Music Business Final Review

Copyright

A limited-duration monopoly granted to creators of original works to protect their intellectual property.

Mechanical Royalties

Royalties paid to publishers and songwriters, set at current rate of 12 cents per song per record in the U.S.

Statutory Rate

The rate set by Congress, currently 12 cents for songs 5 minutes or less, historically 9.1 cents.

Compulsory License

Allows others to use a song after it has been released, adhering to statutory rate and conditions.

Performance Rights Organizations (PROs)

Organizations like ASCAP, SESAC, and BMI that collect performance royalties for songwriters and publishers.

Synchronization License

A license required to use a song with audiovisual works, such as movies and commercials.

Controlled Composition

A song written by an artist or producer, usually subject to a reduced mechanical royalty rate.

Cross-Collateralization

A practice where record labels use earnings from one project to pay off expenses from another related project.

Master Use License

A license required to use an artist's recording in audio-visual works.

Tour Support

Financial backing provided by a label to an artist for touring, often recouped from future earnings.

Key Man Clause

A contract clause that protects business relationships by identifying key individuals whose departure triggers contract changes.

DART Act

The Digital Audio Recording Act, which established a tax on digital audio recorders and fund.

Mechanical Royalties on Digital Downloads

These royalties do not have reductions since digital downloads are not physical copies.

Publishing Administration Deal

An agreement where a third party handles licensing for a publisher in exchange for a percentage of earnings.

Hall Fee

A fee venues charge for merchandise sales, usually a percentage of total sales.

Rider

An addendum to a performance contract detailing the artist's specific needs during a concert.

Sonny Bono Copyright Extension Act (1998)

Extended copyright protection to life of the author plus 70 years.

Artist's Professional Team

Includes personal manager, business manager, attorney, and agent, each playing a unique role in the artist's career.

Internal Band Agreements

Agreements that outline ownership, percentages, and procedures if a member leaves the band.

Recoupment

The process by which a record label recovers advances and costs before an artist earns royalties.

360 Deals

Deals where the label receives a percentage of multiple income streams (including touring, merchandise, and endorsements), in addition to traditional royalties from record sales.

Master Use License

A license required to use an artist's recording as part of an audio-visual work (e.g., movies, TV shows, ads).

Tour Support

The financial backing provided by a label to an artist for the purpose of touring, often recouped from the artist’s future earnings.

Merchandise Royalties

Artists typically earn 30-40% of gross merchandise sales, depending on the contract with the merch company.

Rider

An addendum to a performance contract that outlines the artist's specific needs for sound, lighting, food, and more during a concert.

Hall Fee

A fee that venues charge for merchandise sales, typically a percentage of the total sales (often 20-30%).

Personal Manager

Responsible for overall career management, providing advice, negotiating deals, and coordinating the artist's team. Commission: typically 15-20% of the artist's income.

Business Manager

Oversees the financial aspects of an artist's career, including budgeting, taxes, and investments. Must typically be a CPA with music industry experience. Commission: 5% of the artist's income.

Attorney

Provides legal services, negotiates contracts, and offers advice on business and legal matters. Attorneys can influence the choice of the artist's other team members.

Agent

Responsible for booking live performances and negotiating performance fees. Commission: typically 10-15% of performance income.

Band Name Protection

Group names are protected by service marks, while logos and images are protected by trademarks. Ensure the name is not already in use to avoid trademark infringement.

Internal Band Agreements

It is crucial for a band to have an internal agreement that outlines ownership, percentages, and what happens if a member leaves or the band breaks up. This is often incorporated under an LLC.

Individual Contracts

Band members sign their own individual recording contracts and management agreements, preventing someone from quitting the band to void contracts.

Legitimate Deductions from Artist’s Income

Recording costs, tour support, agent's commission, union fees, promotional costs, and other expenses directly related to the artist’s career.

Sunset Clauses

provide that the manager’s commission continues for a period after the contract ends, usually for deals made during the term of the agreement.

Key Man Clauses

A clause that specifies that if a key individual (e.g., the personal manager) leaves the team, the contract may be terminated or renegotiated.

Retainer

an upfront fee paid to secure the attorney’s or business manager's services, which is then deducted from future billings.

