Dealmaking on Music Row Part 2: The Holy Grail of the Music Industry (Exclusive Recording Agreement)

In Episode 11, Mr. Shrum and Mr. Disney discuss how cases like McGraw v. Curb and Williams v. Polygram shape the language of the recording agreement.

Transcript

SPEAKER_00 0:06

Welcome to Music Row Dealmakers, where we explore our world of making deals from Nashville's famed Music Row. In the heart of Music City, we are the deal makers, from composing to closing. Now, here's your hosts, Barry Neil Schrom and Dennis Disney.

SPEAKER_01 0:28

Greetings to all the deal makers out there. We hope you're having a good day. Dennis and I are glad you're joining us for this uh the 11th episode of Music Road Dealmakers from Composing to Closing. I'm Barry Neil Srum, and I just uh uh want to remind everyone out there that this podcast always comes to you live from our offices, Srum Disney and Associates on Nashville's famed Music Row. You can find out more information about the law firm at shrumdisney.com. You can find out more information about Music Row Dealmakers at MusicRowDealmakers.com. As always, Dennis and I encourage you to call 800 Dealmaker, D-E-A-L-M-K-R 332-5657, or send us an email at questions at musicrolldealmakers.com. We'd like to interact with you and answer your questions. So send us a note, send us a greeting. We'd appreciate it. As I noted in today's episode, or haven't noted it yet, but today's episode is a continuation of the series we started in the last episode on deals that are common on music row. We're calling it deal making on music row. This is part two, the holy grail of the music industry. I call it the holy grail because kind of like the Germans and Raiders of the Lost Art, people, particularly artists, will move hell and high water to get the exclusive record agreement. Dennis, have you ever had a client who comes in and says, Hey, I want you to review this deal, but you can't do anything because I gotta have it.

SPEAKER_02 2:11

Yes. Yes. And you know, just like the Raiders of the Lost Ar, when they bring those in and you open it up to show them what's really in that contract, their faces melt. Just like in the movie.

SPEAKER_01 2:25

So appropriate. Oh my gosh. It is so true. I I I often tell the story of a client of mine. This wasn't an exclusive recording agreement, but it was similar. It was a music publishing agreement and was a songwriter. And he uh he came into my office and he presented me an agreement from, I'm not going to tell you the name of the publishing company, but it's a very well-known publishing company. And the the story was he had been writing with some of their writers, you know, top top 10 writers. And he was working at the time at UPS, you know, one of those night shifts from 12 to 4 where you work your, you know, your ass off. And can I say that on the Justin? And and you only work, they only let you work for four hours because it's so hard, you know, lifting those 70-pound boxes. But you make a lot of money. So he's making 30 grand a year. And this was back in the 90s. And he would sleep, you know, half the morning and then get up and go write with all these writers from this big publishing company. And of course, of course, since he's co-writing with them, the publishing company says, Hey, why don't you come into our fold and we'll give you a deal? And what was the deal? It was 20 grand. And of course, they get all of his copyrights and everything he writes during the term. And I'm like, why would you want to do this? And he said, I don't care. It's a it's a publishing deal. That's why I came to Nashville. That's it.

SPEAKER_02 3:47

That's it. Oh, you you hope then you make a lot of up in the royalty. But as you and I both know, and when we talk about pub deals, we will talk about what the mechanical royalty rates are set by statute, and then some of these labels, which I think we'll talk about in this episode about controlled compositions, that will reduce that a little bit.

SPEAKER_01 4:06

Yeah.

SPEAKER_02 4:06

You know, but they think, hey, man, I'm making 20 grand in withdrawal, which you have to earn back, and you end up getting all these royalties. But unless you're getting some significant hits, right.

SPEAKER_01 4:17

You're not going to make it.

SPEAKER_02 4:18

You're not getting rich, rich, no.

SPEAKER_01 4:20

No, and and that was the case with that that songwriter I was talking about. He, you know, the deal ended, and of course, he never got any cuts out of that that deal. He did later. But back to the your point on the recording agreement, you know, at least back in the 90s, you could get six figures easily in a recording deal. Some some people now, of course, get seven figures in advance, yes. And those are advances. And so, you know, I I've known artists, thinking of one in particular, an old legacy artist, who for years was unrecooped and he died unrecooped. So you got to tell those celebrities who want this holy grail look, you know, make sure you invest this properly because this is all you're getting for, you know, a year, 18 months, maybe longer. Or longer.

