Music Industry Contracts

Luke Evans -

Why We Wrote This Guide

Contracts are the primary tools that entities in the music industry use to enter into business relationships with one another. This makes it important for musicians and business-people alike to have a general sense of how they work. Therefore, the purpose of this guide is to provide a basic overview of important principles in contract law, as well as to paint a more detailed picture of the specific agreement types and clauses that are more relevant in the music industry.

Disclaimer: This guide is for informational use only and should not be construed as legal advice. For counsel pertaining to specific contract issues, one should always seek the services of an experienced entertainment attorney.

Who This Guide Is For

  • Any musician or person interested in the music business
  • Anyone doing business in the music industry

Contents

Contract Law Basics
Music-specific Contracts
Important Clauses in Music Contracts

Contract Law Basics

Offer + Acceptance + Consideration + (Legality + Capacity) = Valid contract
Several conditions need to be met for a valid contract to exist. We have broken down five of these conditions below. As always, there could be varying laws in place at state or federal levels, or specific to an industry, which could affect the validity of a contract. You should always check with your attorney regarding the validity of a specific agreement.

1. Offer

Put simply, this is the promise to do (or not do) something in exchange for something else. Importantly, the offeror must make the offer with the intent that the contract will be a binding agreement if signed. For example, record labels offer artists contracts to record a certain amount of music for a certain amount of time, in exchange for an advance and royalties, as well as marketing and promotion.

2. Acceptance

A party can accept an offer by assenting, with intent, to do so. This means that they must make a concrete action to accept, and they must be fully aware of the offer at hand. Acceptance can take many forms; signatures, verbal affirmations, and handshakes can all be valid. It is generally the most prudent, however, to have any formal agreement memorialized in writing.

Note: Email chains can be legally binding offers and acceptances of agreements if the language indicates as much.

3. Consideration

What each party brings to the table in an agreement must be something of value, and this piece is called the consideration. It can be money, or it can be the simple promise to do (or not do) something. For example, a homeowner could contract with a landscaper to have her lawn mowed once per month in exchange for a sum of money. Conversely, a programmer at a tech company could sign a non-compete contract with his current employer, agreeing not to leave to work for a competitor within a certain time frame.

4. Legality

The terms of the deal must be within the scope of the law. For example, parties agreeing to smuggle illegal drugs throughout the country would not have a valid agreement with one another. If one party breached the terms set forth, the other party would have no legal recourse. There was never a valid contract formed.

5. Capacity

The parties to the agreement must have the capacity to enter into it. For example, a minor under the age of 18 or 21 (depending on the laws governing the contract) may void any contract into which they enter because they are seen in the eyes of the law to be unable to make a rational legal agreement in some scenarios. Another potential example is someone who is so inebriated that they cannot consent to an agreement. This is always subject to the specific facts of the case in question, but the above examples illustrate the idea of capacity and how contracts could be voidable in certain circumstances.

Unilateral v. Bilateral
In general, there are two types of contracts: unilateral and bilateral. Bilateral contracts are probably the most familiar - these are agreements that are entered into by different parties, and they require some type of performance on the part of both. Unilateral contracts, on the other hand, require a promise from one party and performance from the other. For example, clicking a box to signify that you’ve read the terms and conditions on a website is entering into a binding, unilateral contract. An example of a bilateral contract, on the other hand, is a personal management agreement between an artist and a manager. The artist gives the manager a percentage of earnings and the manager oversees the musician’s business affairs. Both parties perform actions to fulfill the agreement.

Interpretation
Sometimes the terms of a contract can be ambiguous. In general, courts try to discover the intent behind the agreement. Courts generally try as much as possible to adhere to what the contract says, as opposed to bringing in outside evidence. This is called the four corners principle (named for the four corners of a piece of paper).

Definitions
Since contracts are generally interpreted in themselves with as little regard to outside evidence as possible, the definitions of terms within the agreement are important. Many contracts contain a “Definitions” section, which explicitly states what significant words mean concerning the agreement. Other times, however, terms are simply defined within the flow of the writing, or left undefined. It is important to take note of any concrete definitions or ambiguities in any contract.

Breach
When a party fails to fulfill all promises made in an agreement, a breach of contract occurs. Courts may find evidence of either partial or full breaches, depending on the circumstances and terms of the contract.

Power of Attorney
Power of Attorney gives a party the right to sign documents in place of another. It is common for musicians to give their personal and business managers power of attorney.

Music-specific Contracts

  • Record Deal

An artist assigns and transfers ownership in their sound recording copyright(s) to a record label, (usually) in return for an advance and subsequent royalty payments. The record label often agrees to market, promote, and license the recordings to music users such as streaming services and consumers.

