Getting the best out of 360 deals

Overview

360 deals have come around as the recording labels response to three major trends in the music industry in recent years: (1) the steady decline of revenue from record sales, (2) the increase in prices of tickets to live events and fan expenditure on merchandise and (3) the strengthening of the capabilities of the collecting societies and publishers getting better at their roles which translates in income from public performance and synchronization becoming more and more significant.

It is becoming common for labels looking sign a new deal with an artist, or extend an existing deal, that they do so only if they can acquire a share of the income from other activities such as song-writing, tickets, merchandise and sponsorship deals. In the label own words: ‘we are not making enough just from selling records to justify the level of advances, royalties and recording costs’

360 deals and Indie Labels.

360 deals are very appealing to independent labels which use them as a way of acquiring more rights thus expanding their income streams and improving their bargaining power when negotiating major partners involvement. The main concerns for artists are: first, that the label could hold to the rights that a major company may want to acquire when negotiating a new deal; and second, that independent labels often do not have the capabilities to realise the full potential of the rights assigned, i.e., monetize them.

Contract provisions

If a label is looking to have different rights assigned to them (copyright, merchandise, live work agency rights) they need to pay different values of commission depending on the type of rights assigned. Having a 360 deal in which the label set an across the board 25% remuneration for all of the rights assigned it just not fair on the artist. Broadly speaking, an artist should not accept less that 50% for publishing, net income for record sales and merchandise. Ideally artist should be allowed to shop around for other deals and give the company a chance to make a new deal on the same terms as the best offer (i.e. give the company a matching right).

Ethical Perspective

With every right comes responsibility. For labels having different rights assigned should mean they ougth to work really hard to make it worth for artists giving away these rights and to make up for the lack of capabilities, expertise and contacts in the areas in which the label has not been traditionally working on.

Cross-collateralisation

‘Cross-collateralisation’ means using income for certain type of activity to cover costs from another, e.g. merchandise income to cover recording costs. Although is tempting for the labels to do so it must be avoided in the interest of the artist getting a remuneration sooner or in fact ever getting paid at all. The risk of having less/not profitable activities (money holes) should be borne entirely by the label and not alleviated by taking money from a profit making activities that would otherwise be payable to the artist.

Labels are advised to keep and maintain separate, distinct and non-cross-collateralised sets of accounts, in respect of:

• Services in relation to activities as recording artists;

• Services as songwriters and composers; and

• Services in relation to other activities.

by Juan David Lopez & Daniel Ward, Legal Consultants @AvenantLaw (www.avenantlaw.com)

For a trusted 360-type contract please visit The Music Law Contracts website.

Image Source: Paulo Brandão

Five Myths about Music Law

The purpose of this blog post is to clarify several common misconceptions about music industry law that are often discussed amongst musicians on the internet.

1. ”Songs must be registered for the copyright to be protected”

Copyright is an automatic right of the author...  meaning that as soon as you make a tangible copy of a work (i.e a recording of your song or a transcript of some lyrics)  - then you own the copyright.

Although the common practice of posting a copy of your material to yourself has nothing to do with securing copyright, it does however establish the date of when you created the work. This is very important, because should anyone later decide to use your material without permission, then you are protected, as this process is regarded as proof of when the work was written and by whom.

In the US, registering the Copyright grants you certain legal advantages (which you would be missing out on if you don’t register) – including the following:

1. Being able to collect compulsory license royalties
2. Being able to file infringement action for damages and injunctions; you are also able to recover attorney fees (if you win).
3. In the event of an infringement dispute in court the burden of proof is put on the party allegedly infringing your copyright.

2. “If I write the lyrics or the music in a song I can later on take those lyrics or music and use them again”

This is actually true in the UK - but only when the portion of the work written is sufficiently distinct and identifiable from the other parts of the co-written work with someone else.

In the event that a co-written portion of the work is not distinct from that of the other(s) all of the owners would have to agree to a request if someone wants to copy or use the work or a portion of the work of joint ownership, including the very same authors.

In the US this is not the case. According to US copyright law even if two people create separate, distinct parts of a work, they each own an interest in the whole copyright, not just their contribution. For example: if two collaborators get together and one writes the lyrics and the other writes the music, either author can grant non-exclusive licenses for the entire composition (provided they pay each other their share of income) BUT neither is allowed to just pick their bit in the composition and leave the other without continuing to pay their percentage of income from the song.

3. “You don’t need to clear a sample if it’s very short”

As ruled in Bridgeport Music v Dimension Films (2004) “any sampling of a master, even if it’s unrecognisable is an infringement of copyright”. The sample in question in this case was a two-second guitar chord with the pitch lowered and looped five times. This was all done without the owner’s permission or compensation paid. The court ruled the owner of the copyright on a work had exclusive right to duplicate the work and therefore usage of any section of a work, regardless of length, would be in violation of copyright.

4. A group’s name belongs to whoever started using it first

This is only true for unregistered marks for which considerable goodwill and reputation in the market has been built in respect of the brand itself.

If someone is using your unregistered brand name you will have to show that they are trading on your reputation by passing off as you - thus causing confusion in the mind of the public AND diverting custom. This last part is very important because if there is no loss of income attributable to the unauthorised use the claim is likely to collapse.

Registering a trademark has, on the other hand, clear advantages as it allows you to stop any and all uses considerably quicker and cost-effectively.

5. “Being offered a five album deal by a record company means the company is committing to record and promote your next five albums”

Recording agreement terms are traditionally structured in options periods. A five album deal may in reality be a five options deal (in favour of the label) in which the label gets to decide at their sole discretion whether or not to extend the Term after the end of each period for a further (option) period.

If the label does not extend the Term for a further option period then the agreement can be terminated and then you, the Artist, can be ‘dropped’.

In general, recording agreements impose the smallest obligation on the label in terms of releasing albums, while keeping the option to get as much content as possible.

By Juan David Lopez, Legal Consultant @ Avenant Law

Image source: Mike Licht