Anyone reading the recent gloomy press about the music industry would conclude that labels are closing up right and left, but this is clearly not the case.
Quite the contrary, the industry is going through one of its typical, yet unwelcome, periods of cyclical transitional uncertainty, but remains quite healthy both in product volume and revenue.
Additionally, the growth of the independent labels which began in the mid-1980`s shows no sign of slowing down, although there have been changes in the relationships between these entities and the major labels.
Independent labels are started out of necessity and ambition. The necessity often arises from an artist seeking a means to manufacture and distribute his or her music outside the "traditional," " established" label structures.
Accordingly, many labels are established by the artists themselves primarily to release their own product. Somewhere down the road, however, ambition often takes the lead in expanding the label's plans to include releases by other artists.
Starting up a label involves a number of preliminary issues such as capitalization and business structure.
It might be assumed that an indie label would not need as much paperwork as a major, but this is not necessarily the case. Any start-up label is advised to seek the assistance of an experienced entertainment attorney to prepare the necessary the contracts which will be necessary to acquire and develop new talent and to build a successful catalog.
Recording Agreements
The heart of virtually all record labels is the signing of artists to exclusive recording agreements.
These agreements are substantially similar to those used by the majors, except they tend to be far more concise. In addition, indie labels often make up for lack of financial resources with a down-to-earth and artist-friendly approach. This is often reflected in the contracts, which tend to be structured as letter agreements rather than traditional contract forms.
In any event, the provisions of the exclusive artist agreements are fairly constant.
The primary (and most negotiated) issues set forth are the term and delivery commitments, options, royalty rate(s), and advance (if any).
An efficient indie label will often propose these issues to the artist in a preliminary deal memo.
Once agreement is reached, these points can be plugged into the "boilerplate" agreement. This form would be fairly unchangeable, depending on the label's particular accounting methods.
That is, while some labels utilize packaging deductions, multi-tier foreign royalty reductions, reserve funds and controlled composition clauses, other labels streamline the contract by eliminating these provisions.
Obviously, the label would likely compensate by, for example:
- paying at a lower royalty rate,
- calculating the royalty based on a lesser percentage of sales (e.g., 80% - 85%),
- recouping for artwork costs, or
- any combination of the above.
In addition, a label that does not demand a controlled composition mechanical rate from the artist is more likely to insist on an assignment of half the publishing.
It should be noted that since indie labels often cannot pay any advance beyond funding the recording costs, the major attraction of the label to the artist is often the promise of artistic control and relative freedom to participate in the choice of producer, material and studio, as well as decisions concerning marketing and promotion. These issues should also be covered in the exclusive recording contract.
Co-Publishing Agreements
As indicated above, indie labels often rely on co-publishing arrangements with their artists to balance the label's books.
Co-publishing involves acquiring a partial (usually 50%) interest in the compositions written by the artist.
The acceptance of co-publishing by the artist (or artist`s representatives), depends on the relative bargaining power of the parties and to some degree on the genre of music involved.
In rap/hip-hop/R&B, co-publishing has far greater acceptance than in rock or punk deals. To some degree this derives from the fact that there tends to be more input from the labels and in-house producers into the writing process in rap and hip-hop projects than in alternative projects.
In any event, the label can often attempt to justify the co-publishing agreement by pointing out that the value of writer/artist's compositions is directly attributable to the promotional efforts of the label.
While the co-publishing agreement is often a separate document, for the sake of brevity (and also to avoid "freaking out" the artist with another 10 page document), many indie labels incorporate the co-publishing provisions into the body of the recording agreement.
In addition, this practice has a practical legal basis, in that it connects the assignment of the composition copyrights to the recording obligations, thus providing mutual legal consideration. This is particularly important since most indie labels lack the funds to provide any advance to the writer/artist for the publishing rights.
In cases where the artist can successfully resist co-publishing, the parties may compromise by accepting an administration agreement whereby the artist will retain 100% of the copyright but will allow the label to administer the publishing in exchange for a 15% - 25% commission.
Licensing Agreements
Signing up and developing new artists for exclusive recordings for the label can be a time intensive and expensive endeavor.
Many small indie labels cannot afford to sign more than 2 to 4 new artists for album projects at the outset. However, in order to maintain a viable commercial profile with the public and with distributors, it is necessary for labels to have a regular volume of product for release.
Some labels attempt to create a continous flow of product by signing artists to singles deals with options for follow-up albums, and/or by assembling artists for compilation albums.
Another viable source of product is created by licensing masters from other (usually foreign) labels. While such licensing arrangements do not usually increase the catalog value of the label, they do provide a relatively low-risk method to generate cash-flow and to keep the label staff active.
The master license agreements are often substantially similar to the label's recording agreements (albeit much shorter). The primary difference is that the label is not creating an ownership right in the masters by "work-for-hire" or assignment provisions, but rather is acquiring a license to manufacture and distribute the masters in a given territory for a specific term (often 5 years).
As in the recording agreement, there are provisions regarding royalty rate, use of the artist's name and likeness, and advances (if any). Obviously, issues such as recording budgets and delivery schedules are irrelevant in such an agreement.
One point the label should consider negotiating for is an option to acquire additional product from the licensor. After all, it would be disadvantageous to successfully promote and market a release from the latest German techno band only to see the follow-up record licensed by a competitor in the United States.
Comments