SPEAKER_02 5:12

You know, you've heard me say it. I am a time value of money person first. I would rather you give me, in the case of an advance, give me a hundred grand now instead of eking that out over the next five years. Right. Got it. But to your point, yes. Handle that wisely because you're earning that back of in at your uh royalty rate, which in a traditional deal might be as low as ten percent. Today's world you might get it started above that, 15 to 18 maybe. But that's not of the full amount either, because they'll have deductions and other stuff in the agreement. So you're earning your royalty back at a m pretty small rate in under traditional deals. And we can talk about later about how some of this affects what's happening in the with the indie world now, and even with some established artists who are going more towards an indie model where it's more distribution plus label services type of thing, and they might get a higher artist royalty on that. But again, they're still having to recoup the advances. Right. And uh I I work with a couple of producers who they like advances. I like them to get advances, but invariably eight, nine, ten, twelve months down the road, they they go, man, I'm not seeing any any money from that deal. What's the problem? I go, because you got it. You know, 12 months ago. Yeah, yeah. What? Yeah, you know, you took it then.

SPEAKER_01 6:36

That's the part you spent already.

SPEAKER_02 6:38

Oh, oh, yeah.

SPEAKER_01 6:40

Yeah.

SPEAKER_02 6:40

I said, yeah. So I've I I like advances. I think it's works great for them. It works great for the managers as well. The downside is to your point, if you're not recouping, however, you you're not seeing that mailbox much.

SPEAKER_01 6:53

Yeah, so uh for our audience out there, you know, we've used a couple of concepts here already, I think, that are reflective in a rec record agreement, and that is the concept of recouping and advance on royalties. And and we'll talk more in detail about that as we go through. But uh just kind of as a segue into our next section, as it were, uh, the record label has evolved over the years. There was a point in time in in back in the mid-20th century, maybe earlier, when a record contract was essentially one or two pages. And, you know, it was for the services of the artist to perform exclusively for the label. Not a lot of this mumbo jumble about recoupment and all of that stuff back in those days, some of it, but not not like it is now. But over the years, over the course of you know, 50 years, it has evolved and a lot of different things affect that. One of the things I often tell people who want to talk to me about going to law school and becoming an entertainment attorney is the fact that you've you you really need to focus not only on the transactional aspect uh aspect of law, which is where a lot of people want to do. They want to be the deal maker. And and you know, we we of course here applaud that, but uh they don't want to be the litigator. And for me, we can learn a lot about crafting appropriate language from case law, from the litigation side of litigating a contract. And there's a couple of cases that we want to do things a little differently today. We want to talk about some case law and then see how that affects the deals that that were made. So in our next segment, we'll do that, and we'll be right back. It's a very interesting case, and a lot going on, and and I want to start it out by talking about their relationship. At that point, Tim had been with Curb for almost a decade. And and they had done quite well, obviously, together. Tim was already a top-selling artist, already a what I would probably call a superstar at that point. But sometime in early 1997, he got stars in his eyes, much like the holy grail aspect we were talking about earlier. And what I mean by that is he saw what was going on over at Big Machine, right, with Taylor Swift and how they had built her career. And and and at that time, you know, they were the really uh hot label in town. And Tim got disillusioned with that. And the problem was he was in the middle of his 1997 contract, which he had just re-upped, right? So he had to figure out a way to get out of that deal because it was structured uh in a way that's different than business contracts, right? And particularly the term. For the audience, a term in a contract is the length of time the contract lasts. Normally, in a business contract, you'll see a five-year period, maybe a 10-year period, things of that nature if you're talking about a license. But that's not so in the recording agreement. Dennis, you want to tell them a little bit about how the term works in a recording agreement?

SPEAKER_02 11:13

And you know, it's getting getting uh more creative, even now that uh the market has moved to more of a single song masters type of agreements. But in the old days, so to speak, back in the day, it's basically uh the contract may be set up for say 18 months is the term, the initial term. And then at the option of the label, there are options, and you negotiate how many options they're going to get, exercise at the option of the label, typically. But within that, you can get some creative wording. And with the old records, it was much more straightforward. A lot of that was because it was album deals primarily. So it's one album within 18 months, and then within a certain period of time, after that 18-month period, at the option of the label, they may say we're going to exercise the option and pick it up, and then the clock starts again. You have a certain amount of time to deliver the record, and then they have a certain amount of time to put it out, and that continues. Interestingly, today's market, and working on one of these right now, is it's a master's deal and the particular contract. And this this has happened in the last two or three I've dealt with. It's masters, meaning you deliver us 12 or 12 to 14 masters. I hate the range, but I usually say the specified number. So let's say it's 12 masters within 18 months. That's the initial term. And if you deliver the 12, then for another 12 months, that term will carry to give people time to exercise it. They uh the one I'm working on this week, they changed the language to say it is 12 months from the date of our initial release of the last master you delivered. Right. So let's run that out. You have 18 months to deliver 12 tracks. Let's say, for whatever reason, since I'm doing masters, I deliver my 12th track in that 18th month. But I delivered my first track in the first or second month. So it's not 18 plus 12, it's 12 months from the end of that last one. So the first song stays in place for the whole time. And this is a licensing deal, which added to that that they want to tie the term of a license for eight years from the last master delivered and released, not the first one. So, as I was telling my client, I have a call with him later this afternoon, I told him via email that my challenge with this is your eight-year term for that license could run 10, 12, we don't know. We don't know when they're gonna initially release.

