less ―distribution costs‖ – duplicating and handling prints, advertising, promotion, publicity, paying in-house studio help. 4. Less ―production costs‖ – development, pre-production, principle photography, post-production, plus 125% rolling prime, plus 15% overhead 5. Less ―deferrals‖ – deferring large payment to top talent. 6. If anything left after deductions, then studio and producer usually split net 50/50 subject to a ―floor‖ to protect producer. The International Market a. American film industry dominates it b. Foreign countries source of financing for American movies c. Most European countries give subsidies and quotas to encourage investment in locally produced films III. IV. d. Supranational bodies that provide support for co-national productions e. International co-financing spreads risk inherent in industry, allows American producers to enter European subsidy system, allows more creative and artistic films. Ancillary Markets a. Home video, pay per view, soundtracks, books based on movie, merchandise. b. Continues to provide revenue well after theatrical run has ended. c. Can make up for movie that runs a deficit Distribution a. Dealing with Theaters i. Four methods of licensing a motion picture 1. competitive bidding a. send out bid letters for specific movie with minimum terms, best bid is chosen 2. competitive negotiations a. distributor negotiates with two or more exhibitors competing for right to show movie, rather than opening bid to all theaters in given market area 3. noncompetitive negotiations a. occur where distributor negotiates with only one exhibitor (usu in places where one exh. Owns all theaters) also where distrib deals with same exhibitor on informal exclusive agrmt (aka ―tracking‖) 4. film splitting a. agrmt between exhibitors in area to split rights to negotiate for certain upcoming films. Subject of antitrust cases. ii. Once film committed to theatre, rental agrmt is executed between parties. Most used format is the 90/10 deal with a floor: theatre allowed to retain negotiated dollar amt of box office receipts to cover its expenses, with the balance (if any) divided 10% to the theatre and 90% to the studio. 1. studio will customarily insist on receiving no less than minimum (floor) of 70% of weekly box office revenues for first two weeks of the run, 60 for next two, and 50 for next two, and so on. Studio doesn‘t share in concession stand revenue. b. Antitrust Issues in Distribution: Studio Issues i. United States v. Paramount Pictures, inc. 1. The United States sued to restrain violations of §§ 1 and 2 of the Sherman Act by (1) five corporations which produce motion pictures and their respective subsidiaries or affiliates which distribute and exhibit films and own or control theatres, (2) two corporations which produce motion pictures and their subsidiaries which distribute films, and (3) one corporation engaged only in the distribution of motion pictures. The complaint charged that the first group of defendants conspired to and did restrain and monopolize interstate trade in the exhibition of motion pictures in most of the larger cities of the country and that their combination of producing, distributing and exhibiting motion pictures violated §§ 1 and 2 of the Act. It also charged that all of the defendants, as distributors, conspired to and did restrain and monopolize interstate trade in the distribution and exhibition of films. After a trial, the District Court granted an 2. 3. 4. 5. 6. 7. 8. injunction and other relief. The Supreme Court reversed the lower court's decision concerning divestiture and monopoly because the lower court's conclusion that defendants had not acquired a monopoly, but rather had only committed restraints of trade, was insufficient. The lower court should have focused on what results the conspiracy achieved and how they could be undone. Provisions of contracts between distributors of motion pictures and exhibitors as to clearances, i. e., the period of time which must elapse between runs of the same picture within a particular area or in specified theaters, are illegal restraints of trade within the Federal Anti-trust Act where they have no relation to the reasonable protection of the exhibitor against exhibition of the picture by a competitor at the same time or so soon thereafter that the exhibitor's expected income from the run will be greatly diminished. "Block booking" in the motion-picture industry, which is the practice of licensing one feature or group of features on condition that the exhibitor will also take another feature or group of features released by the distributor during a given period, violates the Federal Anti-trust Act by preventing competitors from bidding for single features on their individual merit and by enlarging the monopoly of a single copyrighted picture by adding thereto that of another copyrighted picture which must be taken and exhibited in order to secure the first (distinguishing Transparent-Wrap Machine Corp. v. Stokes and Smith Co. 329 US 637, 91 L ed 563, 67 S Ct 610). Films may, however, be sold in blocks or groups