Attorney’s Hourly Fee Rate

$150–500 per hour (varies by location and attorney’s experience). If based on a percentage, attorneys typically take 5-10% of the artist's income for services rendered in contract negotiations.

Typical Agents Commission

About 10% to 20% max

Album Cycle

Begins with the recording of an album and ends after the release, promotion, and touring associated with the album are completed.

Three Major US Record Companies

Universal Music Group

Sony Music Entertainment

Warner Music Group

Departments of a Record Company

A&R

Marketing

Sales

legal

Finance

Promotion

Production

Independent Label

A record company that operates without the support or funding of one of the major labels. Independent labels are typically smaller but can have niche audiences and unique genres.

True Independent Label

A label with no affiliation or distribution deals with major labels or major distribution companies. Operates entirely on its own.

Red

Major Source of Physical CD Sales

Big box retailers & online platforms

Records

In modern contracts, "records" typically refers to physical formats (CDs, vinyl) as well as digital formats (downloads, streaming).

Free Goods

are promotional copies of records (albums, singles) that are given away without charge and typically do not count toward royalties or sales figures.

Master

the original, final version of a recording from which all copies (vinyl, CD, digital) are made. It's usually owned by the label and licensed to other parties for distribution and sales.

Reserves on Returns

A portion of an artist's royalties held back by the label to cover future returns of unsold albums from retailers. This protects the label in case of returns, which are common in physical sales

Advance to a Recording Artist

A pre-payment made by the label to the artist, usually to cover recording costs and provide personal funds. It is recoupable from future royalties.

Recoupment

The process of the artist paying back their advance (and other costs like recording, promotion, etc.) through future royalties. The artist doesn’t earn royalties until the label has recouped the full advance.

Recoupable Percentage of Video, Tour Support, Independent Promotion, and Recording Costs

These are typically recoupable from the artist's royalties, meaning they are deducted before the artist receives earnings from sales. Percentage rates vary, but are generally between 70%-100% of the costs depending on the contract.

RIAA

Recording Industry Association of America

is a trade organization that represents the U.S. recording industry. Its functions include certifying gold and platinum records, fighting piracy, and lobbying for industry issues.

A “Point”

equal to 1% of the suggested retail price (SRP) or wholesale price of a record. So if an artist has 10 points, they earn 10% of the CD’s wholesale price.

Escalation

a clause that increases an artist's royalty rate or advances as their sales grow. For example, they might start with 10% of sales but move to 12% once they hit a certain sales threshold.

360 Deal

a contract where the label takes a percentage of all of the artist's income, not just from record sales, but from touring, merchandising, publishing, and other sources.

Active Interest

In a music contract, an active interest refers to a situation where a label or other entity is directly involved in the artist’s career, typically by offering ongoing support or influence.

Passive Interest

is when a label or entity has financial interest but no direct involvement in the day-to-day aspects of the artist’s career (e.g., merely collecting royalties).

A Commitment Album

An album an artist is required to deliver under the terms of their contract. If the artist doesn't fulfill the contract, they may be penalized or dropped from the label.

Controlled Composition

a song written or co-written by the artist, where the royalty rate for the song's use is often lower than the industry standard, usually capped at a set percentage.

Role of Producer

Oversees the recording process, helping to shape the sound and direction of an album. They may also handle arrangements, mixing, and studio logistics.

Point Range of a Producer

A producer typically receives 2-5% of the artist's royalties from an album, though this can vary depending on the artist's stature and the producer's experience.

All-In Rate

is the total amount paid to the producer, which includes their production fee and their royalty points. In some cases, the producer is paid this lump sum instead of separate fees.

Mixer

is responsible for balancing and adjusting the levels of the tracks in a song to create the final product before mastering.

Right of First Negotiation

gives one party the exclusive opportunity to negotiate a deal before the artist can enter into negotiations with other parties.

Right of First Refusal

allows the label to match any offer the artist receives from another label, usually at the same terms, before the artist can sign with someone else.

SoundScan

Tracks the sales of music albums, both physical and digital, across retailers in North America. it is often used to determine chart positions

Major Territories

US, UK, Europe, Japan, and Australia

Royalty Rates

Full royalty rates in US

70-80% in UK and Europe

Lower other places