SPEAKER_01 13:56

So it's a challenge. And if it's triggered by release, and that's sort of how McGraw's term worked, and uh we'll we'll talk about that in a sec, but if it's triggered, it's triggered either by release or by delivery. In your case, it's release. So that's in the control of the person receiving it. So they could, for whatever reason, let's say it comes out and at the wrong time and they want to release it around Christmas of 26.

SPEAKER_02 14:27

Exactly. And I left that part out. You're right. That's it.

SPEAKER_01 14:30

All of a sudden, you know, then then all of a sudden the eight years triggered, you know, six months after you delivered, or eight months after you delivered it. That's that that's seemingly not fair. And that's sort of what McGraw was looking at here. His delivery, his was tied to delivery. When did you deliver the master? And so they used that ambiguity to try to get Tim out of the contract, because uh essentially he delivered the the what he said was a certain master. And they said, No, you didn't deliver that master, right? And so they said, you're still obligated. And because he claimed he had delivered it, he said, I'm out of the contract. I'm giving you notice. You know, I don't have any more obligation to you. And they're saying, hey, hold on a minute, you haven't delivered under the contract, so you would be breaching if you go sign with big machine records.

SPEAKER_02 15:29

It's that the explicit warning in that deal, if you remember, was he could not re- even record until a particular period ended. Right. It's a day's market, artists are recording all the time. So to say you can't record is one thing versus you can't deliver or don't deliver until a particular period. And as I went back and I read through some of the case rulings this morning on on this thing, I I was just reminded again of why would your attorney allow you to sign that first deal that way that restricts you from even effectively creating uh an audio recording within until the label said, now you can do it.

SPEAKER_01 16:10

Well, um let's take that point. Uh you're correct. The once he delivered, there was a certain waiting period, and then he could then begin his next album. And what is the rationale for that? I mean, I get that from a corporate perspective, right? Labels spend tens of millions of dollars on creating an a marketplace for this product, and part of that is involved in touring and all that kind of stuff. So they want the freshest material they can get. They don't want your, you know, Tim McGraw's 1989, you know, that he wrote in his bedroom when he was a pimpley-faced teenager. They they want something that's current, that that he knows the market now that they can sell. So I I get the reasoning for that.

SPEAKER_02 17:03

I I could understand it from that perspective, but the timings on some of these periods, and this is where I would have taken uh McGraw's side of this, the timing of these periods in this deal were such that his delivering that emotional traffic album was not wholly incongruent with a a bona fide, very plausible release cycle. Now, I know you and I have discussed this a little bit. The style of that record was a little bit different than what he had previously been delivering, I think, if if I we if our conversations I remember correctly. It was. And and and that was a a question because the label, first of all, doesn't want to get surprised by it. And I get that. But they hadn't delivered any money or given him any money to record, he just sort of did it on his own, so they didn't have any investment in it. And so I think at one hand, it's restrictive on the language for him to not even create during that time period. At the same time, I would fault any artist who went out and created work without the agreement of their partner in in these deals. They're part basically not legally partnerships, if you will. We we're very keen on that language in there, you know, that we're operating as independent contractors, but you're you're in it together. Right. And and you want the label buy-in because you want them to support what you do. But uh when I remember first hearing about this case and then reading about it, my my first thought was, yeah, I support Tim on this thing. And and and I don't know if if you're gonna get into it somewhere in here, but there was also some language in there that if Curb did a greatest hits record at their sole discretion, then it kicked the timing down for his new next recording another six months down the road. And from what I remember of a lot of this, that was a big part of this argument, which is the label kept coming in and wanting to put together a a new greatest hits and a new greatest hits, and sort of kept pushing things out too far down the road for him.

SPEAKER_01 19:10

Well, I have a I have a theory of this case that this was uh effectively uh brought to to try to get him out of the deal.

SPEAKER_02 19:18

Oh, I don't doubt that for a minute.

SPEAKER_01 19:20

And but and but Curb's problem, of course, is they they counter sued, obviously, and they sued for an injunction. And uh Judge William Haynes, he's he's deceased now. I've I I've appeared in front of Haynes a couple of times. He basically said, You can't restrict this guy. You know, I'm not going to enjoin him from continuing his career. So he kind of put it in the context of servitude, right? Kerb is kind of trying to hold on to him. And, you know, hey guys, the relationship's over. You know, you he you own everything up until the point that he delivered the emotional traffic album. Everything thereafter, he can do what he wants to with. If he wants to go to big machine, that's fine.

unknown 20:06

Yeah.

