Songwriter Contracts

This is a reposting of an original 2009 blog post. This post was the start of a project exploring songwriter contracts. I never finished the project and am reposting this original post to kick start the project anew.

Today I had the pleasure to meet with a few Nashville Songwriters at the Country Music Hall of Fame. I was there to offer my services in a pro bono clinic as part of the For All campaign of the Tennessee Bar Association (TBA). This clinic was co-sponsored by the TBA's Entertainment and Sports Law Committee and the Arts & Business Council of Greater Nashville's Volunteer Lawyers and Professionals for the Arts (formerly the Tennessee Volunteer Lawyers for the Arts).

One of the questions I received regarded the distinctions between the types of songwriter contracts. That got me thinking that I should post a quick outline regarding the the different types of songwriter contracts. This just scraches the surface. But I plan on building on this post in the weeks to come.

When a person speaks of a “songwriter agreement” or “songwriter contract” they are referring to a contract entered into between a songwriter and a music publisher. Music publishers, as many of you know, act on behalf of songwriters to get their written songs “cut” (i.e., recorded on an album). This is known as “plugging.” Publishers also take care of all the administrative work related to plugging. This can include registering songs with the U.S. Copyright Office, issuing licenses, and accounting for royalties.

There are several types of songwriter agreements. Generally they are
1. Single Song Agreements
2. Exclusive Songwriting Agreements
3. Co-Publishing Agreements and
4. Administration Agreements

Single Song Agreements
Under a Single-Song Agreement, the songwriter transfers copyright ownership of specifically identified song(s) to the publisher. These are “non-exclusive” agreements because there is no term. In other words, these agreements are simply a one-time “sale” where the copyright is transferred from the Songwriter to the Publisher. The songs must already be in existence and are specifically identified in the contract.

Exclusive Songwriter Agreements
The main difference between exclusive songwriter agreements and single song agreements is that in an exclusive songwriter agreement the songwriter is transferring to the publisher copyright ownership of all songs written during the duration of the contract. Further distinguishing these types of agreements from single song agreements is that under an exclusive songwriter agreement the songwriter usually receives an advance that is recoupable from future royalties.

Co-Publishing Agreements
Under a co-publishing agreement, two or more parties (usually the songwriter and their publisher) share ownership of songs. In the typical co-publishing agreement, the songwriter transfers partial copyright ownership to the publisher and retain part ownership either in themselves or in their own publishing company. The songwriter’s independent publisher will have administration duties under this type of contract. The provisions of co-publishing agreements are usually very similar to those of exclusive songwriting agreements.
The main difference is that the songwriter will receive both the songwriter’s share of royalties (usually 50% of net royalties) and a cut of the publisher’s share the royalties (usually 25% of the net royalties).

Administration Agreements
Administration agreements are service contracts between the songwriter (or writer’s publishing company) and a publisher or administrator. These type of agreements are usually, although not always, reserved for established songwriters. In an administrative agreement a songwriter will pay up to 25% of net royalties for the administrative services of a music publisher. The important distinction between this type of agreement and the other types above is that the songwriter does not transfer any copyright ownership to the publisher.

On and off over the next few months I will be highlighting issues and pitfalls regarding these songwriter contracts. For those of you who are unfamiliar with songwriters and music publishers I suggest you check out the Nashville Songwriters Association International.

The Performance Rights Act

For those of you following the Performance Rights Act, I was recently a guest on Paul Butler's radio show Prime Time America. Joining me was Bob Powers, Vice President of Government Relations in the Capital Hill Office of the National Religious Broadcasters.

Give it a listen by clicking on the link above and pressing the play icon. Tell me your thoughts on this topic by leaving a comment here.

The King of Pop, Inc.

Time author Adam Smith recently reported on the debt of the late King of Pop, Michael Jackson. This short, yet reveling, story can be found on Yahoo by clicking here. It is sad when a person of Michael Jackson's vast talent passes on with such staggering debt--reported to be between 300 million and close to 600 million dollars. While much of the reporting on Michael Jackson's debt at the time of his passing is speculation, we do know that he lost his Neverland Ranch to foreclosure as a result of defaulting on substantial loans and that the debt was huge.

Yet, much of the reporting only tells half of the financial story. Michael Jackson enjoyed two valuable commodities during his life that survived his death--(1) intellectual property in the form of music and song catalogs and (2) his name and likeness (i.e., publicity rights). The ability to monetize these assets is legally and financially more significant than the hefty debt his lifestyle created. His estate's earning power will play out in the next few months and years. The income-generating property of Michael Jackson's estate could rival or even surpass that of the other Music King, the King of Rock Elvis Presley.

Are Digital Downloads Worth More Than CD's?

