Making Sense Of Music Contracts

This PRS wallchart gives an overview of the publishing 'maze'. You can avoid having to deal with all of this complexity by getting a publishing deal.

Even the most robust musician can be turned into quivering jelly at the prospect of having to sign a legal document — yet it's impossible to make much progress in the music business without signing contracts. Robin Morley guides fellow musicians through the contractual maze of management, publishing and recording deals, in an attempt to make things a little clearer...

Contracts of any sort can be terrifying things — music contracts especially so. Whether you're faced with an immense, War & Peace‑sized tract from a major record label, or a one‑page agreement from your local studio, the average musician (that's you and me) is likely to be flummoxed. Add to this the fact that you're dealing with something incredibly precious to you — your musical output — and panic tends to set in. It can feel like being asked to sign away your loved ones — which is why this article is here to help.

I've signed many music‑related contracts over the years, and have gradually learned to pick out and recognise the main points and what they actually mean. What follows is a little of what I've learned, in what are arguably the three most important contractual areas: management, publishing and recording deals.

Almost everything in a music contract is (in theory) negotiable, provided that you have sufficient bargaining power, legal funds and patience. Negotiation can be a tedious and expensive experience, with letters and phone calls volleying back and forth from lawyer to lawyer until a compromise is reached. Rather this, however, than signing the first piece of paper shoved in front of you. Too many musicians have fallen for that one over the years.

A final word of caution. I'm not a lawyer, and this piece is written as general information from my point of view: it's not intended as advice. You shouldn't rely on what I've written to guide you through your own negotiations, any more than you should attempt to rescue hostages after reading Bravo Two Zero. Seeking qualified, independent legal advice before signing a music‑based agreement is so essential that most contracts stipulate, within their terms, that you take it. Contracts signed without legal advice have been ripped up by the courts for this very reason.

The Management Contract

Registering your compositions with the MCPS/PRS (to obtain your publishing income). Your publisher will fill in this pink form to register your songs once you've signed them all away to her/him.

It may not be the big, mates‑impressing 'deal' that you always dreamed of signing but, in many ways, the management contract is the most important one you'll put your signature on. Why? Because in signing it, you're permitting someone else to represent you and paying them for the privilege. If that person is great at their job, you just got yourself a fantastic bargain. If they're useless, however, you'll be worse off than you were on your own — plus you'll be shelling out cash to them regardless, and will probably be too preoccupied with resolving the situation to be properly creative. A nightmare scenario. (See Which Manager? box for more information on choosing a manager).

So, you're lucky enough to be offered a management contract — what's likely to be in it? Well, there's no such thing as a 'standard' agreement in any area of the music business, but there are some elements which you can expect to see in some form or another and these include: activities covered, term, territory, commission, earnings and cashflow.

Activities Covered

In which areas of 'artistic endeavour' will your manager represent you? Everything? Just your musical activities or your musical activities minus that lucrative deal you already struck to write tunes for doorbells? It makes sense to limit the management contract to cover areas which your manager has experience in and to exclude areas in which you've already managed to establish yourself. Clearly, your 'bargaining power' will determine how lucky you are likely to be in getting your manager to agree to this...

Term And Territory

MCPS material will be sent to you if you are a writer member of that society.

How long is the agreement to run for? It's important to understand the term 'options'. A management contract, for instance, might run for one year plus two options to extend it for a further year. At the end of each year it's down to the manager to decide, within a specified time limit, whether to continue. The more established and successful the manager in question happens to be, the longer the term they'll generally insist on. It's also possible to include 'performance clauses', whereby, for instance, you have the right to terminate the contract if your manager hasn't bagged you a recording deal within a specified period.

Territory is, literally, the proportion of the world in which your manager will represent you. Established, successful artists may choose to select local managers to represent them in specific areas, such as, the US for example. Most management deals, especially for less established acts, are worldwide.

Commission, Earnings And Cashflow

Commission is generally set at 20 percent of gross earnings (that is your total income from all areas covered, before the removal of tax and so on) although, like everything else, this 20 percent figure should be negotiable. Certain kinds of money advanced to you by your record company shouldn't be commissioned by management, such as: promotional video costs, recording costs, and contributions towards the cost of touring (so‑called 'tour support'). Earnings from touring are a whole subject in themselves. As it's so easy for live outings to make a loss, your manager should usually only take his/her commission here after certain costs have been deducted.

Regarding cashflow, there are two main issues. The first concerns where all those hard‑earned millions go as you earn them. The ideal setup, from the artist's perspective, is for all income to go to your accountant, and for the manager to invoice you for his/her share. This enables you to keep a tighter grip on exactly what's going where. The alternative setup involves all moneys going straight to your management, before being apportioned — a less satisfactory situation for obvious reasons! Any artist agreeing to this route would be wise to ensure their contract stipulates that the manager accounts to them regularly.

