Tagged: Recording Agreements
What is a One Stop Shop in the Music Business?
Lately we’ve noticed a growing trend in the independent music scene. Specifically in the businesses that work with independent musicians. Many companies and individuals who used to have a job or a business that covered one specific element of the music scene are now presenting themselves as the “one stop shop” for musicians. As you know, we like to dissect things around here, especially when catch phrases or “industry” speak is thrown around as if it has one universal meaning.
To me, a one stop shop conjures up images of a major highway gas station where you can get gas for your car, a slim jim, bait for your fishing trip, a slice of pie and possibly take a shower (I would not recommend the last one). Basically a one stop shop should give a consumer an option to purchase all that he or she needs in one location. Transfer the phrase to the music industry and it is not quite as clear what a one stop shop is or should be.
We know that in the past a label was supposed to be a one stop shop, with a massive amount of employees handling everything from A&R to press to accounting for its signed musicians. With the decline of the label system the number of employees at labels feel as dramatically as the number of records sold at Tower Records. Thus, the services once offered by a label were no longer present. The displaced label personnel did not simply bury their heads in the sand. Rather, they started showing up as specialty boutiques offering the specific services they once provided to labels direct to the musicians or independent labels. Because the music industry is still based on who you knew, these boutiques served a pretty powerful purpose for quite some time. For example a boutique full of ex-Warner Brothers PR experts could utilize all of the same contacts it once had at a label directly to musicians for a discounted price (lower overhead).
Still, as the economy worsened, the boutiques had a difficult road ahead of them. Boutique employees were cast off too. So now you have a bunch of skilled and connected music industry folks milling about and looking for a new way of doing what they used to get paid to do by the labels and the speciality boutiques. A PR executive befriends a merchandising expert who then befriends a music web designer and so on and so on. The displaced experts then form a “one stop shop” for musicians. Essentially becoming a lean-mean label which, ideally, avoids the red-tape and bureaucracy of the traditional label system.
However, each one of these self-proclaimed one stop shops must be examined a bit more closely prior to agreeing to work with them. Here are some questions you should ask: Do you have distribution (usually digital is enough, but physical, think vinyl, is still important)? Do you have press contacts and the ability to do an actual push to garner the attention you need (in the markets that make sense) for the release of your music? Do they have connections with booking agents? Do they have connections to a legal team that understands music and corporate law? Have they managed a band before or do they have a management team in place? What type of connections do they have to other musicians, producers and studios?
All of these questions are important when choosing to work with any business out there purporting to be a one stop shop. Oh yes, there is also that little issue of money. All the connections in the world don’t matter if you don’t have the money to fund the project. Typically, a one stop shop is not going to operate with the budgets of the labels or the indie boutiques. The shop will be more of a facilitator, a connector of the dots, rather than a bank roll. As a musician, you will want to make sure you have your music production ready to roll (whether it’s an EP or an album) before agreeing to work with a one stop shop. Otherwise, you may be stuck at their shop without the cash to buy the goods.
The model for these shops is similar to the license arrangements indie labels used to enter into (some still do) back in the day. You bring your finished product to the shop, they market it and sell it to the masses. But the shops go one step farther by attempting to manage your band, book you shows, protect you legally and sometimes keep your corporate books and records. That is why it is so important to know what you are getting into before signing anything.
The one stop shop idea can work. Due your diligence, ask the right questions, demand everything in writing (and have it reviewed in writing) and continue to do your own job as a musician: make great music.
Do Due Diligence
Due diligence is a phrase that is thrown around the legal world on a daily basis. “Is that borrower credit worthy? We’ll have to do our due diligence.” “Do we want to purchase that gas station? We will only know after we complete our due diligence.” Does the concept of completing due diligence in the music world ever come into play?
The answer is that it should. Just like a business looking to buy out its competitor or a bank trying to figure out if it should issue a credit line to a borrower, a musician should always complete due diligence before making any decision related to his career.