The music industry watched with rapt attention the recent legal skirmish between musicians and their record labels over the payment of royalties. At issue in the Eminem royalty battle was the definition of digital distributions of music and what royalties should record labels pay to their musicians when consumers download digital recordings or ringtones. According to the pleadings filed in the case, the contract for the rap artist Eminem set royalty rates payable by Universal Music Group and several other labels for “records sold” at twelve to twenty percent of net proceeds and set royalty rates for “masters licensed” at a royalty rate of fifty percent of net proceeds.

The plaintiffs claimed that Universal Music Group failed to pay the full fifty percent of net proceeds from the digital downloads and ringtones of the Eminem catalogue of recordings. According to the plaintiff’s auditor, Universal owed them at least $650,000.00 in back royalties as a result of this breach of the contract. The jury disagreed and found in favor of Universal Music Group. Many in the industry have, therefore, declared the issue settled and began moving forward with the belief that a digital download is a record sale for the purposes of calculating royalties.

In spite of all of the attention the Eminem case has garnered, it is a relatively insignificant case. It has no precedential value for other courts, does not solve the definitional problem of whether a download or ringtone is a sale or license of music, and has done little in the way of adding contractual clarity or consistency to this issue.

New York entertainment attorney Brian Caplan, of Caplan and Ross, LLP, knows firsthand about the issues involved in defining a download or ringtone for the calculation of a musician’s royalty. Mr. Caplan is pursuing the same royalty claims found in the Eminem case in the class action lawsuit he filed on April 27, 2006 against Sony Music Entertainment. In Allman v. Sony BMG Music Entertainment Mr. Caplan is asking for damages in excess of $25,000,000.00 for clients such as the Allman Brothers and Cheap Trick among others.

In appraising his chances of success in light of the Eminem defeat, Mr. Caplan focused on two important points. “In the Eminem case, there was an amendment in 2004 to the recording artist contract that defined downloads as sales of albums.” According to Mr. Caplan no such language exists in any of the contracts at issue in his case. “You simply need to look at the agreements record labels have with companies like Apple. The consumer signs a contract with iTunes saying ‘I am a licensee and I acknowledge that iTunes does not own the master,’ and iTunes has stated that it is a licensee of major record labels granting to you, the consumer, a sublicense. If this is the case, then the musicians whose contracts do not specifically define a download as a sale, like in the Eminem case, are entitled to 50% of the net proceeds from downloads pursuant to their contracts.”

Mr. Caplan points to the February 6, 2007 press release from Steve Jobs, CEO of Apple Computers, Inc. In that press release Mr. Jobs stated that “[s]ince Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI.” In reviewing the agreement between Universal Music Group and Apple Computer, Inc. the trial court in the Eminem case stated that the facts suggest “that the agreement was a license.”

Mr. Caplan also points to the fact that “the jury verdict in the Eminem case, or any jury verdict for that matter, is not binding on other juries or other courts.” Precedents are “set by higher courts, not by juries” Mr. Caplan reminds us.

While the skirmish over Eminem’s royalties was not a defining moment in the music business, it was the opening salvo of what looks to be a protracted campaign on the part of musicians to collect more significant digital royalties from their financially strapped labels.

Due to the substantial amount of money at stake in this case, it will very likely go to trial and then be appealed. The resulting appellate ruling would create a legally binding precedent defining the parameters of the digital distribution model for a majority of recording artists for years to come. An appellate ruling of that magnitude would tip the balance of power in the recording industry in favor of the successful side of this dispute. If the musicians were to succeed, combined with the financial vulnerability of the record labels, this case could change the face of the recording industry to a more artist driven business model for years to come.

How do you compete with free?

To continue on with my last two posts, I have a question for you: How do you compete with free? That is a common question posed by many in the recording industry. The question is usually given in the context of the ravages of digital technology on music sales. While I think this is an overly simplistic question, I am posing it regarding radio.

That's right, over-the-air terrestrial radio. Our prized AM/FM radio. I'm currently reviewing some of the testimony given to congress recently. Professor Ashbel Smith from the University of Texas at Dallas makes some very good points in his statement before the Committee on the Judiciary regarding the Performance Rights Act.

One such result of his research is that if people are listening to free music on the radio, they are not listening to prerecorded music ... seems like a no-brainer. I'd like to say he has a wonderful grasp of the obvious, but it is gospel in the music industry that radio airplay drives music sales. So if that is the longstanding industry belief, that radio airplay drives sales, why do we believe this? I'll admit that radio air play can drive up the sales of a single song or album, but does it actually increase overall record sales? That is the important question, the question that Professor Smith addresses in his statement.

