Independent Contractor No More? (and why that matters to musicians)

There is a key distinction in the law that differentiates between an employee and an independent contractor.  Employees are entitled to certain benefits and protections that contractors are not; chief amongst them, wage protection (minimum wage requirements and overtime benefits etc.), health insurance and paid time off.   Contractors, on the other hand, are viewed as hired guns that can be paid lump sums, do not qualify for overtime and are not eligible for insurance coverage offered to employees.  The music industry is dominated by contractor relationships.  Think of studio musicians, managers, dancers, producers, writers, roadies, back up singers etc.  All of which, until recently, fell squarely in the independent contractor category.

California, the largest hub for the entertainment industry in the world, took a different take on the employee versus contractor feud.  In recent legislation signed by Governor Newsom, CA AB5, Californians will be considered employees unless and until their employer can show that the work that they perform falls under a specific set of criteria.  Specifically, a worker is an employee under AB5 if his or her job forms part of a company’s core business, if the bosses direct the way the work is done or if the worker has not established an independent trade or business.

While the law was a direct result of the so-called “app” industry (e.g. Uber, Lyft, Postmates etc.), the repercussions could clearly spread across other industries.  So what does this mean for musicians and the industry as a whole in California?

As written, AB5 would arguably classify a recording artist as an employer and her manager, tour manager, guest artists, choreographer etc. would all be her employees.  This would require the artist to set up a payroll system, withhold taxes, set hourly wages, pay for overtime, potentially offer insurance and everything else that a normal company would provide to an employee.  Anyone in this industry knows that this shift would be a monumental change and frankly, is just not practical.

Unlike other industries, music industry organizations (RIAA, A2IM and others) lobbied to ban the legislation altogether rather than seek an exemption.  Doctors, accountants, travel agents, real estate agents, cosmetologists and other sought and achieved carve outs so as to not fall under the new qualifications of AB5.  Alleged in-fighting amongst music industry leaders resulted in full inclusion under the law rather than a potentially helpful exemption.

The fear that AB5 will gut the entertainment industry in California is real.  Other states are already looking to capitalize by attempting to lure “contractors” to within their borders.  Still other states are looking to model their own laws after the California law and touting their own version of employee protection.

The law does not go into effect until January 1, 2010.  Until then there will most likely be litigation that may delay its start date.  We will continue to monitor the situation and provide updates.

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Misconception #1: Once I Get My Deal, I’m Good.

As we have explained we work with clients in every segment of the industry from musicians to managers to labels to distributors and more.  Because of our diverse client base and years of experience, we are able to recognize certain trends, hot topics, common misconceptions, and red flags while working within the music world.  Each month we are going to look to highlight one of these areas that, to us, have a deep impact on an artist’s career as a musician.

#1 Misconception:  Once I Get My Deal, I’m Good.
For some reason, there is this complete falsehood that runs rampant throughout the music world that once an artist signs a deal with a label or a publisher (or these days, with a distributor) they are good to go.  We could point out the countless song lyrics that allude to this gross overstatement, but we don’t have enough room here for that.
In actuality, here is what happens when you sign a deal (regardless of what type of deal it is, publishing, recording, management etc.):  a contract is signed (hopefully reviewed by a reputable attorney), royalty or revenue splits are agreed to, an advance may be paid, deliverable requirements in the form of music recordings or compositions are promised, dates and budgets are set once music is delivered and accounting cycles are determined wherein reports and money will be paid (or might, depending on if you recoup an advance).  While this is definitely a gross over-simplification of what actually transpires, it gives you the gist of what happens upon signing.
The advanced portion is obviously super important to all involved and it should be.  However, it is what happens after that money is delivered to the artist that is really important.
Depending on the deal that an artist signs, that advance may actually be a recording budget, it may be an all in lump sum for living expenses, recording, tour support and marketing; maybe it is a bit of all of the above with some percentage paid out at signing for living expenses an the rest to be utilized to record the next project.  Sometimes deals are backloaded with incentives.  If the first LP does well maybe you get a bigger advance for the second album and so forth.  The point is, if you don’t know what you are supposed to use that money for, you may have just completely screwed yourself.
Imagine getting a six-figure signing bonus.  Naturally, anyone would want to spend some of that money on “non-essential” and “non-music related” items.  But if that is all the money you get to record, mix and master and then promote (which includes, PR, tour support, radio promotion, videos and more) and you spend a large chunk on a house or a car or both, how is your music ever going to actually get produced?
There is no question that a solid deal can help an artist’s career in a major way (pun intended).  But it should never be viewed as the end of the work required by that artist or her team.  The responsibility does not get transferred.  Someone still needs to make sure registrations are being registered, statements and payments are delivered and are accurate and that promised support is actually made.  Options need to be exercised or termination notices need to be made.  The work continues…

The FIRST Industry Standard Podcast

Seems like everyone has a podcast these days.  Not wanting to be left out, we are pleased to announce the launching of our affiliated podcast:  The Industry Standard.  Perhaps a little late to the game, we are trying to bring L4M to the masses by any and all media available to us!

