Whether you follow the music industry or not, it has been hard to avoid the ongoing saga that is Taylor Swift. There are hundreds of articles out there about all of the particulars and specifics of Taylor’s ongoing fight with Big Machine, the Carlyle Group and, most publicly, Scooter Braun. (Here’s one.). While relating to a super star who has a catalog worth $300,000,000.00 may be difficult, ownership of your art is infinitely relatable to musicians.
Let’s start with the basics. For the purposes of this article, we will focus on a traditional label recording agreement. When you sign a recording agreement you are agreeing to sell your recordings (the “masters”) to a label. They label will require you to deliver a certain number of records or albums over a certain period of time. In exchange they may pay you an advance (a loan against the money that is earned from those records) and will agree to pay you a certain percentage of the revenue that is earned from the exploitation (sales, streams, licenses etc.) of those records. That percentage will only be paid after they recoup all of the money that they have previously paid to you as an advance as well as amounts paid to record that music and oftentimes, to promote or market the records.
So that is how the money part of a recording typically works (more or less). The term of a recording agreement is a whole other animal.
Let’s use Ms. Swift as an example. Her original deal with Big Machine was to deliver 6 albums. She completed that delivery at some point in 2018. She recouped shortly thereafter (obviously). So she was free to go explore the market as a free-agent. But here is where it gets interesting and where many of our clients get confused. Just because the term of the recording agreement expired does not mean that the label gives up ownership of the records that were already delivered. That ownership is perpetual (aka forever). On top of owning the masters forever, Taylor’s recording agreement (as with most of them) had a restriction on re-recording of the masters. That means that for an extended period of time, Taylor cannot re-record any of the songs from the albums that are owned by the label. This restriction has led to the current and very public dispute with Scooter over whether Taylor can actually perform any of the songs owned by Big Machine/Scooter/Carlyle at the American Music Awards where Taylor is being honored for her legacy as a recording artist. Why would she be prohibited from performing these songs? Scooter and his squad were making the argument that the AMA’s will be recorded so that the re-recording restriction contained in her contract prohibits the performance. This has since been resolved and Taylor will be able to sing her heart out on all of her past hits at the award show.
Again, Taylor’s struggle is not exactly one that most musicians face. Most musicians do not experience a major venture capital firm (Carlyle) headed by one of the most public and powerful music industry moguls (Scooter, who also happens to be sworn enemy of Taylor’s), purchasing their legacy of master recordings for hundreds of millions of dollars. However, anyone entering into a recording agreement should know that they are selling, assigning and transferring the copyright and ownership of her recorded music to a third party. Accordingly, they will not own and certainly will not be in control of their past art.
For some, selling their art is not an issue. It is a centuries old practice that extends beyond music (think paintings, sculptures, movies etc.). However, for others it can be a tough pill to swallow. For those musicians who are aware and informed of the current financial model for the music industry, they know that owning their masters is not just artistically important but financially significant as well. So what is an artist to do?
First off and most importantly, know what you are signing. Find someone who has experience dealing with this fact pattern. Whether that is a lawyer or manager or just a musician friend, consult with them and ask questions. Further to that point, ask the people that you are considering signing with what their intention is. If the language of the agreement doesn’t match that intention, you should probably run away; quickly. Second, know that there is no longer just one type of recording agreement. The days of standard completely one-sided recording agreements are dead. While labels will always try to get the most out of any signing, musicians have options. There are license deals where you essentially license your masters to a label for a set amount of time. Once that time is over, the master revert back to you. There are deals to be struck with distributors. Distributors of music will fund artist projects without taking any ownership and simply recoup off of the streaming revenue that they are earning by distributing your music. There are a lot of carve outs and exceptions that can be drafted into a recording agreement that can solve for the situation that Ms. Swift has found herself.
If you are Taylor Swift today versus Taylor Swift at 15 you not only are ridiculously successful and rich but you are operating without a tremendous amount of leverage. Her new deal with Universal/Republic undoubtedly contains language that allows her to share in the ownership of her new masters or at the very least allots her the ability to buy them back at the end of her term. So while you may not have her catalog and leverage, you can at least arm yourself with knowledge, understanding and a team to help you navigate your way to Swift-like stardom!
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: