Category: LLC

Do you have a Publishing Company?

They're dancing to my music!

They're dancing to my music!

One day a John J. Emo was walking through a mall in Suburbia, USA.  As he followed his girlfriend into a Forever 21 he heard a familiar song over the cheap sound system.  Why was it familiar?  Because Emo wrote the music!

The next day Paula P. Techno was watching an independent horror film.  During the first slasher scene a somewhat terrifying and recognizable techno beat could be heard.  Techno, who had released her music for free all over the internet, had no idea how her music ended up in the movie.

Finally, somewhere in NYC, Hank H. Hiphop rode an elevator up to see his dad at his office.  Typical Musac was entertaining the passengers of the elevator all the way up to the 83rd floor.  Hank was dumbfounded to realize that his recording of Catch it Like it’s Cold had been made into an instrumental only masterpiece without his knowledge.

Are John, Paula and Hank a bit slow on the uptake?  Probably, but that does not mean that they are dumb.  The world of music publishing is also massively confusing.  For the independent artist, there are steps to take to make sure that you do not end up like these poor fools; potentially losing out on uncounted royalty payments.

Once you have made the decision to write music and introduce that music to the world (your bedroom mirror or your Aunt Grace do not count) there are several steps you need to take.  One of the first steps is to register you lyrics and music as copyrights.  This can be done for a sound recording and/or the lyrics of your song.  There is a relatively easy online application that is available on www.copyright.gov to fill out.

The next important step is to register with either ASCAP, BMI or SESAC (in the USA).   These organizations will help you collect and manage (to a certain degree) performance royalties that are owed to you as the performer of a piece of music.  So if your song was performed on Dancing with the Stars or on your local Morning Zoo radio show or even in the airport smoking area, one of these Performance Rights Organizations (PRO) is resonsible for collecting the statutory royalty owed to the writer, performer or composer of the song for the public performance of the song.

PRO’s are not fail-safe.  There are a lot of artists that feel that their PRO is not collecting everything that is owed.  However, think about how tough of a job that is these days.  How many media and consumer outlets are there out there that utilize music?  While every person, entity or business that publicly performs music (over the airwaves) is supposed to report the playlist to a database, it is nearly impossible to keep track of everything.  Trust me, the PRO’s do 110% better than an individual on his own.

The next step in capturing your publishing and maximizing the value of your publishing income is to form an entity.  I’ve written about the need to form an LLC in the past.  Publishing is yet another reason to do so.  Your LLC will become your first publishing company and will collect royalties for your music.  If you are in your band, you can register the LLC with the PRO.  That way, the payments go to your LLC and will be split amongst the band members that own a piece of the LLC.

Another advantage of forming an LLC to act as your publishing company is negotiation power with other large publishers (EMI/Sony/Warner).  You may get a better split with a publisher if you have already formed and registered your music under your LLC.  Instead of signing up with a major publisher and giving up 100% of your publishing for an advance (not that anyone has money for an advance these days), you can negotiate a better split.

Last week I was on a panel with other lawyers, a musician and publishers.  We all seemed to agree that the music world is changing and the major label system is beyond repair.  The do-it-yourself artist is a reality that is here to stay.  But many musicians who are used to having a label handle their registration and publishing do not know what steps to take.  This has allowed for an enormous amount of royalties to go unpaid as well as copyright infringement to go unchecked.  Throughout this whole process of making music, an artist will need help and guidance.   Instead of a label coming to the rescue, now the artist is charged with creating his or her own team of experts.  Just like any other business, services have to be outsourced.  No one would expect a doctor to be able to play the bass.  Similarly, a drummer probably does not know corporate level taxation.

Consult with experts.  Find your PRO.  Hire a lawyer.  Hire an accountant.  Treat the music like a business.  Whether it is losing opportunities or not collecting what it is owed, without the right team, the D-I-Y artist will see her career D-I-E.

Here lies unpreprared D-I-Y musicians

Here lie unprepared D-I-Y musicians

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You Spin Me Right Round: Like a 360 Record Deal

There is a new standard in record deals.  For better or worse, the 360 deal is here to stay.  Even though the music industry is as slow as your grandma’s driving, it cannot seem to get away from itself.  The slow reacting, one time behemoths of the music industry (the  major labels) have only recently come out and publicly stated that its past revenue model is dead.

The way the labels traditionally have made money is to sign a band up for several years and/or several albums.  The labels would give the band an advance that would go toward recording costs or possibly tour support but oftentimes toward cars and women.  The band, now starting in the hole of owing the label money, would wait until it sells enough records for the label to recoup its advance (and other miscellaneous costs).  If the band was successful enough to bring their account back to even, the label would fork over between 10% and 15% of the royalties earned through the sale of the band’s albums.

The problem with this model (from the label’s perspective) is simply that it no longer works.  Record sales have plummeted,  pirated and web based sharing of music has become the norm.  Oh, and the economy doesn’t help either.  Labels can no longer depend solely on physical or even digital record sales to turn a profit.  During the month of February, the top selling album, Taylor Swift’s Fearless, sold a pitiful 62,000 units.  Record sales for the months of January and February of 2009 are down over 28% from just two years ago.   These numbers coupled with the ease of distributing music to the masses without the help of a label’s network, has almost run the majors clear out of business.

After years of decline, the labels (albeit unnamed sources) have finally admitted that their business model is not working.  An anonymous source from a major label recently admitted that the way majors do business will be extinct by 2013 if not earlier.  Check out the full article here.  The exec states something that most of us representing musicians have known for a long time, a label cannot survive without forming a partnership with the artist.  It has to share in the ups and downs of a band’s career and provide services throughout the entire relationship, not just when the band is hot, to truly do its job.  That is why the 360 record deal is the new norm.