SPEAKER_02 20:06

And you know, as we know from other case law, the courts will do injunctions that doesn't say you must record in this case, must record for that label. But he could have said, but you can't record for someone else until you satisfy this contract. Trevor Burrus, Jr.

SPEAKER_01 20:22

No, he very well could have. And in that sense, I kind of side with Curb on that. He should have ascertained whether or not they had that McGraw had in fact delivered. Yes. Right. And the issue with the with the greatest hits was that really didn't count as a delivery. So that was it wasn't so much that it was extending the term, it was that he had counted a compilation album as a delivery and said, you gotta count that as a delivery. And they're saying no, according to the contract, we kid we don't. And so that was all part of the issue.

SPEAKER_02 21:03

As we know, the vast majority, if not every single one that I've ever seen, expressly says a greatest hits album or a seasonal album, Christmas album. Do not count towards your minimum delivery commitment.

SPEAKER_01 21:18

Right.

SPEAKER_02 21:19

I've always tried to work around that. I get it on the greatest hits, but I'm going a Christmas album. Come on, you know, it it makes sense to make that part of the delivery commitment, but you're not going to get a label to do that. They just won't. But in in the case of McGraw, from what I remember, and grant granted, this is more anecdotal than what I've I've seen in any sort of actual empirical study. But my remembrance was that it was not just one compilation, but they kept coming back to him. Give us one track, we're gonna put it on this thing over here. Give us some this one track, we're gonna put it on this other record. And every time, none of those counted toward his commitments, and that exacerbated the situation.

SPEAKER_01 22:00

It extended the term. And I think one of those albums may have been a Christmas album. There were several involved. But this case illustrates my point. And something you said earlier illustrates the point that we we we learn from case law like this and how courts deal with recording contracts specifically, how to then modify future deals. You just earlier uh elucidated the fact that you looked at the contract and it's trying to couch a licensing term in terms of a recording agreement language, right? And in part because we know these cases, we can then say, well, wait a minute, that doesn't really belong here, right? Yeah, very true.

SPEAKER_02 22:48

It's all law is based upon previous law, right? Statutes and and precedent, you know, starry decisives. Starry decisives and precedent, buddy. It's built on that. Not that it can't be changed and violated, but it's all built on that. And same thing here with these recording contracts. Every contract is built on the previous contracts that just are when you learn about them and see the language that was used, some of the terms that artist A was able to capture that you can now try to use for artist B. And it's I think it goes back to your point earlier about in the early days, you know, it was you know, two, three-page recording agreements. And now it's not unusual. I have seen a 65-page recording agreement. Oh, easily.

SPEAKER_01 23:28

I've seen a 120-page.

SPEAKER_02 23:31

And it's just remarkable, you know, what goes into those.

SPEAKER_01 23:34

It is. And it to my point earlier, it it has evolved over the years. And one of the reasons the labels use these sort of hybrid periods, that they're not really temporal periods, they're not time-based. They're delivery or release-based, and that triggers the next option period, is because of the De Havilland case. And I think we've talked about that before. In the early days of filmmaking, de Havilland and other actresses were tied to a certain studio. And the time that they spent at the studio was counted as their term, right? And ultimately she sued the studio to say, hey, I've been here seven years, I've fulfilled my time. And they were saying, no, you haven't, because you took weekends off, you took vacations and all this. And so she won that case. And ultimately that became part of California statutes. That that seven-year limitation on a personal services contract. So the entertainment company says, Well, the hell with that. We'll figure out a different way to set a term, you know, rather than term of years. We'll find a different way to put you in servitude.