In my quest to get musicians treat their music like a business, I have often compared a music career to any other type of business. However, even though being a musician is similar to being a manufacturer of tires or a having a shoe store, there are different rules and procedures in the music industry. These different rules and standards are due partially because of the slick talkers and stereotypical music industry professionals but mostly from a successful system that has been in place for decades. If it ain’t broke, don’t fix it has been the mantra of the major label music industry for years. In this system, the typical scenario played out as follows: a musician breaks onto the scene or discovered by an A&R rep, the musician blindly signs a multi-album record deal, a manager is provided by the label and the label would control the musicians career for the length of the contract and beyond. As we all know, this system is no longer the norm. Due to the failures of the record industry over the last several years, the system has changed and the process for building a career as a musician has changed along with it.
While a musician was happy to sign the first contract that came from a “reputable” label in the past, that musician now has the ability to conduct her own due diligence. For a musician his or her music is her work product. Today, when that work product gets to a level where it is ready to share with the public and the public wants to hear it, several doors may open for the musician. Behind every door, however, is another business who wants to make money off of the musician’s work product. A manager, business manager, lawyer, label, publicist, publishing company, etc. etc. are all examples of businesses who make money off of your work product. But just like a business owner who is looking to hire a new CEO, a musician must conduct diligence before making a long term committment which may direct the musicians career and check book for the next several years.
So what should you look for as a musician who is looking to sign with a third party (a label, producer, manager, etc.)? How does a musician conduct his own due diligence? First, conduct your own research: google the hell out of the company or individual that is looking to work with you; talk to people in the industry to see what their experience has been with that company or individual; and spend a lot of time talking and observing what that individual or company is really like to work with. A label might have a good reputation, but that reputation could have been built on a success 10 years ago; what have they done lately? Ask for a specific plan for you and your band. How will the label help you get tours? How will the manager deal with finances? How will the lawyer bill you? We know that Sub-Pop has been successful with many of thier artists, but how do their contracts work? Will they enter into a license deal or maybe they are only a 360 deal label? Just because a label or management company has a good name doesn’t mean that they are a good fit for you.
It is always exciting to have someone interested in working with you and in some cases offer you money to work for them. But in today’s music world, you have to ask: is it worth it? Maybe you can do it on your own. Maybe you make your own start and then go with a label. Maybe your best friend is ok to work as your manager for a regional tour. All of these things must be thought about before signing on the dotted line. In the business world if one business is looking at buying out another business, the due diligence period may take months (years even). Lawyer pour over the existing contracts, the amount of money coming in and out of the company, the people working at the company, the systems in place that are working or need to be fixed. Why should your music career be any different?
Musicians should focus on music. That is what they are inherently good at and why they have the exciting prospect of people paying them for what they create. However, saying that “I only want to make music” and ingorning the decisions that effect your career as a musician can have devastating results. Do your due diligence before you make decisions that will effect your ability to continue to make music for a living. Once you have made smart decisions on who makes up your professional team, you can go back to what you are truly meant to be doing: making music.
CMJ Recap and Proof of Change
Huge issues, such as how to compensate musicians who have content ripped off or used without permission on Goliath’s like You Tube, do not seem to be any closer to being resolved. One lawyer from a large internet file sharing site expressed her frustration that it took her client 8 years to work out a comprehensive license deal with the labels. The labels countered that with a complaint that the country’s Anti-Trust laws prohibit the labels from meeting in the same room let alone coming up with a unilateral price for licensing music and come up with a fair price for licensing; music. The result will be years of musicians losing out on mechanicals and licensing revenue.
But, like I said, the weekend was not without some optimism. Focus groups discussed new ways for musicians to make money and reach their fan groups. Several of the methods they discussed were ideas that this site previously discussed (Click Here and Here). Using new and creative ways to get your music to your fan base (USB drives, t-shirts, treasure hunts) and utilizing social media were stressed by those in the know. Creating an interactive experience with the buyer should be the ultimate goal of musicians. With all of the utilities currently available, the one on one fan/artist experience is easier to achieve.
The byproduct of the new methods of reaching and interacting with fans is the steady decline of the traditional album (Something I mentioned in last week’s post: See White Chocolate and the Soul Berries). Rolling Stone is picking up on this trend as it is reaching beyond the indies and making headway with some major artists. In Issue 1090, October 29, 2009, David Browne cited to the death of the traditional album in his article entitled “Artists Break Free of the Album”. In the article, several artists, including Billy Corgan, Modest Mouse, Sppon, Blitzen Trapper and Radiohead, are testifying to the need and the appeal of a new model for getting music to the masses. Finally catching up to the public trend (or disease, depending on how you feel) of severe Attention Deficit Disorder, the music industry is coming to the realization that if you are going to get new music out and grab the public’s attention, you better do it quickly and in a new and interesting way. EP’s are becoming the new LP’s and on-line releases, once deemed leaks, are becoming a cheaper and easier way to reach the entire world and not just the big box store customer.