Eddie Sanders and Josh Kaplan will be bringing this site to life (and then to the cloud) a couple of times a month.  We will host the broadcast here but it will be available wherever you find podcasts.  Hope you tune in and enjoy!

SoundCloud Listened (to us)

Sometimes speaking out works. listened and modified its new artist contract.

Thanks to some solid journalism (take that #fakenews), and the power of artists and their representatives (like yours truly), SoundCloud revised its new artist monetization agreement.  The program introduced by SoundCloud four years ago allowed select artists to earn a share of ad revenue and subscription fees by monetizing the use of their music.  Finally ready to go to the masses (and keep up with competitors), SoundCloud announced the ability for all Premier Members to monetize.  With the announcement came a long form, click-through, agreement.  That agreement left quite a bit to be desired.

The biggest outcry from the artist community was over a “Covenant Not to Sue”.  Basically this means that if SoundCloud screwed you in some way, you would have no right to seek retribution in court.  We were less concerned with that clause as we were with the completely ambiguous payment schedule, the improper method for notifying artists of changes to  payment terms and the extremely short amount of time to review statements (if and when the statements were ever delivered).  While the Covenant Not to Sue is concerning, there was arbitration language included which offered artists the ability to challenge any issues with SoundCloud through the arbitration process rather than in court.  There is a definite difference between a law suit progressing in court versus a matter in arbitration, but it is not extremely unusual to have this type of clause in this type of agreement.

The ambiguity was far more concerning to us.  How can anyone agree to enter into a business relationship where the party who is owed money has no idea when or how they are going to get paid?  How could you agree to enter into an agreement when you aren’t sure if the agreement has been modified and you could actually be earning less than what you originally agreed to?  To us, these types of unclear and unfair terms were the main issues with the SoundCloud artist monetization program.

With the help of @verge and others, SoundCloud, took heed and modified its agreement.  Unlike our current government, when the people are outraged and nothing gets done, SoundCloud reexamined its agreement, agreed there were fundamental flaws and took the necessary steps to make the needed changes.  Kudos to a company who caters to musicians for actually listening to musicians.  I hope this trend continues.

MMA Still Fighting its Way Through Congress

Previously we reported on the Music Modernization Act, a bill proposed to ensure digital music services pay fair royalties to the copyright holders, and where it stands during its process to be become an enacted bill. As we are aware from the timeless SchoolHouse Rock classic “I’m Just A Bill”, in order to enact a bill it takes time and votes from different levels of Congress. The bill passed the House unanimously April 25, with a revised and amended version coming out of the Senate Judiciary Committee June 28. If the bill passes a Senate vote, it goes back to the House for a final sign off.

The bill seemed to be moving full steam ahead with no objections from any party until lobbyists discovered how much control private entities would lose to the newly formed MLC, Mechanical Licensing Collective. These offered amendments from the private sector have put the bill in danger of not passing. Technically, this copyright bill has until the end of the year to pass but legislators are targeting Oct 12 as the deadline. This date is before Congress adjourns for the midterm elections because after Congress goes on vacation, nothing new will be passed.

First the MMA received push back from The Blackstone Group, owners of SESAC and The Harry Fox Agency. They proposed an amendment that would allow the current mechanical licensing organizations to stay in control of mechanical royalties collection and administration. The Blackstone Group questioned why a government-commissioned mechanical licensing body was necessary, when these organizations already exist. After negotiations, the reps for the MMA clarified the restriction on what licenses can be administered by the MLC, which include sync, lyric and performance licenses. This allowed groups like SESAC and Harry Fox to maintain their clientele and continue business as usual, thus still allowing the MLC to collect data and administer mechanical royalties.

After putting out that fire, the MMA  is now seeing restraints from another organization. SiriusXM is fighting a portion of the bill’s CLASSICS Act provision which calls for digital and satellite radio to pay royalties for playing pre-1972 master recordings, while terrestrial radio would be exempt.

The SiriusXm CEO has criticized the bill for expanding the royalty requirements for satellite radio without also expanding the requirements for terrestrial radio. Traditional radio doesn’t pay for the broadcast of any sound recordings and this bill does nothing to change that. During a period in which SiriusXM paid 2.2 billion for the use of post 1972 works, terrestrial radio paid nothing. The future of radio is digital and it would be wise for the drafters of the MMA to carve out language to fairly compensate artists in both the digital and terrestrial areas. At this point, neither side has figured out a solution and they only have a couple months left to do so.

Moving forward, the Music Modernization Act has only three paths to move through the Senate: 1. by speedy unanimous verbal consent, which would require all 100 senators to vote yes; 2. the more difficult floor process, which includes time for hearings and would require support of at least 60 Senators (46 Senators have signed on as co-sponsors); or 3. by attaching the MMA as a rider to another piece of legislation that is sure to pass. 