SPEAKER_02 24:46

That's what it's about. And they did. And they did. But I got to tell you, I I love record labels, I love indie artists. I I still come back to my opinion of contract, whether it's recording contract, publishing contract, book contract, movie contract, they're all means to an end. And you have to decide what your, as an artist, what your end game really is. Then you can decide: do I need a full-on label deal? Do I just want a distribution deal? Do I want to stay completely independent and do everything myself? And if you can get into that mindset, I think it really helps shape the type of contract that you're willing to enter. The next principle to that for me is the phrase I've been using too much lately. And that is we need an exit ramp. At some point in time, we need to get out of this contract. And I have worked with Naples, unfortunately, where the language in there was structured so by its black and white reading that was really didn't put an end cap on certain things. If certain conditions happen, as you know, it reads very minimum minutely, I guess is the word, in in the language itself. But you read that and you go, wait a minute. I won't say the label or the artist, but used to manage an artist who had signed a deal before I got to the management company. And within that contract, it said she would deliver an album master on a particular period of time. But if during that period for that album she recorded, quote, extra masters, then it would add like six months to the contract, to the term. And toward her last two albums, we made really looked hard at it and said, Look, you're delivering ten songs, that's it, because that's what the contract called for. People are asking you to do features on other artists' labels on artists who were signed to other labels, which is great, as long as your label doesn't count that as an extra master because her label had to give permission, and most of their contracts for these types of features was a res reciprocity element, and that we'll do that, but we're going to get access to that master for later. And so we had to say, look, label, in that agreement, you need to put very specifically that if you put that record out, it doesn't count as an extra master. And then I even went to the next step of getting legal to tell me every time in writing, no, this does not count as an extra master. Because our fear was, you know, she gets all these calls for these features. Suddenly you look up and you go, My gosh, she's she did six six features for other artists this year, and you keep adding and extending and extending the agreement. So you you've got to be very careful with this wording on some of these things, like we've talked before, the notwithstanding anything to the contrary. Contained herein. Contained herein. That that changes a lot of stuff, man. And so label deals love the the exit ramp idea, I think is necessary for both parties. If the label solely has the right to exercise an option and you don't, and you're not going to get that out of the contract, by the way, to say it's a mutual option means neither, there's really not an option, right? You're not buying anything. And so if they have that control, let's then make it a shorter number of options. Let's or uh instead of two or three guaranteed albums, which some artists go, man, that's great. Three albums and three options. I'm with this company for the long term, you don't want that because you don't know what's going to happen two years, three years, five years down the road, and five years down the road, you're just finishing up your initial three-album term, you hope. Right. And they still may have two or three more options, and you may hate them. You know, let's let's be careful with how we're structuring this, both on the term, as you've talked about, but in this language about how that term gets extended, if at all, through options or extra masters, or we're looking for um seasonal and greatest hits product that doesn't count towards your minimum delivery commitment. Those are all problems and major issues you got to be aware of.

SPEAKER_01 29:07

Let me back up a second just for our audience's sake to talk a little bit about that recording for an external record label. One of the reasons for that is something that most audience members probably won't know, and that's the the exclusive part of the exclusive recording agreement is just that. It's exclusivity. That artist is agreeing that they will only perform for the label. And so when you're drawn out for that extra period of time for the extra master, it's because of that exclusivity. You can't just go out and record anywhere you want. That brings me to a very interesting case that happened a couple of decades ago, I guess now. You know, as I get older, my my reference of time uh shortens or does something. But it's been a while since this case was was in the circuit court or chancery court down in uh Davidson County, but involved Hank Williams Jr. And of course, everybody knows who Hank Williams Jr. is. Or actually, I think this was Hank Williams Sr. He he recorded back in the 40s, Dennis, 1947-1953. He had an exclusive deal with uh MGM records, and of course, that through all the mergers and acquisitions and everything else that occurred in the 80s and 90s, uh Polygram took that over. During that period of time, while he was with Polygram slash MGM, he was also, of course, marketing and recording and and appearing on WSM, the radio station. And he would frequently record or sing songs. Him and his band, what was it called, the Drifting Cowboys, would would appear on WSM on the shows and and sing. And sometimes they would ask them to pre-record some of those that that those songs. And so it's those recordings, those WSM recordings that are the issue of this case. And as the story goes, there was an Opry photographer who allegedly, and I say allegedly, found these acetate recordings, uh, pre-recordings for the radio show in the trash, he says at WSM. Now there was a whole issue, and I say allegedly, because of the whole issue about whether or not that was actually found in the trash or whether those recordings really were stored in a storage facility and labeled and properly, you know, cataloged in a locked room that he somehow had access to. That's a whole nother story. But essentially, once the litigation got going, well, actually, before we get there, it goes further. Les Leverett, the photographer, sold those to a guy named Bu Butram, who was part of the Drifting Cowboys. So he sort of knew the value of that. And then later, Mr. Butram sold those to Legacy Entertainment Group, an LLC, that was going to take them and make um, you know, distribute them as the lost recordings of Hank Williams Jr. Well, of course, the family didn't, that didn't sit too well with the family. And so the family sued, claiming ownership, and then Polygram got involved saying, well, wait a minute, he's exclusive to us. So that's how it all kind of got started. Of course, Dennis, you know the outcome of this. They they look specifically at that language, and and and I'll read the audience the language that was in the uh the agreement, the original MGM agreement with uh Hank. It says, all recordings and all records and reproductions made from your services, together with the performances embodied therein, shall be entirely our property, free of any claims whatsoever by you or by any person deriving any rights or interests from you. So essentially that's the exclusivity portion. And the court focused in on that and says, well, wait a minute, you polygram don't have exclusivity to the WSM recordings because it says these are made for the purpose of making phonograph records. And that's not what the purpose of the WSM recordings were. So they gave the family that that gave the family back the recordings. And of course, they put them out and through a deal, and and you can still buy the the lost recordings of Hank Williams. But but this brings up a couple of points, Dennis. First of all, court's going to look at the four corners of the document, at the intent, right? And so I'm sure after this ruling came out, agreements got changed, you know?

