INDUSTRY IN UPHEAVAL
The average entertainment attorney sits on his or her hands, waiting for the wealthy client to come to the office with a lucrative contract to negotiate. In reality, the attorney must create lucrative opportunities by adding value to clients and prospective clients alike and by adding value to the industry at large.
The music industry has undergone seismic changes since its full-throated inception in the 50s. Vinyl, cassettes and compact discs, the full-priced sales of which have in the past made millions for studio heads and artists alike, have now given way to digital sharing and YouTube video play, forcing industry heads, artists and their lawyers to rethink age-old formulas for success. The prevailing industry-wide solution to date has been to focus on monetizing digital distribution, unbundling songs previously sold on albums and to lower prices overall as a means of increasing sales volume.
The move to selling digital singles cheaply has resulted in an up-tick in total music purchases. In 2012, sales of vinyl, digital albums and digital songs are at an all-time high, surpassing 1.65 billion units this year, and up 3.1% from last year. But overall album sales (albums and track equivalent album sales) were down 1.8% from 2011, and total album sales were down 4.4% with sales totaling 316 million units in 2012 compared to 330.6 million album units in 2011. In other words, consumers are buying individual tracks and creating their own compilations in digital format.
From a label perspective, the trend is ideal. It results in increased profits for studios as they can promote a single rather than an album, shaving time and money from marketing. They can also reduce costs related to distribution, since online delivery reduces reproduction and delivery costs. But what does this trend towards cheap digital single sales and digital album equivalents mean for the average recording/performing artist and his or her attorney? It means downward pressure in pay.
THE DOWNWARD SPIRAL: LOW ROI AND THE 360 DEAL
‘Time is money,’ Benjamin Franklin counsels in “Advice to a Young Tradesman, Written by an Old One.” Music artists devote years to honing their craft and expect to one day reap substantial gains from their hard labor. But the return on their investment (ROI) is lower than ever, in part, because of the unbundled digital sales of songs.
Whereas Michael Jackson and The Beatles were pressured to make an album with at least 4 hit songs, each of which might be released and marketed as a single to tease the album which could then be sold at full-price, today’s artist is expected to have just 1 hit song that can be sold for $.99 and which teases nothing save a live performance. Thus whereas The Beatles might have sold an album for $12.99 and sold 500,000 units, plus sold another 1 million singles of their hit song(s) for $5.99 each, resulting in roughly $6.495m in album sales and $5.999m in singles sales per single, today’s artist selling a hit song for $.99 and topping the chart with 500,000 digital single sales, will only haul in $495,000.
After the label takes its cut for advances and expenses related to producing and marketing both the single and artist, the artist is left with little. If the new artist on a major label takes home $35,000, he or she is doing well.
Labels have found their antidote to diminishing revenues not only by unbundling songs and selling them cheaply, by also by requiring that artists also give labels the lion’s share of rights in merchandising, performance, acting roles, book deals, speaking engagements, endorsements, and other platforms artists of old once relied on to generate income outside of the label’s sphere of influence. This type of recording contract, known as the 360 Deal, amounts to full-spectrum dominance of the artist’s earning potential, limiting his/her chances of reaching the financial heights of such luminaries as Sir Paul McCartney or Sting, even where the artist may have the same name recognition as Sting or McCartney.
The first 360 Deal was likely the 60s Motown record contract, where the label developed artists and created bands around a particular singer, dictating everything from hairstyle and wardrobe to songs and tour lengths. In recent years, the industry has seen a return of the 360 Deal model with the newer artist development and recording contract created by Jeff Hanson, head of Silent Majority Group, along with attorneys Jim Zumwalt and Kent Marcus, and Jim’s partner Orville. The team patched together a 360 Deal for the signing of the band Paramore to Atlantic Records, which consisted of just the singer at the time of signing.
Another label tactic has been to simplify the recording and/or performance contract, making it far too easy for an artist to sign a 360 Deal without knowing what he/she has just signed. I have counseled numerous artists who, prior to contacting an attorney, recorded performances for major labels without contracts, only to later be issued a check for $299-$1500 with instructions to sign a recording contract consisting solely of a single paragraph that grants the label the 360 Deal.