where there is no agreement, express or implied, for the purchase of more than one film. The District Court's findings that defendants had unreasonably discriminated against small independent exhibitors and in favor of large affiliated and unaffiliated circuits through various kinds of contract provisions and that these discriminations resulted in restraints of trade in violation of the Sherman Act, are sustained. A provision in a decree in an injunction suit under the Federal Anti-trust Act, requiring licensing of the exhibition of motion-picture films to the highest responsible bidder in each competitive area, should be eliminated in view of the facts that the determination as to who is the highest bidder or the most responsible bidder involves the use of standards incapable of precise definition, that the advantage would be to the larger and financially stronger exhibitors, and that such provisions would implicate the judiciary heavily in the details of business management if supervision is to be effective. It is not enough, in determining whether defendants in a suit under the Anti-trust Act against motion-picture distributors should be required to divest themselves of theaters owned or controlled by them, to conclude that none of the defendants was organized or has been maintained for the purpose of achieving a national monopoly nor that such defendants through their present theater holdings alone do not and cannot collectively or individually have a monopoly of exhibition; but the investigation should be as to the results of the conspiracy to effect a monopoly through restraints of trade, even if they have fallen short of monopoly Specific intent is not necessary to establish a "purpose or intent" to create a monopoly within the provision of the Federal Anti-trust Act making it illegal to monopolize or attempt to monopolize any part of interstate or foreign commerce, if monopoly results as a necessary consequence of what was done. Vertical integration of producing, distributing and exhibiting motion pictures is not illegal per se; its legality depends upon (1) the purpose or intent with which it was conceived or (2) the power it creates and the attendant purpose or intent. c. Exhibitor violations i. Split arrangements between exhibitors is another major antitrust issue ii. United States v. Capitol Service, Inc. 1. Appellants were motion picture exhibitors. They agreed to divide first-run movies among their theatres by allocating a "right of first negotiation" for each movie. In a civil antitrust action, the district court found that appellants had violated § 1 of the Sherman Act, 15 U.S.C.S. § 1, by restraining competition. The district court issued a nationwide injunction prohibiting any further agreements to divide movies among appellants' theatres. The appellate court affirmed, holding that an agreement among competitors for a right of first negotiation constituted a horizontal restraint on competition and was illegal under § 1 of the Sherman Act. The district court had the authority to enjoin such activity anywhere in the United States, regardless of the actual size of the area where the violations occurred. The appellate court affirmed because an agreement among competitors for a right of first negotiation was an illegal horizontal restraint on competition that violated the Sherman Act and was properly subject to a nationwide injunction. There are two categories of antitrust analysis. In the first category are agreements whose nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish that they are "illegal per se." In the second category are agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed. In either event, the purpose of the analysis is to form a judgment about the competitive significance of the restraint; it is not to decide whether a policy favoring competition is in the public interest, or in the interest of the members of an industry. Subject to exceptions defined by statute, that policy decision has been made by the Congress. A right of first negotiation, no matter how flexible in theory, is an agreement among competitors amounting to a horizontal restraint on competition illegal per se under § 1 of the Sherman Act, 15 U.S.C.S. § 1. Having found conduct which is illegal per se under § 1 of the Sherman Act, 15 U.S.C.S. § 1, it is not an abuse of discretion for the district court to enjoin appellants from engaging in such conduct anywhere in the United States. Geographical limitations regarding the issues at trial do not alter the court's broad remedial powers. The district court has large discretion in redressing antitrust violations and in fitting the decree to the special needs of the individual cases. 2. 3. 