SPEAKER_02 34:11

Well, to your point earlier on that about how contracts inform other later contracts and building on it, contracts today wouldn't allow this type of language in here. It's much one much broader, at the same time being much more inclusive. And it has that phrase in there, mediums now known or later discovered.

SPEAKER_01 34:35

And one of those uh notwithstanding anything else contained kind of ideas.

SPEAKER_02 34:40

Yeah, so but this these provisions are routinely, even today, problematic. They're problematic for award shows, they're problematic for uh things like theme parks who archive what concerts are happening in in the parks. They're problematic for artists who want to film concerts for social media, even and those sorts of things. And I don't uh it's countless times, both as a manager and now as an attorney, where I've had to go look, you have an exclusive and pull out the contract. See right here the very first line? Exclusive. The title. The title, it's right there. And that means, but it's just for this, it doesn't matter. You can't record according to this contract without the label's permission. And I know I'll mention which award show, but it's a smaller one. They an annual thing, and they routinely were sending over their artist release forms, and I was having to redline them and redline, and they finally had one of their lawyers uh change it to recognize that you have to get the exclusive partnership permission to do this. We all want it, even the labels want them to perform on the show. That's not the problem. The problem is A, you don't want to diminish the exclusive rights that you do have, A. And B, those award shows oftentimes do use those clips and those performances for various things, including fundraising for their parent organization, which granted, they might be a 501c3 or a 501c6. Understandable, get that. But the artist and the label aren't getting paid for that. And and this is commercial music. So this language here, uh as as it was done, recordings made for the purpose of making phonograph records would not show you.

SPEAKER_01 36:35

Yeah, no, you wouldn't see that in a in a modern contract at all. Yeah, and and uh it also just kind of for the audience, outside the scope of contractual issues, which is what we deal with here on Deal Makers, is the copyright issues, right? This this case illustrates a principle of copyright so well. You and I talked about it a little bit before the show. Can you tell the audience what I'm talking about?

SPEAKER_02 37:01

Yeah, we were laughing about this because even if whatever his name was Les Leverett and Butram, if either one of them could say, but it's mine. Hey, the tapes were abandoned. Abandoned property, someone found it, depending on I think state law and some other things. Great. You own the physical recording, but you don't own the copyright.

SPEAKER_01 37:25

You can put it on your reel-to-reel all day long and listen to it, for enjoy it.

SPEAKER_02 37:30

But you can't sell it for distribution to any anybody else. You could probably give it to sell it to somebody for their collection, I guess that might be okay, but you couldn't have it reproduced and distributed. And uh so it it's it's sort of a Pyrrhic victory, you know, for him. Hey, I I got this great collection over here, but unless I have a collector that wants to come along and pay me tens of thousands of dollars, okay, I've got I've got a piece of history, but that's all I can really do with it under the law.

unknown 38:01

Trevor Burrus, Jr.

SPEAKER_01 38:02

It illustrates um uh there's a section of copyright law, the 1976 Copyright Act, that essentially lays that out and says just because you own the physical embodiment of the copyright does not mean you own and can use the copyright. For that reason, we have something called first sell doctrine. Once the copyright has been reproduced and distributed with the original owner's permission, then the person who buys that copy can do whatever they want to with it. If it's a CD, you can use it as a coaster if you want to. You can, like you said, enjoy it all day long, whatever. But you can't take it out, rip that off, put it on something else, and start selling it and making commercial profit. Then you're implicating the reproduction right, the distribution right, and the rights of the of the copyright owner.

SPEAKER_02 38:57

So the interesting today's streaming world, and I had this conversation with our paralegal just the other day, the consumption idea on streaming is that we're going to or the artist label will get paid a really small amount. And it's really small, on average 0.004 cents per stream. That goes to the recording rights holder, if you will, and then from there they gotta pay artist royalties, they gotta pay m mechanicals, comes out of that number, etc. And it sounds like a really almost infinitesimally small number. And I I'll be the first to say, I wish it was bigger. I really do. But at the same time, it's rooted in this concept of if you sold a million CDs, million albums, million vinyl 45 singles from the old days, you're making one sale one time to that million people. And that has a certain, you know, you put a dollar value to that, obviously. Over here, on streaming, you're going to have multimillion streams, let's say. But to make the two work economically, to to have some sort of equivalence economically, that's how the numbers got derived, and the labels agreed to it. They said, yes, we understand the logic of why it's 0.004 cents on average, and that in time means that these people who bought over here would be making roughly the same amount of money.

SPEAKER_01 40:26

That's the theory.