It is an interesting idea that radio airplay actually hinders the sale of prerecorded music instead of promoting it. What do you think? Answer the survey at the right to weigh in on the debate.

Performance Rights Act, Part II

So, where do I stand? To follow up on last week’s post, I support the act. Why? Well, at the outset let me say that it is not simply because I work in the Music Business. As I tried to point out in my previous post, the battle lines over this legislation have been drawn through the middle of the music industry. I have close friends and business associates on either side of this issue.

The reason I support this legislation is that it serves the greatest good—sounds Utopian, I know, but please let me explain before you write me off as a hopeless socialist.

I am a constitutionalist. My view of copyright legislation is seen through the lens of Article I, Section 8, Clause 8 of the U.S. Constitution, which states that “Congress shall have power…To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their Writings and Discoveries.” The specific words “To promote the Progress of Science and useful Arts” establish a utilitarian policy that guides Congress when enacting such laws.

It stands to reason that the grant of a copyright—which is nothing more than a monopoly (albeit a limited one)—must benefit more than the individual holder of that right. Indeed, very few monopolies are tolerated in the U.S. market without a utilitarian justification. Otherwise you simply have an unfair restraint of trade benefiting the few at the expense of the many.

Some argue that the utilitarian policy underlying copyright is contrary to the American ideals of self reliance and property rights. Yet, if authors are not given protectable property rights in their creations, some of them will stop creating for want of economic incentives. In other words, if you can’t make a living doing something, you are likely to abandon the endeavor and pursue a more lucrative path—that sounds very American to me.

As the U.S. Supreme Court stated in MGM Studios Inc, v. Grokster, Ltd. “… the administration of copyright law is an exercise in managing the trade-off” 125 S. Ct. 2764, 2775 (2005). While the court was speaking specifically of the tradeoff between technological innovation and artistic creation, it was also speaking more broadly to the tradeoff in all copyrights cases of balancing of the greatest good.

In applying this doctrine to the Performance Rights Act we can look to the vast majority of developed nations that have long ago mandated the payment of such royalties without a devastating impact to their over-the-air broadcast media. When compared to the devastating impact digital technology has had on the music industry, it is clear to me that the greatest good will be served with the passing of this act.

Without an objective economic impact analysis concluding, with some degree of certainty, that the trade off is a greater risk (i.e., that terrestrial radio in the U.S. will be driven out of business if forced to pay such royalties), the Performance Rights Act should be passed and signed into law.

The Performance Rights Act, H. R. 848, S. 379

Many people like to blame Shawn Fanning. While Mr. Fanning’s creation of the specific computer code that became commercially known as Napster was not inevitable, digital file sharing was. As equally inevitable are our current struggles regarding how to adapt—both socially and economically—to digital technology.

One attempt at adaptation is the most recent version of the Performance Rights Act currently before both houses of Congress. To me, one of the most interesting aspects of the legislative process is the demarcation of battle lines within an industry impacted by a specific piece of legislation. The many versions of The Performance Rights Act has created its share of feuds within the music industry.

The purpose of the bill is simple: require standard AM and FM radio stations (technically known as “terrestrial radio” to distinguish them from Internet and satellite radio) to pay performers royalties for the broadcast of their recorded music. Up until now, terrestrial radio stations paid only the songwriter a royalty.

The airplay of songs, so the theory goes, promotes album sales and that is how the artist and their label receive compensation for their creative efforts. Indeed that theory worked well into the late 1990’s. As we all know, the advent of digital technology made that theory about as useful as the one about the earth being flat.

Of course you can easily see the conflict this legislation created. Artists and their record labels (e.g., Warner Bros. Music, Sony/BMG, Universal Music, EMI, etc.) are supportive of monetizing the airplay of their music. But terrestrial radio is, of course, opposed to paying royalties on music they have been using free for years. To complicate matters, every business in the nation is reassessing and cutting back on advertising.

Yet, there was, at the beginning of the drafting stages of this bill, another not-so-obvious conflict that arose. The songwriting community joined terrestrial radio in opposition to the performance royalty. Songwriters and their music publishers were concerned that a performance royalty could cause a reduction in their royalty payments from terrestrial radio.

To address the concerns of the songwriting community, the drafters of the Performance Rights Act inserted Section 5 into the Act. Section 5 mandates that the songwriters’ royalties “shall not be reduced or adversely affected in any respect” by the implementation of the performance royalty. Thus the drafters limited the opposition to the bill.

Considering that the two major streams of revenue for a songwriter and their music publisher are the sale of music (which we all know is shrinking daily) and radio royalties, the insertion of Section 5 into the bill was critical.

So, where do you stand? Let me know by answering the survey on the right. I will let you know where I stand on the bill next week.