The second issue concerns management expenses, that is what your manager is entitled to claim from you to cover his/her outgoings on your behalf. These are usually restricted to travel and accommodation costs, where they directly concern your career. Traditionally, everyday outgoings like the costs of running his/her office come out of the standard 20 percent commission.

The Publishing Contract

Music publishing (the area of the music business which deals with your songs and songwriting, as distinct from your role as a performer) can be a source of great confusion for musicians. This is a potentially disastrous situation, given its huge earning potential.

In fact, publishing earnings from successful material can be so large that inequalities here, between band members who write the songs and those who don't, can end up causing immense friction within bands. (A legendary '70s rock drummer reportedly locked himself in a tape cupboard until the other band members agreed to put his composition on their next single's B‑side...) To avoid such conflicts, some bands agree to split all publishing income equally amongst their line‑up, but that's a matter for them.

What matters to you is that every time your song is used somewhere, you're owed a royalty. For instance, if it's pressed as a record, the record company pays a percentage of the record's 'dealer price' (the price charged to retailers) to the MCPS (Mechanical Copyright Protection Society) for them to collect on your behalf. Such royalties are known as 'mechanicals'. If it's played on Radio One, a fee will be payable to you from the PRS (Performing Right Society) under an agreement between the PRS and the BBC... and so on.

You don't need a publishing deal in order to receive these royalties. All that you need to do is join the relevant societies and keep them up‑to‑date with your compositions, via special forms which they provide. Signing to a publisher, however, can provide many benefits such as less admin and paperwork for you. The publisher should register all appropriate information with all appropriate societies. Cash upfront is another such benefit. This takes the form of non‑returnable advances, which are recouped from your songwriting royalties. A good publisher should be constantly looking for new uses for your material, whether through TV, cinema, or advertising (so‑called 'synchronisation rights') or through other artists (cover versions). This means more markets for your songs! If you're offered a publishing deal, you'd be wise to seek proof that the company takes this duty of exploitation seriously. Find out what they have achieved for other songwriters like you. A publisher who isn't proactive in this area is little more than a bank: a useful facility, but a considerable waste of potential.

Length Of Agreement

Among the main points of a conventional 'exclusive' publishing deal (one relating to your entire songwriting output throughout its duration) will be length of agreement. This could be anything from one year to five years, although the upper end of this scale tends towards the excessive — the Musicians Union, for instance, suggest a maximum of three years. Option periods, as outlined in the Management Contract section, may be involved, as may a 'minimum commitment' clause, whereby you're obliged to deliver a specified number of songs before the contract is fulfilled.

Your contact may also oblige you to provide a certain percentage of the songwriting on an album, if you are both a writer and performer. This is of particular concern if you use sampling in your work. Too many slices of your songwriting 'cake' being given away to those you've sampled may result in you failing to deliver this minimum percentage, without you even realising it. Lastly, regarding territory, does the agreement cover your songs' copyright worldwide, just in the UK, or in the UK and other 'key territories'? These are all factors to consider...

Assignment Of Copyright

Assignment of copyright determines the period over which you 'hand over' your songs to the publisher. In theory, this could be anything up to and including their full copyright life (until 70 years after your death!) There's often room for negotiation here, however, beating the term down to the duration of the agreement plus an additional length of time afterwards called the 'retention period'.

As with management contracts, it's possible to introduce some form of 'performance' hurdle to a publishing agreement, whereby (for instance) if your publisher hasn't made appropriate use of your songs within a certain period of time, the copyrights revert to you.

Advances And Royalties

In return for your assignment of copyright, the publisher will pay you. There are no hard‑and‑fast rules here — the sums will depend on 'prevailing market conditions', as they say (in other words, try to seek out a deal when the industry is feeling healthy). Advances are effectively loans, to be recouped by your royalty payments before any further royalties are sent through to you. Unlike loans, however, they should be described in your contract as 'non‑returnable' which means that if you don't manage to earn them back, the publisher has to write them off.

You might expect to receive royalties of around 70 percent of your material's gross income (the remaining proportion is the fee you pay to the publisher for their services). How exactly the publisher collects and calculates this gross income is a highly complex matter beyond the scope of this article: there are dozens of collection societies dotted around the world, not to mention overseas sub‑publishers with whom your publisher may have deals in place.

Your contract should stipulate regular accounts (usually twice yearly, at the end of March and September), a 'right of audit', allowing you to examine the publisher's books... oh, and at this point you might just consider hiring yourself a good music business accountant too!

