Music Business Final Review

Copyright and Mechanical Royalties

  1. Copyright: A limited-duration monopoly granted to creators of original works to protect their intellectual property. It gives exclusive rights over how the work is reproduced, distributed, performed, and publicly displayed.

  2. Mechanical Royalties:

    • Current Rate: 12 cents per song per record (in the U.S.). Paid by the record company to the publisher for songs on physical or digital recordings.

    • Mechanical Royalties on Digital Downloads: No reduction for digital downloads as they are not considered physical copies.

  3. Statutory Rate: The rate set by Congress. Historically 9.1 cents per song per record, but currently 12 cents for songs 5 minutes or less.

  4. Rights Granted under Copyright:

    • Right to reproduce, distribute, create derivative works, display publicly, perform publicly, and adapt the work into all known media forms.

  5. First Use: The copyright holder’s right to control who can use and reproduce a song for the first time (e.g., licensing).

  6. Compulsory License: Once a song has been released, the publisher cannot deny others from using it, but must adhere to the statutory rate and conditions.

  7. Conditions for Compulsory License:

    • Song must have been recorded and released, authorized by the publisher, and meet all statutory requirements.

  8. Foreign Mechanical Royalties: In the U.S., royalties are paid per song per record, but internationally, mechanical royalties are often calculated as a percentage of the wholesale price of the record.

  9. Conditions for Copyright to Exist:

    • The work must be original, fixed in a tangible medium (e.g., recorded or written down), and cannot be copyrighted if incomplete.

Publishing and Performance Rights

  1. Performance Rights Organizations (PROs): ASCAP, SESAC, BMI, GMR. They collect performance royalties for songwriters and publishers when songs are publicly performed (radio, TV, streaming, etc.).

  2. Performance Royalties: Paid to songwriters and publishers when their work is performed publicly (e.g., on the radio, TV, live performances). Writers cannot recoup performance royalties from their publishers.

  3. Synchronization License: Required to use a song in conjunction with audiovisual works (e.g., movies, commercials). The publisher grants this license, and they are paid royalties for its use.

  4. Mechanical Royalties and Digital Downloads: Mechanical royalties on digital downloads do not have reductions, as no physical copy is made.

  5. Harry Fox Agency: A licensing organization that helps publishers administer mechanical licenses and collect royalties. It charges a commission (typically 11.5%) for its services.

  6. Mechanical Royalties on Digital Platforms: Digital platforms (such as streaming services) also pay mechanical royalties, which are collected and distributed to publishers and writers.

Songwriter & Publishing Agreements

  1. Controlled Composition: A song written by an artist or producer, typically subject to a reduced mechanical royalty rate (9 cents per song for physical copies).

  2. Songwriter-Publisher Split: Typically 50-50 in a full publishing deal. This means that both the songwriter and the publisher receive half of the royalties generated by the song.

  3. Co-Publishing Agreement: A deal in which the songwriter and publisher share the copyright, typically splitting royalties 50-50 or 75-25 (with the songwriter receiving the larger portion).

  4. Publishing Administration Deal: An agreement in which a third party (the administrator) handles the paperwork and licensing for the publisher in exchange for a percentage of earnings (typically 15-25%).

Copyright Law and Acts

  1. 1976 Copyright Act: Established copyright protection for works created after January 1, 1978. It grants 28 years of copyright protection with a 28-year renewal option, or life plus 50 years for individual creators.

  2. Sonny Bono Copyright Extension Act (1998): Extended the term of copyright protection to life of the author plus 70 years (up from life plus 50 years).

  3. DART Act (1992): Digital Audio Recording Act, imposed a tax on digital audio recorders and players and established the Digital Audio Recording Technology fund.

  4. Music Modernization Act (2018): Established the Music Licensing Collective (MLC), which simplifies the process of collecting and distributing mechanical royalties for digital streams.

Contractual Terms

  1. Term vs. Scope of Contract:

  • Term: Duration of the contract.

  • Scope: What activities the contract covers (e.g., recording, publishing, performance).

  1. Sunset Clause: A provision in a contract that limits the duration of certain rights or obligations, often used in manager contracts to specify the length of time that an artist owes a manager commission after their contract ends.

  2. Key Man Clause: A clause in a contract that protects a business relationship by identifying key individuals whose departure would trigger changes in the contract.

Record Labels and Deals

  1. Recoupment: The process by which a record label recovers advances and other costs (like recording or video costs) before an artist begins earning royalties.

  2. Cross-Collateralization: When the label uses earnings from one album or income stream to pay off advances or expenses related to other projects, which can lead to the artist being in debt to the label.

  3. 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.

  4. 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).

Touring and Merchandising

  1. 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.

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

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

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

Artist Professional Team

  1. 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.

  2. 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.

  3. 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.

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

Group Issues

  1. 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.

  2. 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.

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

Key Takeaways

  • Mechanical Royalties: Pay artists and publishers for the reproduction of music. The current rate in the U.S. is 12 cents per song per record.

  • Copyrights and Licensing: Understanding how copyrights protect music and how licenses (compulsory, sync, mechanical) allow for legal use of works.

  • Contracts: Key components of music contracts, including term, scope, and important clauses (sunset, key man, reversion).

  • Publishing and PROs: Songwriters and publishers are paid royalties through Performance Rights Organizations (ASCAP, BMI, SESAC) and mechanical royalties for recorded music.

  • Artists' Team: An artist's team, including a personal manager, business manager, attorney, and agent, is essential for career success, with each playing a unique role.

This guide covers the essential topics in the music industry, including copyright, publishing, record labels, touring, and the roles of the artist's professional team.