  • Project/Band Contract

If you’re working as a group or band member, you may want to consider signing a band contract. This contract will help you and the other members regulate and agree on tax and legal matters. The most important aspects of this contract would be band name rights, distribution of income and jobs, death, withdrawal of band members, insurance, ownership of equipment/instruments, etc.

  • Transfer of Rights to Musicians

If you’re working with external musicians like guest band members or singers it’s a good idea to enter a contract authorizing the “transfer of rights”. This contract will help determine fees and profit-sharing and ultimately ensure that you will be able to reproduce or use the performances as you please without infringing on the guest artists’ ownership rights.

  • Publishing Deal

A songwriter assigns and transfers ownership, or partial ownership, in their compositions to a music publisher (usually) in return for an advance and subsequent royalty payments. The writer, in effect, sells, in whole or in part, their composition(s).

An artist gives a company the right to distribute their copyrighted sound recordings for a set amount of time. The company usually collects a fee or takes a percentage of the royalties that the song(s) earns. The artist retains ownership of their recordings.

  • Administration Deal

A business entity agrees to handle the administrative work needed to license and/or collect royalties for one or a set of copyrighted works for a specified amount of time. The licensor retains ownership in their copyrights.

  • 360 Deal

A 360 deal is found in many of today’s contracts between a record label and a recording artist and refers to the label’s efforts to obtain a share in all other rights and revenue streams related to the artist, in addition to the exclusive recording rights. Additional rights in a 360 deal may include name and likeness rights, touring rights, music publishing rights in songs written by the artist, and more. The 360 trend is not limited to record labels. More and more companies that started off as strictly publishing or management entities are now moving towards a 360 approach in an attempt to become a one-stop-shop for musicians.

  • Producer Deal

The producer agreement usually occurs between a producer and artist, though sometimes it can form between a label and a producer. The producer can often negotiate up to a 50% fraction of the label’s net receipts for a given sound recording. This negotiation is always based on the the producer’s track record and experience with artists.

  • Co-Writer Agreement

Often, songwriters compose songs in collaboration with other writers. In the absence of a formal written agreement, the law assumes 50/50 ownership in any song known to be co-written. Splits that aren’t 50/50 (or evenly split between all writers, for that matter) must be memorialized in writing in order to be recognized by the law as such.

  • Master-Use License

A master-use license permits the licensee to use a copyrighted sound recording in a new project. Typically, licensees are seeking to use recordings in audiovisual projects, as a sample in a new audio recording, or for distribution. By obtaining a master-use license, the only rights being granted are to the sound recording. This means that any copyrighted composition embodied in the recording must be licensed separately.

  • Mechanical License

According to the Harry Fox Agency, a mechanical license grants to the user the rights to reproduce and distribute copyrighted musical compositions on CDs, records, tapes, ringtones, permanent digital downloads (DPDs), interactive streams, and other digital configurations supporting various business models. In exchange for permission to do so, licensees pay a statutory rate to the copyright owner(s) per reproduction.

  • Synch License

Synchronization licensing is the process by which production companies of audiovisual works clear the rights for outside music to be used in their productions. Both the sound recording copyright and the underlying composition copyright must be cleared in order to use the work in synchronization. Synchronization licenses (“synch,” for short) refer to the “synchronizing” of a musical work with a visual work. Sync deals give the licensee the right to use a composition copyright and sound recording in an audiovisual work such as a movie, TV show or commercial, video game, or other similar work.

  • Performance License

An agreement, usually between a performing rights organization (PRO) and a music user in the form of a blanket license, allowing the licensee to publicly perform a composition in exchange for a payment. More info can be found in our guide on performance licensing here.

  • PRO Affiliation

This is the deal that the songwriter signs when they become a member of a PRO. The agreement lasts for a specified amount of time and is exclusive, meaning that the writer cannot be signed with more than one PRO at a time.

  • Booking or Performance Deal

This is the agreement entered into by a concert promoter or venue and an artist or the artist’s agent. The artist agent typically has power of attorney, meaning that they can sign the deal that binds the artist to play at the venue at the specified date and time.

  • Management or Agent Agreement

An artist signs a contract with a manager or an agent to help them with their business affairs. The managers and agents usually take a percentage (anywhere between 5%-20%) of the musician’s revenue earned from record sales, concerts, etc.

  • Merchandising Agreement

The musician signs an agreement with a company to produce a specific amount of merchandise.

