Don't Get Screwed!!! Music Contract Terms Every Artist Should Know, In Plain English-Part 2

In Part 1 of this list, I began listing common terminology you will see over and over again in the contracts you receive. And although an entertainment attorney and other experienced professionals should be reviewing and explaining them to you, it is always good to have at least a basic understanding of some of the jargon. So here is Part 2 of Music Contract Terms Every Artist Should Know, In Plain English…

Common Contract Terms Every Artist Should Know

License - This has nothing to do with your driving…A license in the entertainment business is permission a company or any other 3rd party gets when they want to use your music. If you write a song, and Lady Gaga wants to sing it, she has to get a license from you to use it. If “Ride Or Die San Andreas-The Movie” wants to then use her version of that song in their new game, they need a license from you AND her…Radio gets a license for every song they play. So does every bar, club, and restaurant! (Well, they’re suppose to anyway…) This license is needed because under copyright law, you own the song, and therefore have a right to decide who gets to use it (for an exception, see compulsory license below). When you join a Performing Rights Organization like ASCAP, BMI, or SESAC, what you are doing is letting them handle all the performance licenses for you (to analog radio, clubs, restaurants, tv, etc…). If you join SoundExchange, your letting them handle all of the digital licensing for you (satellite radio, online radio, etc…). Publishing companies will handle pretty much all of your licensing needs if you have a publishing deal with them. Licenses often come in one of two forms. Exclusive, and Non-Exclusive. Depending on what else is being offered in the contract will determine which one may fit you needs best.

Compulsory License - Under U.S. copyright laws (as well as several other countries), any song that you write is yours, and only you can decide who can first record it. However, once it is recorded, and made available to the public, your exclusivity goes out the window. Any one who hears it can then re-record your song, to do with as they will. Now that doesn’t mean you won’t benefit from this because even though anyone else can record the song, they must pay you a statutory rate (see below). This money is paid to the songwriters, not the artist (unless they’re the same) usually by the record label that releases the CD. And if you are a singer/songwriter (or a rapper/songwriter), the money you collect from the label for this license will be more than you will probably see from your record royalties!!! (If you’re not sure about what record royalties really are, read part 1 of this post)

Statutory Rate - the Statutory Rate is the amount of money, set by congress, that anyone who wishes to record music you wrote must pay you. This money is paid for what are know as mechanical royalties. Mechanical means music put into a physical form so others can hear it without a live performer there (CD’s, Sheet Music, mp3’s, etc) . The Statutory rate also covers ringtones (visit www.harryfox.com for a detailed break down and current rate info). If you are signed to a publishing company, they will most likely collect this income for you. If you do your own publishing and have your own company, you can join the Harry Fox Agency, who will collect this money on your behalf. The Statutory Rate can, and usually is negotiated down to a lower rate.

One case of this is in your record contract. It will state that if you write any songs that you are also using for your album, the label will only have to pay you a percentage of the statutory rate (typically 75-85%). This is done because, from the labels point of view, they already are going to pay you a record royalty (that you will probably never actually earn), and they don’t feel they should have to pay you 2 full rates for the 1 same product. And they must have a good point (or a very strong leg up on the negotiation process…you choose) because accepting this reduced rate is so common, it is an undisputed standard in about all recording agreements. A key point to remember if you find yourself signing a recording contract and your a songwriter, is DO NOT allow for any language in the agreement to cross collateralize your record royalty and your publishing income (the mechanical rate in this case). Even with slightly successful groups, labels will often lose money. And they will try just about anything to make it back. Including raping you’re pockets.

So now you understand that whenever you write a song, you control everything about it. And if anyone wants to use your song, they need a license from you to do it. Once you record, or give someone else permission to record that song, everyone else can do it too, as long as they pay the Statutory Rate set by the Compulsory License set by the United States Congress. It’s is because of these licenses that certain things like sampling can be so costly. Not only do you need to pay the record label who owns the recording, you have to pay for a license from the songwriter.

(PRODUCTION TIP: Instead of sampling, replay and record the part of the song you want to use. Mix it, then sample THAT recording instead. You will cut your cost in half because now you only have to pay the song writer, NOT the record label!!!!)

In the next few posts, I will cover more terms that you will find in everything from your management agreements to your producer agreements. If there are terms that you would like me to define, email me at ntalbot@knowthebiz.com, and I’ll be sure to add it in.

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Nathan Talbot is an Entertainment Consultant with over 15 years experience in the entertainment industry. He has worked with independent artist as well as major labels like Sony BMG and Universal Music Group, and in television with national programs airing on WB, UPN, and others.