SPEAKER_02 40:28

That's the theory. Because as I told them our our our uh paralegal, I said, you know, it could have been a hundred thousand sales, and each of those hundred thousand people listened to that track ten thousand times over their life. But the artist only got paid and the label got paid one time for that.

SPEAKER_01 40:43

Right.

SPEAKER_02 40:44

Whereas at streaming, at least it's ongoing. Every time you listen, there's a payment to be made, et cetera, et cetera. And and so I I I understand that. And where the first sale doctrine came into my my personal life. I was way back, gosh, my oldest daughter was 12, so it's 20 years ago, 20 some 25 years ago now. And we're I was taking her to school one day and she said, Hey Dad, can you pop this CD? And it was a mixed CD, if you will. And I said, Where'd you get this? Oh, my best friend made it for me. It's all her favorite songs, and she made this for me and gave it to me. I said, Well, you need to tell your friend to stop stealing from you. She said, What? I said, I I was working at a record label at the time. I said, You know, this is where I make my money on selling CDs, and she's making free CDs and giving them to you. And she said, Well, I don't know. What? I said, Yeah. So you've done all this and nobody made any money off of it. Right, and you're not gonna go out and buy the album now just because you because you already got it for free. And she didn't quite grasp that idea for a while, but I did find out later that she told her friends, don't make me any more CDs.

SPEAKER_01 41:58

Well, you know, uh you talk about the effects of streaming on on contractual obligations and language and and things like that. We've we've sort of skipped over a couple of decades there because streaming came in, you know, late mid-2000s to late 2000s, roughly when Spotify came to America, worked out all the deals with all the labels and that stuff. But prior to that, we've we've kind of got a period of time there where the internet came along and started uh gaining in popularity. The government commercialized it and and made it what it is today. That period of time greatly impacted the music industry and how we do contracts. Just a couple of examples. First of all, when Napster came along and started giving away the music on its peer-to-peer platform, everybody in the industry suffered, even lawyers, because it was a trickle-down effect. If you're not selling records because Napster's giving them away for free, then your revenues go down. During that lost decade from 99 to 2009, we lost half of our revenues. It went from like 20 million or trillion, whatever it was, down to half of that. And so record labels start to say, well, wait a minute, we're investing tens of millions of dollars in this artist, and we're not selling records. So we can't recoup what we've been paying. We can't recoup our expenses. So what are we going to do? Well, they're still touring, they're still out there selling tickets to their shows. They're still out there selling merchandise. We're making them stars with our marketing investment. And we we're investing to make them a celebrity. So let's take a percentage of all of those different things. So we got what's called the 360 deal. Right. So that's one thing. Along that same time, you may I don't know if you remember the nineties, but the nine ninety-one, ninety, that was heyday for the music industry. That was a period of time when people like Madonna, who was just knocking the top out of it with sales, people like Garth Brooks, again, knock knocking the top out, you know, hundreds of millions of records sold. The label started recognizing, hey, these are a different caliber of people. So let's strike a different deal with them, right? Madonna got a great deal with Maverick Records, and Garth got, you know, the building that Garth built here on Music Road, Curb Word Records building, still there. And, you know, he got 50% of royalties, and he got, you know, ownership of his masters after recoupment and and and other things, which, as you said earlier, very difficult to get, very difficult to have that kind of exit ramp. But that just kind of illustrates how the evolution of life really affects how we draft contracts and how we negotiate contracts.

SPEAKER_02 45:16

Agreed. I I do liken it to the philosophy that my wife and I took with our children. We have three kids. You treat each one of them the same. I mean, treat each one of them equally, but you don't treat them the same because they're different people. So the same idea comes into play, I think, in in these contracts. Depending on who you're trying to sign, where they are in their career, obviously where the company is and its life cycle, et cetera. Each contract has to be dealt differently. Otherwise, go to Legal Zoom and pop out record contracts. You know, it makes no sense. Or now AI. Or now AI. Yeah, and which interestingly, we were talking about an AI thing today about the new AI artist that just went number one on country breaking rust. Oh my gosh. We'll have another episode about that. But anyway, having said that, yeah, every contract, in my opinion, and this is why you bring in lawyers who are experienced, it's not just boilerplate language. Now, some of it is, a big part of it can be. And matter of fact, a few years ago, lawyers in, especially in Nashville, but some in LA and New York joined in to create what's called the Brain Trust. And they said, hey, can we not just develop uh the true boilerplate language and have it consistent so that we're not redlining all of that on every single contract? And that, you know, it's still not 100% of the time that that people use that stock language, but it's it's pretty consistent and does help with the speed of the contract. But it's the deal points that you really need an experienced attorney to walk you through, not just on the royalty percentages, but uh on the terms and how to phrase that and how to calculate certain things based upon uh what the artist is bringing to the table. And I it's uh I guess for me, the first of all, there's no 360 deals truly right now. There's I've heard people say, oh, there's a 270, there's a 133, there's a that but there's all contracts now have some semblance of non-recorded revenue that the label can participate in. And I'm not really opposed to that, provided they're putting skin in the game. Right. You know, right. It's just it's just gotta be fair and equitable. And again, what we do for Artist Day may be a 270 type deal because that's really what they need for their goals. But artists over here might be a 75, you know, percent deal.