I have written about the 360 deal in the past.  Click here for the past 360 post.  It was a safe prediction that these modified record deals were here to stay.  A 360 deal enables a label to share in the revenue a band or artist generates from all sources, not just from the sale of records.  That means when Madonna or Jay-Z (both of whom have 360 deals with Live Nation) sell out an arena or sell a new fragrance at Macy’s, some of that money goes to the label.  The label shares in all 360 degrees of income of a musician’s career.

While this may not seem fair or just, label execs who push these deals argue that they should share in all income a recording artist makes due to the fact that the label has made the initial investment into the career of that artist.  So basically, without the label, the musician would still be selling out Joe’s on Weed Street rather than Madison Square Garden.  The label feels that it should earn along with its artist.  They argue that their incentive to support and market their artist in all aspects of his career, not just the sale of cd’s, is built into a 360 deal.  The label will help an artist land a film deal or write a book or get into acting because they have a cash incentive to do so.

As I have written before, the label’s reasoning behind the 360’s makes sense on the surface.  However, just like with everything else in the music business, be cautious.  360 deals come in all shapes and sizes.  They still may take complete ownership of all of a bands copyrights without reasonably compensating the artist.  Some egregious agreements will have ridiculously long terms allowing the label to continuously benefit from a small investment it made 10 years ago.

I have been working with some forward thinking bands and managers to come up with a justifiable music model that takes the principles of a 360 deal and shapes them into a true business partnership.  An investor will form a limited liability company (LLC) and share ownership in the LLC with the artist.  The business, that is the artist’s career, will be governed by an operating agreement; just like a normal business (revolutionary, I know).  This will allow for flexibility on both sides.  An artist could eventually buy out the investor or the LLC could invest in new talent and form a subsidiary.  A lot of the things are possible with the right team and the proper paperwork.

If you have questions about 360’s or other business models for musicians, drop me a line.  Even better, come to my showcase:

flyer-for-sxsw12

The Music Business is Massively Confusing

Are you a little dazed and a lot confused?

As a lawyer I am supposed to know the answers to all of my client’s questions. When there is a dispute amongst band members or a license deal that doesn’t quite make sense or a slimy industry type not living up to his promises, my clients are trained to do the following: call Josh. For the most part I am happy to say that I can usually answer the question in a relatively short amount of time (primarily because I am a Nerd but also because that is what I get paid to do). But here is the problem: I can explain complex copyright law or a contract uplift provision or a mechanical royalty schedule to another lawyer and she will most likely understand it; but when I try to do the same to the bass player of a Viking Metal band, I tend to get blank stares. The reason for this is because lawyers designed the system, not musicians.
So with that I would like to take this opportunity to provide musicians (primarily new musicians and bands) with some simple terminology to help them decipher what it is their lawyer is trying to tell them.
Let’s start with a LLC. I often recommend that a new band or musician form a LLC as one of the moves to make when a hobby becomes a profession. LLC stands for limited liability company. A limited liability company limits the personal liability of the people who own that company. That means if your company does something wrong (and not you personally) the person you wronged will not be able to go after you personally. The owners of a LLC are referred to as Members. A Member of an LLC is not the same thing as a band member. Members can be people in your band or they can be your aunt Regina who invested in your band so you gave her some ownership.

A LLC can either be Member run (where the owners are responsible for the day to day decisions of the company) or Manager run. A Manager of a LLC is not Hank, your current band manager. A Manager can either be one or more of the Members or somebody or something totally different. A Manager of a LLC runs the company but is NOT what you probably think of when someone mentions Manager and music in the same sentence.

Here’s an example: your band started with 2 people, you and Stewie. You formed an LLC and you and Stewie own the band name and the copyrights of the music in the name of the LLC making you and Stewie the two Members of the LLC. You both act as Managers, sharing responsibility for the day to day business of the LLC. Jerry comes on board as the third band member, but he’s not an owner of the LLC. Jerry gets paid out through the LLC based on your and Stewies decision.

Make sense? Just remember the double meanings of Members and Managers when you are talking about a LLC and you should be ok.

Ready for the next eye opener? Let’s go to the wonderful world of licensing. If your song is lucky enough to be chosen by Charmin to launch their next commercial campaign, they will send you two license agreements for your signature. The first license request will be a mechanical license and the second will be a synchronization license. They can’t license your music with your permission for both licenses. But what the hell are they?

A mechanical license is something that you, as the song writer or copyright holder, give to Charmin. The mechanical license grants Charmin permission to make copies of or reproduce your song. The mechanical license sheds light on the importance of registering your sound recording (song) with the copyright office. By doing so, Charmin and the rest of the world are on notice that if they want to use your song, they have to first obtain a mechanical license from you or your band (or your publishing company if you have hired one).
A synchronization license (sync if you want to sound cool) is the license that you, as the song writer or copyright holder, give to Charmin to allow them to place your song into another medium. Translation: it allows Charmin to take your song and sync it with their commercial.
Both licenses will have similar terms with respect to the length of time, what type of medium will be used (video game, commercial, dvd) and how much you are going to get paid for both (usually the same amount for both licenses). Some keys to look for are: is the license exclusive (you don’t want this), do they get to modify the song (you don’t want this either) and when do you get paid (you do want this).
I am pretty sure that the music industry, and entertainment in general, was set up by the same people who drafted the US tax code. It is intentionally confusing. In order to limit the times that you get taken advantage of you not only need a solid attorney, but you, as the artist, also should know the fundamentals.
I think I like this format. I guess that doesn’t matter so much. Let me know if you like it and I’ll keep going with some more fundamentals of a completely and utterly confusing industry.