4. Television I. The Television Business a. Dominated by ABC, NBC, CBS, Fox b. Under typical network agrmt with local station, network provides schedule of programs with national or regional commercials and financial compensation for the airtime utilized i. Affiliate allotted portion of commercial spots to sell to local advertisers ii. Doesn‘t have to accept all network programming, but local rejections are rare. If it does reject, network can license show to another station in the market. c. Size of market most important—the larger it is, the larger the audience, the more advertising $ d. Cable is a retail industry e. Creating and Acquiring programming: i. Dealmaking in tv industry ii. The development deal 1. studio pays writer, producer, or production company a minimal amt and provides offices, studio facilities, a development fund, and other essential svcs. Studio gets first look at anything created under agrmt, if gives greenlight, gets distribution rights and syndication rights to new series. 2. $ spent on development are deducted from earnings of creations of writer or producer generated under agrmt. Royalties collected for all future broadcasts iii. Deficit funding 1. most tv shows operate at a deficit; the diff btw actual cost of production and license fee network must pay (producer or studio must absorb deficit). Hopefully make it back on syndication market. Few make substantial profit in first run. f. Syndication i. Networks don‘t provide programming for entire day. Syndication=selling program individually to affiliates in local markets or to cable network i/e Seinfeld ii. Usu done through straight cash deal, under barter system (syndicator gets commercial time) or combination of two g. Ratings i. Success of show depends on them. They are the percentage of total television households whose sets were tuned to a program. ii. Advertisers use demographic breakdowns, buy spots on shows depending on specific amt it takes to reach 1,000 viewers. (the CPM or cost per thousand). iii. Nielsen Company monitors ratings, reports them h. FCC i. Licensing 1. FCC controls broadcast and cable networks through licensing and registration. 2. broadcast ones must be renewed every five to ten years. Renewals are rarely a problem. 3. cable systems are not licensed, merely have to register 4. penalties include revocation of licenses and fines when settling disputes ii. Control of Broadcast TV 1. other ways it controls a. network affiliate relations i. can‘t force affiliate to take programming, affiliate can take progs from any source with which it can reach agrmt, can‘t control affiliates advertising inventory by setting rates or acting as natnl sales rep b. limits number of stations which one entity can own i. 35% of total affiliates linked to each network II. c. limits broadcast hours of networks through prime-time access rule i. network programming ltd to 3 hrs of 4hr prime time slot in the top 50 markets (to encourage local programming, etc) iii. Control of Cable TV Piracy: Unlawful Interceptionand Retransmission of Signals: Home Box Office, Inc. v. Pay TV of Greater New York, Inc. : a. The cable television provider entered into licensing agreements for its broadcasts with affiliates. The subcontracting provider broadcasted programs pursuant to an agreement with a distributor authorized by the cable television provider. The parties entered into a dispute concerning broadcasting rights. The subcontracting provider expanded into unapproved areas, it refused to cease, and continued to receive fees from the broadcasts. The district court granted the injunction. 47 U.S.C.S. § 605 of the Communications Act of 1934 protected against the pirating of broadcasts, but it did not apply to communication for the use of the general public. The general public did not receive the cable broadcasts, and thus, that law applied. The cable television provider did not consent to the broadcasts. Even if there was an oral agreement, it violated the Statute of Frauds. The subcontracting provider continued to broadcast, which established irreparable harm. In considering the subcontracting provider's harm, the district court was only concerned with its legal rights, not economic harm. The suit was timely. The motion for a preliminary injunction sought by the cable television provider was granted 47 U.S.C.S. § 605 of the Communications Act of 1934 prohibits any person not entitled to intercept or receive radio communications from doing so and from using such communication or any information therein contained for his own benefit or for the benefit of another not entitled thereto. By its terms the section does not apply to the receiving and using of the contents of any communication which is broadcast for the use of the general public. "Radio communication" is defined by 47 U.S.C.S. § 153(b) to include the transmission by radio of signals, pictures, and sounds of all kinds. A plaintiff has a private right of action for injury arising out of a violation of 47 U.S.C.S. § 605 The Federal Communications Commission has concluded that the unauthorized interception of television signals from such a multipoint distribution service 47 U.S.C.S. § 605. The proper objective of a court faced with an application for a preliminary injunction seems clear. It is to try to keep to a minimum whatever irreparable loss of rights may be caused by a preliminary decision that is ultimately determined to be erroneous. b. c. d. e. TheatreTrends