Portland: 503.224.4900
Seattle: 206.706.2604



Making Sense of Music Industry Contracts

Making Sense of Music Industry Contracts

It’s common knowledge that music industry contracts are complex, legalistic, and full of gobbledygook. This is particularly true with recording contracts and music publishing agreements.

Regardless of the kind of contract involved, there will sometimes be more to the contract than meets the eye. Other times, there will be less. Hence the need to examine any contracts you’re
signing very carefully.

Contracts are much easier to analyze and understand if you keep in mind the following points:

Pay attention to the definitions contained in the contract. Many music industry contracts contain a section defining the various terms used in the contract. For example, most recording
contracts define in great detail such terms as “recording costs,” “advance,” the “PPD Price” (essentially the wholesale price,”), and other terms.

Contract definitions sometimes give such terms a meaning either much broader, or much narrower, than the common sense meaning. Consequently, these contract definitions must be kept in mind while reading the entire contract; otherwise, you’ll almost certainly misinterpret the practical effect of the contract.

Look out for what might be missing in the contract. If you’re not accustomed to examining contracts, it’s very easy to get fixated on what’s in the contract and not think about what might be missing. In many, if not most, situations, you’re just as likely to be hurt by what’s not in a contract, as by what’s in it. It’s always a good idea to step back from the contract and think about what clauses are needed in order for you to be as protected as possible.

It’s also a good idea to compare the contract you have with similar contracts and see if there are any basic clauses which are missing, but which would give you some protection if they can be
inserted into the contract. You can find a sample version of many music industry contracts in books such as This Business of Music and The Musician’s Business and Legal Guide. (Both are
available through online book retailers and in many bookstores.)

Be aware that there may be governmental regulations or statutes, or court decisions that affect the legal consequences of the contract, even if they’re not mentioned in the contract.

A good example of this would be the California labor regulations and statutes which regulate the length of time a California recording contract can remain in effect. As a result, even if  a California recording contract purports to be for a longer duration than is allowed by statute, an artist cannot be forced to record beyond the number of years allowed by the statute.

Another example would be the statutes of various states regulating the signature of contracts by minors, and invalidating in some situations contracts which have been signed by minors.

Also, there may be past court cases which will affect how a particular contractual clause is to be interpreted, and sometimes the court’s interpretation will be different that what the common
sense interpretation would be.

Be wary about references in the contract to other contracts, or to federal or state laws. Often a music industry contract will refer to other contracts (such as related publishing and production contracts), and to certain specific sections of certain statutes — most often, the federal copyright statute. Once you actually look at those other documents or statutory sections, the meaning of the contract can suddenly become significantly different. Therefore, it’s important to review those other contracts and statutes when interpreting the contract.

Be sure that any necessary prior oral agreements are repeated in the written contract. Many contracts provide that the written contract will cancel out any prior oral agreements  between the parties to the contract. Therefore, if there are any prior oral agreements which are important to you, those oral agreements should be restated in the written contract.

Look out for the clause that says which state’s laws will apply to the interpretation and enforcement of the contract. Many music industry contracts provide that if there’s a contract dispute, the contract will be interpreted under the laws of a particular state (usually California, Tennessee, or New York), and that any breach of contract lawsuit must be brought in that state. This type of provision, though seemingly harmless, can have major consequences. For example, the laws of California are in some respects more favorable to recording artists than the laws of New York. For this reason, and for other reasons as well, record companies often want to have the contract provide that the laws of New York will be applied in the case of a dispute.

In recording contracts, look out for clauses that have the effect of reducing the basic royalty rate. For example, recording contracts generally provide for a specific base royalty rate to be paid to a band. Generally this base royalty is stated as a certain specified percentage of the wholesale (“PPD”) price of each record sold.

However, most recording contracts contain provisions for reduced royalty percentage rates for record sales outside the U.S. and for sales at less than the regular wholesale price.

As a result, the actual royalties paid to a band are almost always significantly less than the base royalty rate would suggest. What the first page giveth, the fiftieth page taketh away. The same
applies to other music industry contracts, such as music publishing contracts.

Because of the significant financial impact of these various deductions and reduced royalty rates, it’s extremely important that, before the contract negotiations are finalized, you crunch the
numbers and make sure you understand what the actual royalty per record will be in dollars and cents.

And, lastly, a NON-legal comment. Even if you and/or your attorney analyze and negotiate a contract brilliantly, and have the best contract terms imaginable, it won’t help you if the other
party is a bad person or company to be in business with. And so, it is crucial to focus first on whether it makes sense to even be in business with the other party. As part of that process, do
“due diligence” on the background and track record of the other party. And do that, or have your attorney do that, before incurring legal expense for having your attorney review and negotiate a contract. Otherwise, you risk incurring substantial legal cost and yet, at the end of the day, finding yourself in business with a ‘bad apple.’