With tectonic shifts in the music business — TikTok's domination and virality; the "Taylor effect" of Swift's re-recordings, among other things — contractual procedures can and do change incredibly quickly.
It's difficult for an artist to keep track, let alone know what type of record deal to sign… or when. To unpack this topic, the Recording Academy’s Entertainment Law Initiative (ELI), a program aimed at bolstering discussion and debate around legal affairs and their impact on the music industry and creative community, held a Professional Education Event titled "The Evolution of the Record Contract" at NYU's Kimmel Center for University Life on Nov. 8, 2022.
The panel, sponsored by NYU Steinhardt Music Business Program and First Horizon Bank, was moderated by Sandra Craswshaw-Sparks, Partner at Proskauer Rose LLP and Chair of the Entertainment, Copyright & Media Practice Group. Participating attorneys included Shardé Simpson, Vice President of Operations, Dream Chaser Records and founding partner of Simpson and Reed PLLC; Elliot Groffman of Carroll Guido Groffman Cohen Bar & Karalian; and Ben Landry, Senior Vice President, Business & Legal Affairs, Atlantic Records. Practicing attorneys received 1.0 credit hour of Continuing Legal Education (CLE) credit from Proskauer Rose LLP in the Professional Practice (NY)/General (CA/IL) category for their attendance.
In his opening remarks, Neil Crilly, Managing Director of Industry Leader Engagement & Chapter Operations for the Recording Academy and one of the event's organizers, presented an overview of the 2023 Entertainment Law Initiative Writing Contest. The annual contest invites current law students to identify and research a pressing legal issue facing the music industry today and outline a proposed solution in a 3,000-word essay. The winner, decided upon a nationwide panel of music law experts and to be recognized at the 25th Annual ELI event to be held during GRAMMY Week 2023, will receive a $10,000 cash scholarship, among many other prizes; each of the two contest runners-up will receive a $2,500 cash scholarship. Learn more about the 2023 Entertainment Law Initiative Writing Contest, read the official contest rules, and spread the word to eligible applicants via our Social Media Toolkit.
Representing both the artist side (Groffman) and the label side of record deals (Landry, and Simpson, who works on both the artist and label side), the lively discussion yielded numerous key takeaways regarding the ins and outs of contracts. Kanye West's business dealings even came into play — in a positive way!
One topic of note: when it comes to an artist signing a recording contract, short-term is king.
"There's only one clause that counts when you're representing a new artist, and that's the length of the term. And we like it to be short," says Groffman. But as he warns, "Just short doesn't mean good, either." Back in the day, artists were committing to 10-album deals; now two or three records is the desired norm.
From the label POV, Atlantic's Landry concurs, adding, "We've seen more leverage given back to the artists. I think that's a result of a lot of barriers to entry to the market being removed. It's easier to release music these days than maybe it ever has been before."
If an artist becomes successful, it seems that more money, more creative control and more benefits should follow. In that case, being locked in a long-term contract signed can be detrimental.
"You'll see [artists] two, three albums down the road, blowing up, and they're noticing that there were certain restrictions in their agreement that didn't allow them to do certain things," says Simpson. "Then we're fast forwarding five, 10 years, and they're still in these deals. So that's definitely a disadvantage."
Renegotiate that deal, rock star.
Ye worked his early career and contracts in a way that allowed for growth and renegotiation: As Kanye West, "after his first few albums, he renegotiated his deal, and that turned into a profit split," Landry, who studied the now-mogul's contract, explains.
"Later in his career it turned into a distribution arrangement where he got 100% of the proceeds," he continues. "And he got reversions; ownership rights for some of his albums. That's sort of a life-cycle. If you can't come in and get the deal that you want from the beginning, and you find success, we expect and happily welcome those renegotiations."
(L-R): Ben Landry, Sharde Simpson & Elliot Groffman | Photo: Rob Kim/Getty Images for The Recording Academy
Of course, sustained success is the key to those re-negotiations. And deal terms are viewed differently as star status changes. "As for the all-in royalty rate, as artists grow, the royalty rate does matter. When they're initially signing as baby or junior artists, I don't think they care as much. But as they grow, that royalty rate makes a huge difference in terms of income, especially as they start to be multimillionaires," Simpson says.
Artists should consider a distribution deal instead of a record deal, he adds.
As he lays out, signing a "traditional" record deal with a major label offers the advantage of being part of the "machine" and its infrastructure of marketing, publicity, a radio promo team and more. Sometimes, though, traditional old-school deals happen because the artist goes for the biggest initial payday/investment rather than looking to the long-term.
"Labels can operate as a bank of sorts; provide those advances," Simpson says, "Ultimately, though, If I had to pick between an all-in royalty rate or a profit split, I would tell the artists to definitely do a profit-split or net-receipts type of situation. If you can go into a deal like that, you should. And that's usually a distribution situation."
Distribution deals are often a beneficial position to be in, "especially if you have a distribution company that's really good at marketing, and they can provide you with a great marketing advance," Simpson says. "And maybe you don't need the advance to be tied to anything else. I think in those situations, it might be beneficial for the artists to take it."
Beware of signing to a production deal, he adds. Because it's tempting for a creative to acquiesce when someone says they can handle all the business around securing a deal… and then shield/advocate for the artist at the major label. "Oftentimes a baby artist will have a manager or person close to them sign them to a 'production deal,' which is sort of a makeshift label deal," he says — and that can lock the artist down financially.
Production deals "can cause problems for a number of reasons," Landry believes. "As artists starting out, they don't have a lot of leverage, and they're very, very eager to get things going." And a production deal may fast-track that process, but then? "I think artists sometimes be into these deals, and then they become household names and stars, and they start looking askance at their production deals."
If the band or artist is unhappy with the amount of money they're making from a label, "imagine having to split that with a production company," Landry says. "Maybe by then [the artist] is working directly with the label, so it's like, 'Why am I paying this person over here half of my money?'"
Many production deals, he surmises, are due to the ease with which almost anyone can "set up distribution and provide basic label services to an artist starting out."
(L-R): Sandra Crawshaw-Sparks, Landry, Simpson & Groffman | Photo: Rob Kim/Getty Images for The Recording Academy
That's not to say there aren't mutually beneficial production deals. "There could be a good reason [for signing one]; it could be that the person was a producer or writer who found somebody, groomed them and worked a deal," adds Groffman.
Work as hard as you can and wait as long as you can before signing any record contract, Landry says.
"I think that major labels are extremely good at taking a three and going to 10. I think the magic often is zero to three," he explains. That kickstart that usually happens with [the artist] and their "really smart, enterprising friends, managers, lawyers working together to create these moments and create a buzz.
"So, the longer you can hold out and get more leverage, of course, the more labels are going to be interested. It's less risk," Landry continues. In that case, the majors can take a chance and do a riskier (i.e., higher money deal for the artist) deal, since the "proof of concept" has already been established from the creative side.
Leverage is key when going into an initial major-label label negotiation, agrees Groffman.
"The longer you wait before you engage with a major label system, the more negotiating power you're gonna have. I'm not saying don't do deals with majors, but arm yourself. If you come in there too soon, you're going to be giving up five albums, not three.
"You'll be doing 360 stuff [an exclusive contract between a label and an artist where the label not only takes a share of the artist's music sales, but also percentages of revenue touring, merchandise, publishing or more], even with good shelters and all the things that [attorneys] negotiate," he adds.
Yet even distribution deals aren't easy, Groffman says. "As Ben said, monies that a major label will pay are recoupable, but not returnable. Distribution deals, you over-manufacture, you overspend, guess what? You're paying for that. And you know, the splits look much better on paper."
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