in the business: Theatre is on the rise, especially off broadway, and off-off broadway. Non-musicals are getting harder to put on Broadway The cost of producing a major musical is $5 to $12 million. Dramas and comedies go for 1.52.25 million. A large musical will have to play at capacity for 40 weeks to recoup, small musical and large dramas need to run 30 weeks at capacity. Success is largely dependent on critical claim, and the Tony awards. Because of the high risk, and the high amount of capital needed, the business is moving away from individual financing, to corporate or institutional financing. Theatre audience demographics = Republican demographics The Approved Productions Contract The APC is the result of a collaborative effort between the League of American Theatres and Producers and the Dramatist Guild, two theatre union groups. It gives the producer: a.) first class production rights b.) the right to initially present the play as a developmental production c.) the right to present the play off broadway after ―vesting‖ (opening the play in broadway, getting press review in New York, playing 64 performances in an eighty day period, an other strange technicalities) d.) this also includes an option to present a first class production in the United Kingdom, and n New Zealand, and Australia. Definition of author This is not the underlying works holder, (although it might be if the same person who wrote book, wrote play), this is the person who wrote the script for the play, or musical. In the case of a musical the authors may consist of bookwriter, composer, and lyricist Options and Advances: Payment to Author to option a play: 1. 5,000 for the first 6 mos. 2. Then if the producer wishes, they may exercise their option to renew for additional 6 mos. 3. At the end of the 1st year if the producer wants to option the play for an additional year they must: a.) Have raised 50% of the total estimated production cost AND b.) must pay the author an additional $5,500 that year in stages AND c.) they must have signed one of the following: 1.) theatre 2.) Star 3.) Developmental theatre 4.) Director Payment to Author to option a musical: 1. Payment of $18,000 for the first year option 2. Renewable for 2nd year for $9,000 3. Renewable in the third year for $900 a month (no other conditions other than payment) In order to receive this money the Author must: Play: deliver a script of over 110 pages Musicall: 80 pages and 12 songs Recouping Option Payments: 1.) After the producer has recouped production expenses; 50% of the royalty payments owed to authors can be applied to recoup the option payments. Advances for Authors: 1.) Authors are to be given advances when the play, or musical is capitalized, and certain events occur: a.) (PLAY) First day of rehearsals: 3% of the capitalization up to $35,000 b.) (MUSICAL) First Day of rehearsals: 2% of the capitalization up to $60,000 Certain items not included in capitalization amount are: 1.) 10 % of overcalls 2.) 20% of bonds, loans and other recoverables 3.) Payments due for previous performance of the play The advance is recoupable from 50% of the author‘s weekly royalties, after the producer has covered production costs. Royalties and Guarantees: Guarantees 1. Authors of musical (bookwriter, composer, and lyricist) must receive a weekly guarantee of $3,000 in the aggregate. 2. The author of play is entitled to a $1,000 a week guarantee. Royalties The author of play is entitled to 5% of the gross until production costs are covered. After production costs are recouped the author receives 10% of the gross. The author(s) of a musical are entitled to 4.5% of the gross until production costs are covered, after that their royalty increases to 6% Adjustments There is a royalty adjustment formula when gross is 110 to 120 of break even (operating costs for the week). There is a royalty adjustment, (downward) during the Christmas season because of historical trends. (Each contract will vary) Out of Town Theatres ******If it is a theatre that customarily is called a first class out of town theatre where the author customarily receives a % of gross the author will receive: Play a.) 10% of the guarantee the producer gets AND b.) 25% of up to 50% of the producer‘s weekly profits plus 10% of the balance of the producers profit Musical a.) 6% of the guarantee the producer gets AND b.) 25% of up to 50% of the producer‘s weekly profits plus 6% of the balance of the producers profit *******If it is NOT a theatre that customarily is called a first class out of town theatre the author will receive: Play: a.) 10% of the guarantee AND b.) 10% of the producers profit if any. Musical: a.) 6% of the guarantee AND b.) 6% of the producers profit if any. Business Structures of Theatrical Ventures 1.) Broadway shows are usually produced through limited partnerships, who must be informed investors because of the high risk of the venture. (Law protects unsavy investors in this area) Other laws that govern theatre production companies are SEC Regulation D, which limits the amount that can be raised, and the