One for the money, two for the show

One for the money, two for the show

Author: Stephen Hollis

Most artists still revere a recording deal with a major studio and perceive it to be the key to the promised land of fame and fortune. They are hasty to put pen to paper when a proposed recording deal reflects the name of one of the major recording labels and they expect commercial success to follow naturally. The unfortunate reality is that recording deals are normally structured to truly benefit only one of the two parties involved and, more often than not, that party is not the starry-eyed artist.

The death of a legend

Following the recent, tragic passing of Whitney Houston, one of the most prominent and successful recording artists the world has ever seen, eyebrows were raised when reports emerged about dire financial troubles. Surely a megastar who sold over 170 million albums should not know what financial difficulties mean?

Reportedly, Whitney was living off large album advances for future albums, which she received from her record label. Such advances constitute large debts which the label will in all probability look to recover from Whitney's estate and future recording royalty earnings.

Like many other artists, Whitney's recorded music is likely to become even more profitable posthumously. After her death, her greatest hits album shot to the number one spot on Amazon and her most famous song 'I Will Always Love You' became the most downloaded track on iTunes.

What caused an uproar in social media circles was the news that iTunes nearly doubled the price of Whitney's greatest hits album a mere thirty minutes after the news of her death became widespread. This is an indication of how an artist's work is viewed by entities that have a financial interest in that artist's recorded music and control the rights in the music - as a packaged product which is ready for the marketplace, nothing more and nothing less. This is not a criticism, but merely an observation which artists need to take to heart.

At the end of the day, business is business.

It is expected that Whitney's estate will receive about $10 million from royalties over the course of 2012 from record sales. This compared to Michael Jackson’s estate earning a whopping US$170 million from record sales in 2011 (two years after his death). The writer submits that the difference between these amounts is not based in the popularity of the artists’ music, but rather in the simple fact that Michael Jackson wrote his own songs (or co-wrote at least) and he controlled the rights in his music. Whitney Houston did not write any of her hits nor did she control the rights in her music.

It will be the legendary Dolly Parton who wrote 'I Will Always Love You' who stands to profit the most from this surge in the popularity of the deceased star's music and, in particular, her most popular song. Sony’s Legacy Records owns the catalogue of Whitney’s albums and they merely paid Whitney performance royalties when she performed her hits. As for the acclaimed soundtrack of the film in which Whitney co-starred with Kevin Costner, The Bodyguard, all the rights in the music contained in the soundtrack are owned by Warner Brothers, meaning that Whitney did not receive any profit from sales (or downloads) of the soundtrack.

Whitney was in many ways dependent upon monies forthcoming from her record label and this is a potentially dangerous position for an artist, especially if the artist starts spending advances for future, unrecorded albums. The record label will always look to recoup these advances and, should the future albums not perform well commercially, this could have disastrous financial implications for the artist or the artist’s estate. Also, the issue of creative control may become an issue as the record label may choose to dangle a sword over the artist’s head until all debts have been repaid and, in the process, force the artist into a creative direction where the artist may not be comfortable venturing into.

Recording Royalties Debunked

Singers who do not write their own music and/or lyrics make most of their money from live performance fees and ticket sales. Royalties earned in terms of recording deals take quite some time to materialize as record labels first recoup the recording, marketing and distribution costs involved in the creation of the record and the commercial exploitation thereof. Not to mention that labels also demand creative control and ownership of the rights in the music. An artist may consider a 15% royalty on every record sold as a healthy return, but the amount actually received after all deductions have been made will probably be closer to 4%. And this only after all of the record label’s expenses have been recouped from the artist’s royalty share.

When negotiating a record deal, artists who compose their own music and/or write their own lyrics, should be careful that they do not assign the copyright in their work to the label. The record label may rightfully want to own all the rights in the actual Master Recordings as the record label should make the arrangements for the creation and production of the sound recording and the marketing and distribution thereof.

That is the record label's job and this is what a traditional record deal is about. To create the best possible recording of the artist's voice and/or music and to utilize its local and international product and content distribution networks to place and promote the record in stores, radio, television and digital and other media.

The real value lies in original music

The real value lies in original music and record labels know this. It is surprising that most artists do not. Artists like to discuss record deals and dream of concluding a deal with a major record label, but most do not seem to have heard of publishing deals or considered negotiating these deals.

A lot of musicians simply register their music with a royalty collection agency such as the Southern African Music Rights Organization (SAMRO), which is of course appropriate. However, they do not realise that a good publishing deal with a renowned publishing house is more likely to yield imminent financial results than a recording deal.

What is a publishing agreement?

A music publisher is a party who takes assignment of the copyright in original music (lyrics and/or musical compositions) or who licenses these rights from the author (the artist) and has the duty of administering and exploiting the rights on behalf of the artist with the goal of making as much money as possible for both parties.

Royalty shares are much higher for the artist as there are none of the overheads associated with recording deals (recording costs, distribution costs, packaging costs, and so forth). An artist could negotiate royalty rates of up to 75% (or even higher) for monies received by the publisher for the commercial exploitation of the artist’s works. Every time a song is played on radio, broadcast on television or performed by another artist, a royalty will become due to the songwriter.

Prominent music publishers (such as Gallo, Sony, EMI, Universal and BMG Music Publishing) have international networks at their disposal and can arrange for music to be exploited in many ways. Think about so-called synchronization deals which can be lucrative deals for the use of music in film and in advertisements.

These additional royalty streams should be closely guarded by the artist as all third parties involved (including the record label) understands that the true value in music lies in original works.

Lessons that should be learned

The lesson which other artists should learn from this is that there is simply no substitute for original music and lyrics. Artists who write their own music and lyrics have additional royalty streams available to them. Artists should understand how the law of copyright functions and should also be well aware of the all of the potential royalty and revenue streams that are available to them.

Extreme caution should be exercised when negotiating a record deal and the importance of a publishing deal has to be realised by artists who compose their own original music and lyrics.

Artists will be well advised to consult with a lawyer who is versed in Copyright Law and understands the music industry before entering into any agreement relating to his or her original music. Once you assign your rights in your music to a third party, whether a record label or a publisher, you effectively hand over the ownership and control of your works to that party and depend upon them to generate income from your works for the duration of the copyright in the works (for literary and musical works this may be 50 years from the death of the author) and to account to you fairly in the process. Once your rights have been transferred, you may no longer own or control your music.

The time has come for artists to realise that, in today’s advanced world of commerce, there are no more excuses for not understanding what your true income generating assets and royalty streams are. If you don’t, you will undoubtedly be taken advantage of by a third party who understands this all too well. It is no longer ‘only about the music’, but rather about your understanding and participation in the music business.

Stephen Hollis is an Intellectual Property Lawyer and Senior Associate at Adams & Adams law firm.