The industry insiders and taste makers at CMJ were not necessarily revealing any new or earth shattering information that the informed musician did not already know. Yet, it is important to realize the significance of the simple fact that these industry and label types are finally catching on to the truth. If you really needed proof that the industry is not what it once used to be and the old model of releasing a cd, touring, sitting back and living off of royalties is dead, then hearing it from a label owner, label lawyer and label A&R executive is all you hopefully ever need.
Do you have a Publishing Company?
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.
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:
You Are What You Own
Now more than ever being independent in the music business is important. Its importance may be your band’s goal or, conversely, your independence is thrust unwillingly thrust upon you. The key is making that independence work for you in every possible way.
The typical music recording agreements today include a multiple album commitment from the artist with an option for additional albums. Unless you have clout, the form agreements coming out of New York, Memphis and Los Angeles will give ownership of all of your master recordings (your songs) to the label. Ownership transfers even in most 360 deals (the topic of my next post). The real whopper is that even though your band complies with the agreement and the label owns your music, the normal recording agreement will not include what is known as a release commitment.
A release commitment is something that every band should try to get from a label. It gives a date certain for the release of the music that you have turned in for your album. There are horror stories of artists that have turned in music to a label only to see the label sit on the album for months or even years. I believe the rapper Saigon waited over 5 years to release his debut album. Not much of a buzz left after waiting that long. Having language in your agreement which puts the burden on the label to actually release your language or forfeit their rights under the recording agreement is the best way to make sure this doesn’t happen to your band.
Just like every other industry in the U.S. right now, the music business is running on fumes. The Recession is hurting record sales (physical and digital), merchandise and concert tickets. So even if you have signed with a label, there is no guarantee that your label will (a) be able to fulfill its obligations under the agreement or (b) exist next month. What happens if you sign with a label and that label’s distribution company goes belly up? Unless you asked for a release and/or distribution commitment in your agreement, you may be stuck waiting for your label to work out a new deal with another distributor. Either way your music is delayed in getting out (if it does) or you are back to square one: a great album with no means to get a physical copy out to your fans.
So should you just give up? Like our friends from Galaxy Quest: Never Give up! Never Surrender
Do not despair. Remember the title of this post. Don’t rely on anyone else. Especially in these tough economic times, bands have to get creative to make a buck. If you are a band who has a buzz, can pack a 300 person venue, sells out of its merch at its show, etc., traditionally you would look to a label to swoop in and sign, wine and dine you. Like I said, those days are over and even if they, do you really want to sign a recording agreement?
It’s time to get creative. Do everything you can yourself first. Register your copyrights under your own band name. Register your band’s name and logo as a trademark yourself. Use every single contact you can to get your music to the next level . Look to sponsors (RED BULL LOVES TO MUSIC), like minded third party companies (Apple), concert promoters, party planners, management companies, anyone who has the ability to do what you cannot do yourself. Go strictly digital. Contact digital distribution companies (read below) to get your music to websites in other countries. Do what it takes to get your music out and build your band’s brand.
Its not an easy road. You definitely have to treat your band like a business. But just like other small business owners you will directly benefit from your hard work because you, not a label, own your band. You will be able to negotiate your own deals, collect 100% of the royalties, spend money when you think its appropriate and distribute income when you want to rather than waiting for someone else to pay you.
So whether you choose to go the independent route or you went with a label that dropped you or dropped off the face of the earth, you are in a pretty good position. Not easy, but definitely doable.
SHAMELESS SELF-PROMOTION OF THE WEEK
Check out Digital Distribution Company Seed-Ny:
Seed is an awesome digital distribution company that works with labels and artists to get their music out to the public via websites and digital outlets all over the world. They work to license your music to places you definitely have heard of and others you didn’t even knew existed. Check them out: www.seed-ny.com and www.myspace.com/seedny. Tell them lawyer4musician sent you (but only if your music is good ;))