Any 360 Deal entered into under the above-referenced scenario is easily defeated using the basic principles of contract law, common law fraud and bad faith. Nevertheless, scores of artists are lured into this honey-trap daily, meaning that the $35,000 payday the unwitting artist hopes for often results in a $299-$1500 payday with a hit digital single. The result is low wages for the artist, and an artist who cannot afford to retain legal counsel.
What is the solution to this downward pressure? Create greater artist awareness of sound contracting principles and add value at an industry-wide level.
PROMOTE AWARENESS OF SOUND CONTRACTING PRINCIPLES
Many talented working artists are unaware that they should enter into a contract prior to performance. In one commonplace scenario, the artist might, by chance, meet a popular major label artist at a studio and be invited to perform on a track that very same day. Excited by the chance to play along side a major leaguer, the artist will likely perform without a discussion of compensation. The artist, through his or her lawyer, should know what he is risking.
If the recorded session is used in a hit song, he will be offered a low-ball figure that should be rejected so the artist can negotiate a fee plus royalties. In the event the song is never commercially exploited, he or she has just given away session work that traditionally pays a minimum of $1500 for talented unknowns playing with major artists.
The entertainment attorney should caution clients and prospective clients alike that performing without agreeing to terms, written or oral, will not further his or her music career, but will render the artist a starving working artist. Also, an attorney should caution against oral agreements regarding amounts $1000 or above. Indeed, unless the player has a pre-existing relationship with the major and has a verifiable quote established for his prior performances in the industry, the artist may have a hard time collecting his or her session fee, and he will certainly have difficulty collecting the industry standard of $1500.
The average working artist should also become familiar with what a traditional contract looks like. It is more than 1 page and 1 paragraph, and it requires attorney scrutiny given its density. The savvy lawyer will caution the current and prospective client against thinking he can interpret even the 1 page 1 paragraph contract without attorney guidance.
It goes without saying that today’s artist should resist the urge to merely produce 1 hit single if he or she wishes to obtain a 20+ year long and lucrative career. Consider advising the client that an artist should strive for a string of hits, preferably 4 or more per album. Selling 500,000 units of 4 hit singles at $.99 gives the artist a shot at the big financial payday, generating $495,000 per hit song. It also makes fans more willing to spend more for the full album because of the value added, thereby allowing the artist and label to increase the price of album from $10 to $12-$20 and take advantage of increased demand.
The savvy attorney should consider advising his client to weigh alternatives to traditional label deals, especially a 360 Deal. Signing with a promoter, for example, offers artists with a following a chance to negotiate the 360 Deal on terms that labels often reject. Internationally acclaimed Hip-Hop artist Jay-Z, as a case on point, has capitalized on the trend, signing a $150 million deal with Live Nation in 2008.
Live Nation agreed to finance Jay-Z’s start-up of a venture that is an umbrella for his outside projects, which include his own label, music publishing, and talent consulting and managing. Under the deal, Live Nation delivers $5 million a year in overhead for five years, with another $25 million available to finance Jay-Z’s acquisitions or investments, according to the New York Times and people in the music industry familiar with the agreement. 
Indicating the strength of Jay-Z’s leverage, the venture, Roc Nation, splits profits with Live Nation.  Jay-Z’s deal also included an upfront payment of $25 million, a general advance of $25 million that included fees for his tour, and advance payment of $10 million an album for a minimum of three albums during the deal’s 10-year term. A series of other payments adding up to about $20 million was also included in exchange for certain publishing, licensing and other rights.
The average working artist may not score a multi-million dollar Live Nation deal, but he or she should be able to leverage the size of his following as well as his/her performance and merchandising income against any label deal and should court offers from promoters and advertisers wanting to capitalize on that following. The savvy attorney helps the client maximize leverage by advising of all contracting opportunities, including viable ones not yet on the table.
Desiree T. Washington Esq., Entertainment Attorney
Washington Law Firm
email@example.com | 877-276-4835