Please continue to follow along the MMA’s progress (or lack thereof) here at L4M, @l4m, tkhlaw.com, @TrogliaKaplan or email us for more info.

STREAMING LIKE CRAZY.

Just some quick stats for your Monday.  According to Nielsen’s US Music Mid-Year report, the United States is consuming more music via streaming platforms than ever before.

Key stats from the report are:

“On-demand song streaming activity is reaching new milestones, with volume surpassing 400 billion, which is offsetting declines in album and track sales. On-demand audio streaming volume is up 45%, having already exceeded 268 billion so far in 2018, and on-demand video streaming volume is up 35% year-over-year.”

Some of us have noticed that the introduction of new record labels popping up all over the place.  A few years back reading that a new record label was opening up was on par with an announcement of a new Blockbuster Video opening its doors; it just wasn’t going to happen.  Not surprisingly, a lot of the labels that are popping up are actually old shuttered labels that closed their doors a decade or so ago when they were unequipped to handle the digital music revolution.  Now, with their parent companies (read the opening of a new label announcements with some skepticism, as they are often funded by a pre-existing major) finally reaping the benefit of deals struck with streaming platforms and the overall ease for consumers to stream music, revenue for labels is catching up.  With a better formula in place to collect revenue from the streaming platforms and with the number of consumers steadily rising, it is not surprising to see a renaissance of sorts  for record labels.

Let’s just hope that they have learned from the past and that the structure of deals for artists that are clamoring to sign are fair (or at least close to it).

The Songwriter Curse (Avoid the NOI(d))

It seems to be a constant battle for songwriters to economically receive what is rightfully theirs. First, fighting with labels over rights and royalties, then finding a publisher (big enough) to collect those royalties, now going after digital service providers to payout those royalties, and the government for providing an obnoxiously low rate for reproductions rights and an outdated statute that can’t seem to keep up with the technological age. Yes, it has been a rough one as these factors are often working together in perpetuating this curse more commonly known as the compulsory license.

A compulsory license for sound recordings was created by Section 115 of the Copyright Act and allows anyone to reproduce and distribute a composition that has been released to the public either by digital or physical means with the copyright owners permission. (sounds good). Most of the time an artist records the composition, the label sends the created recording to its distributor and the distributor sends it to the digital service providers or DSPs (Spotify, Amazon, Google, iHeart, you name it) who in exchange receive dollars through subscriptions, ads and downloads. It seems like DSPs should be giving songwriters a call right? (Because they are reproducing the composition and saving it to their platforms to be streamed or downloaded.) Shockingly, they don’t call.  In fact, if you are an independent songwriter (not represented by a major publisher), it is unlikely that you are paid mechanical royalties from any of the DSPs. Why? Because of the compulsory license and these evil excel spreadsheets called “author unknown” NOIs.

If you want a compulsory license, Section 115(a)(2)(b) of the Copyright Act requires you to serve the copyright owner of the composition with a notice of intention (or an NOI). However, IF there is no registration or public record filed with the Copyright Office of your ownership of that composition with an address where the licensee can serve you the NOI then you are considered an “author unknown”! (insert evil laugh). Basically, did you file and pay the Copyright Office to register your copyright that you already own (even though under no law are you required to register your copyright to validate your ownership) for the purpose of getting paid a royalty that, by statute, you are rightfully entitled to? That’s some hardcore bs, right? In fact, instead we are going to give DSPs and whoever else, an out to not pay you. Just submit an “unknown author” NOI to the Copyright Office, which is basically an excel spreadsheet with the title of the song, the DSP info, and unavailable written across the columns for any type of songwriter info. It doesn’t matter if the song is registered with a PRO, if you submitted the metadata to the label to give to the DSP, it probably doesn’t even matter if you call Spotify up and say “hey I’m your missing songwriter!” Nope, after a copyright search you are done. Also to add more bad news, if you file for your copyright tomorrow Spotify, Google and Amazon are not required to back pay on any of those royalties as long as they submitted an NOI to the Copyright Office.

Although a bummer, we will end on a positive note that this curse has not gone unnoticed and some are choosing to do their part to help. Insert Sound Exchange NOI database! (Superhero sound!) A simple system that organized the unknown author NOIs submitted to the Copyright Office so that you can easily discover who is not paying you and for which song. Although its not exactly putting the money you are owed into your pocket, it is getting us a step closer considering the Copyright Office database for NOIs is next to impossible to navigate. It consists of huge excel spreadsheets submitted by DSPs that often are not even downloadable without a zip compressor. If you are able to download the excel sheets, you will see DSPs list hundreds sometimes thousands of songs in no particular order that are submitted daily! It is an absurd waste of time. So thank you Sound Exchange for making it easier for the songwriters out there. I encourage all songwriters to sign up (its free) and search for any NOIs here. We at L4M are going to do our best to keep on this fight and find best practices to get these royalties paid out for our clients. We will keep you posted, but feel free to comment with suggestions and success stories as we want to keep songwriters informed on how to avoid those unknown author NOIs!