time it can be raised in. §2501 of California works the same way. NY law imposes fair disclosure requirements for investors, etc… Special Problems in Theatrical Arrangements 1.) Theatre disputes rarely go to trial because arbitration is the usual custom, pursuant to union bargaining agreements. Gennaro v. Rosenfield Gennaro was upset when he was replaced as choreographer for ―Singing in the Rain‖. Argued that this action, if allowed (up on preliminary injunction) would irreparably (1) harm his reputation, and (2) diminish his skills. The court said that this field, and the absence of work would not diminish his skills, like in the case of a hockey player… (2) The court also said that theatre goers are well informed and probably aware of the situation so he is less likely to be able to show his reputation will be harmed because people will be misinformed as to the source of the choreography. (He was the choreographer for the London production). Childress v. Taylor Taylor claimed copyright for the play Childress wrote, claiming joint authorship. The court held that the submissions by Taylor were mostly research facts, or ideas, and were not copyrightable work, so he was not a joint author of the work. Here it went to the question of intent. For a work to constitute a joint authorship they must intend that their works merge into one. Here there was no evidence of such an intention. Rent Case Dramaturg wanted a piece of the play as a joint authorship. A dramaturg is like an editor at a publishing house, and like when a novelist submits a book, the playwright does not expect the dramaturg to become a joint author for their editing work. So the dramaturg loses. Wasserman v. Leigh Question as to who were the joint authors of the play. The contract refers to these three people throughout with mention that their powers are limited by the rights of the producer. The moral of the case is that custom and usage can be applied to resolve ambiguities in the language of a theatrical production contract. Authors of joint works also usually vote to decide how to exploit the work. Sacks v. Rubin What is the difference between a ―first class production‖ and a ―workshop production‖ in a contract? 1. Because it is ambiguous, the wording in the contract will be interpreted by custom and usage. 2. Experts can be called in to debate the term, and the trial was sent back for triable facts. 3. The court later determined the following 1st class production: a play in the Manhattan theatre district. Workshop production: a rehearsal, low advertisement, semi-rehearsal opening, which is like a quiet opening. These two definitions do not encompass the scope of performances, because they don‘t cover non New York performances that are put on with great advertisement, and is generally the full performance. (This is what happened in the case) According to rules of construction for NY, the court went to say that these types of performances can qualify as 1st class in this particular context, (when they are not dealt with elsewhere). Added Important Information Difference between sample and replay. While playing the sample invokes the sound recording and publishing right, recording a replay which sounds like the part you want to sample, but you don‘t have to pay for the sound recording right. However, you will have to pay for the publishing right, and the publisher will want a part of composition royalties, as well as possibly the right to co-administer the song. (Meaning approving uses for the song) Constructed wholesale price- formula for determining the SRLP by multiplying the wholesale price by a number like 130%. Royalty Chart Range of Royalties: Rappers and Country Stars get 10%-13% 1. New Artist Signing to Independent Label – 10%-15% of SRLP 2. New Artist Signing to Major or Mini-Major- 13%-16% of SRLP 3. Midlevel Artist- 15%-17% of SRLP 4. Superstar- 18%-20% of SRLP SRLP Less 25% packaging Equals the Royalty Base Times the Royalty Rate (the %) equals the royalty (Usually the All-In rate) Royalty multiplied by Units Then reduced by 15% for the free goods factor. (deductions) Then reduced by 10% for breakage. (deductions) Then perhaps by 10% for special free goods. (deductions) Minus the recording costs (recoup) Minus 50% of independent promotion (recoup) Minus 50% of video costs (recoup) Less Tour Support (recoup) Minus any royalties payable to the producer for retroactive royalties above the advance, (which should be in the recording costs, or otherwise accounted for so no duplicate payments), or owed to the producer. Producer should have label pay and add it to Artist debt. Then Royalties used to pay back unrecouped albums that are cross collateralized, here is where an artist can owe a producer royalties, but receive none, because they are unrecouped. Equals Royalty Payment if any, Which is then divided up by your manager usually 15%, but as high as 20% (Also remember when touring, a manager gets paid on an adjusted gross not on net). And your Business Manager (5%, or flat fee…) And your lawyer (5%) Then you split it up among the members.