The Recording Contract

This, of course, is the one. The one which so many of us dream about. The one those spotty oiks must've been on the verge of signing in that legendary Kit‑Kat advert ("You'll go a long way..."). The kind of deal which makes the news headlines when some giant US band re‑signs to their label on a $10 million contract — even if that figure does include every advance they'll receive for the next 15 years.

Perhaps the day's not too far away when you'll be able to ask yourself "Do I really need to sign a record deal?" New Internet‑based forms of distribution may render traditional record companies laughably irrelevant. In the meantime, however, we're stuck with 'em, so you must decide which type of company would suit you best.

For instance, are you a high‑gloss pop act who need the kind of large‑scale 'pre‑launch' investment that only a major label could possibly provide (currently up to £1.5 million, according to some industry estimates)? Or would a small indie suit you better? If the latter is for you then what kind of overseas distribution arrangements do your ideal labels have in place? Do they have a network of licensees worldwide, or will they have to organise individual deals for you in specific parts of the globe? This piecemeal approach has advantages (each licensee is potentially more committed to you as an individual act) but it can be a long and frustrating process.

Whoever ends up proposing a deal for you is going to be stumping up a fair amount of cash in the vain hope that they, at least, will break even on you. (And the chances of that aren't great, I'm afraid — it's estimated that under 5 percent of all acts signed ever return that initial investment, let alone make multi‑millions.) So you'll have to be prepared to sign away a fair amount in return, as far as your rights are concerned. Just how far you need to go is, as always, negotiable...

Recording Agreement Requirements?

You'll usually be obliged to record exclusively for a specific record label (although these days many artists, especially in the dance field, sign deals exclusively for their work as a particular act, leaving them free to take their other 'guises' elsewhere). If the record label is the party who commissions and pays for your recordings, as is often the case, they will be regarded as the legal owner of those recordings.

Term can be set anywhere from the release of one single to upwards of five years, with an album to be delivered each year. The record company, however, usually gets to exercise an option between each significant release, meaning that at these points they can 'drop' you (ie. terminate the contract) provided that they follow certain guidelines set out in your agreement. This sounds harsh, but at least, as mentioned above regarding publishing, if you're dropped, you're freed of any debts set out in the contract as non‑returnable — for example advances, recording costs and so on. This explains why some acts are keener to leave their record label than others. It all depends on how far into the red (or 'unrecouped') they've plummeted...

Your advance, for each release, may be paid entirely upfront or you may receive a portion, initially with more to come at certain milestones (such as commencement of recording, or delivery and acceptance of the finished masters). As always, these sums should be non‑returnable.

Your royalty percentage (or, to put another way, your number of points) can be calculated against one of two figures — retail selling price or dealer price. It's vital that you realise which figure is used in your case, as this will make a huge difference to the amount you'll get paid. The Musicians Union consider between 10 to 14 percent of retail selling price as an average royalty for a new band, but more established artists can negotiate much higher figures. It's also possible to build in 'escalators' to your contract, whereby you'll receive higher royalty levels upon reaching specified sales figures.

Royalties for your producer(s), if any, are likely to be paid from — you guessed it — your share of the cash. Remix fees, too (when DJ Trancemaster is drafted in to pep up your soulful folk ballad) will largely be regarded as recoupable unless you manage to negotiate otherwise. Accounts, and any payments due, should normally be supplied to you twice yearly, as outlined in The Publishing Deal section above, with the same 'right of audit'. As if all this wasn't complicated enough, you should also expect your contract to feature a huge list of circumstances in which your royalties will be reduced (see The Great Rock And Roll Swindle? box on page 59 for details).

Final Words

Confused? Just wait until you see the actual agreements, on paper, in front of you. Yes, the factors listed above will almost certainly all be there, but it can take a trained eye to even spot them amongst the clause after clause of legal padding (in other words, it's time to rack up a few more lawyers' bills). After all, the likes of record companies have spent decades amending and adding their 'form' contracts to include coverage for every eventuality — if you're signing as part of a group, for instance, there's likely to be a whole lengthy section about everyone's rights and obligations should the band break up... and so on, and so on. What's more, fledgling business areas like e‑commerce and m‑commerce (the possibility of selling music through mobile phones) bring new possibilities, and hence new complexities into the scene with each passing day.

And I haven't even touched on a wealth of other areas which might face you as success looms: licensing deals, merchandising deals and sponsorship deals, to name just three. Take a look at the Further Reading box for one suggestion on how to proceed from here. In the meantime, keep 'em peeled — and good luck. If musicians' experiences over the years are anything to go by, you're quite possibly going to need it...