  • Work For Hire

A work made for hire occurs when Party A employs Party B to create something, but Party A becomes the legal author of the work. In the eyes of the law, Party B will no longer have any rights to the work whatsoever. While these agreements are more common in film and TV, many publishing deals can have work-for-hire language in them. The musician needs to have a clear understanding of whether a deal is work-for-hire before they sign, because signing one of these agreements gives complete ownership of the works subject to it to the employer.

Important Clauses in Music Contracts

  • Term and Duration

The term of a contract is the amount of time over which the agreement lasts. In music contracts, the term can vary by the type of agreement. For example, an exclusive songwriting deal with a music publisher could be for one year with the option to extend through several more, while a record deal could be phrased in terms of album cycles. When a transfer of rights is involved, the entity obtaining the work owns the copyright for its full duration unless otherwise stated in the contract.

It is important to note that the term is binding and if, for example, the clause says that the agreement lasts until December 31st at 11:59 pm, then that timing must be adhered to strictly. Legal disputes can and do arise when parties seek to grant the rights to their works to other entities before the term of the current agreement ends.

  • Exclusivity

An exclusivity clause prevents a party to an agreement from fulfilling the same or similar promise to an outside entity. For example, record, publishing, distribution, and PRO deals are all exclusive because they involve the licensing of exclusive rights. The companies stipulate that, for the duration of the agreement, they are the sole entities allowed to exploit whatever rights granted to them by the musician in the contract.

  • Territory

The territory of a contract refers to the legal jurisdictions where the provisions of the contract can be applicable. In the case of licensing agreements, the territory can apply to the geographic areas where the licensing will be done. For example, a singer-songwriter could have a digital distribution agreement with a record label covering the whole world, and also have an affiliation with SoundExchange solely covering the United States.

  • Grant of Rights

In any license agreement (master, mechanical, performance, synch, etc), the grant of rights clause enables the licensee to use a copyrighted work in some capacity. Under copyright law, any of the six exclusive rights in a copyrighted work may be owned and licensed separately. For example, a PRO may have the exclusive right to perform a work while a distributor may have the exclusive right to distribute it.

This is separate from a transfer of ownership in a copyright. An assignment or transfer of copyright involves the author offering up ownership (and all of the exclusive rights entailed) to another entity. A licensing deal (i.e. PRO affiliation) is not the same as transferring ownership in perpetuity (i.e. selling a catalogue to a music publisher). This is a critical component to look for in any clause detailing the grant or licensing of copyrights.

  • Termination Rights

According to the Copyright Act of 1976, authors of copyrighted works have the right to terminate outside ownership in their works and have their copyrights reverted to them after 35 years. Termination rights, however, are subject to many conditions and notification must be given well in advance. More information can be found here, on the Copyright Office’s website.

  • Advance

Both record labels and publishers often give musicians they sign to their rosters a sum of money in advance of the musician creating any exploitable works. These advances are recoupable, meaning that the company earns back the money through the royalties garnered by the licensing of future works. In both types of contracts, advances are often subject to a myriad of different conditions, and as this is a main initial source of income for the musician, it is important to know exactly what those conditions are before signing.

  • Royalty Rate

In a recording contract, an artist’s royalty rate is negotiable, albeit relatively standardized in the industry. The rate is usually somewhere between 7%-25%. In addition, there are other types of royalties that the licensing of compositions and sound recordings can earn, mechanical and performance being primary examples. Mechanical royalty rates are set by the government, and performance royalties are calculated differently by the PROs and are based on complicated methodology.

  • Controlled Composition

A controlled composition clause affects the mechanical royalties paid on a composition that is written or co-written by the recording artist. The controlled composition clause in a recording contract places a limit on how much the label is required to pay for songs in which the artist is also the songwriter. Only parties that agree to this stipulation are subject to it. For example, if an artist-writer co-writes a song, the other writers would not be bound to the same clause unless the co-writers explicitly agreed to such.

  • Key Man

This section of a contract gives a party the ability to terminate a contract if a particular person, or “key man,” no longer works for the other party.

  • Most Favored Nations (MFN)

The MFN clause in a music industry contract specifies that one party must give the other party equal or better terms than the ones they have with any outside party.

This list is not exhaustive; it is an overview of a few of the more common components in music contracts. Almost any contract drafted by an attorney will include many more ancillary provisions which can be equally important depending on the situation.

Sources

https://contracts.uslegal.com/
https://www.copyright.gov/title17/92chap2.html
https://www.imusiciandigital.com/en/the-most-important-contracts-in-the-music-industry/
https://www.copyright.gov/docs/203.html
https://www.amazon.com/Music-Money-Success-7th-Insiders/dp/1468314734

Composed by
Luke Evans, Mamie Davis, Jacob Wunderlich, Rene Merideth, Jeff Cvetkovski, Alana Thomas & Aaron Davis

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