SPEAKER_01 47:55

Well, and that's part of the theme of our show. I mean, uh deal making is the art of taking a client where they are and taking the the other party where they are and saying, okay, what's the best mutual benefit for both of these people? What's the benefit of the bargain that each one of them is receiving? You talked about boilerplate, and I just want to make a couple of points about that. I've always encouraged my contract classes and young lawyers. If you're going to use formulated language, draft it yourself. Draft it from scratch. Don't go to a form place or AI and get them to pull you form language without examining it to see if it fits the deal. Because a lot of the form language needs to be modified. It's not boilerplate. Well what what the the example I kind of use for boilerplate, what I would call boilerplate, is different than what I think the average person would think of boilerplate. I think of uh when you go to a car lot and and pick out a car and buy a new car, you know, they take you back to that first room where they sell you the car, and then they take you back to that other room where you you got the business manager back there cranking out, you know, hundreds of pages of of uh a contract that looks exactly like the contract he did two minutes before, right? And it's got but it's got your name in it, right? You can't negotiate that. That's boilerplate. Mortgages are boilerplate. You know, the terms of the deals for a mortgage for a car deal, they don't change much. But what you and I deal with on a daily basis is individual deals that are not anywhere close to boilerplate. And and I have clients calling me all the time saying, Oh, don't you have some form that you can give me? And can you keep it to one page and half away? Exactly. Can you make it one page? Well, yeah, if I use three-point time, maybe.

SPEAKER_02 49:59

I always laugh at them, but I go, dude, you have no idea what you're talking about on that. Yeah, the the boilerplate, uh, and we we throw that around a lot, but there are still very specific language. There is very specific language you need to watch out for in that boilerplate. I came across one not long ago where it was supposed to be boilerplate, and I go, but why are you guys picking choice and law for that state?

SPEAKER_01 50:24

Nobody works in that state. And that's a good example of something somebody would consider boilerplate and just throw it in.

SPEAKER_02 50:32

Exactly.

SPEAKER_01 50:33

But you've got to really focus on where the parties are and and you know, what is the legitimate venue that there's some things like severability.

SPEAKER_02 50:42

You know, you can you can sign this in parts, you can do certain okay, fine. And I'll I'll read through those very quickly. Part of my problem being a lawyer is that I read every line. And sometimes I don't say that as a problem. Uh well, I I I only say it's a problem because I do that for every contract, multiple times sometimes. And I'm like, I know what that paragraph says, and I know this is the execution copy, but I'm reading the whole thing again. Okay. You know, which I think is actually what I should do, don't get me wrong.

SPEAKER_01 51:14

Yeah.

SPEAKER_02 51:15

But I'm reading the same true boilerplate paragraph four times, you know, all the times that we got the red lines back, and now for the execution copy before I send it to my client to be signed. But and you're right.

SPEAKER_01 51:28

I mean, that that's obviously the proper thing to do. Well, there's the opposite of that, too. And and both of us, uh you're you're gonna know who I'm talking about. But I've known attorneys who just kind of pick up a contract and and they think they're so experienced that they can just scan it and and know what it says. Of course, two days later, if you ask him what's in that, he's not gonna know what it says.

SPEAKER_02 51:48

Yes.

SPEAKER_01 51:49

Right?

SPEAKER_02 51:49

Yeah.

SPEAKER_01 51:50

So I I I don't I I don't necessarily disagree with your approach.

SPEAKER_02 51:54

No. Well, it's not changing, I'll put it that way. It means it takes me a little longer to get your contract back to you, but I'm not changing that.

SPEAKER_01 52:05

We're gonna take a few minutes and then uh we'll be right back with some walk away points. And we'd appreciate you doing so. We appreciate all of our users. We just topped 300 recently, and we're very excited about that. So uh so go to musicrow dealmakers.com and look us up, or look us up on Spotify or Apple Music or wherever you like to listen to podcasts. We'd really appreciate it. So uh Dennis, so next in in our next episode, we're going to dig a little bit deeper into some of the terms of the contract uh uh recording exclusive recording agreement. We're gonna look at the the thing you mentioned earlier, the the controlled composition clause. We're gonna talk about the ownership of sound recordings. So uh for those of you listening, come back in two weeks and download that episode, the the second part of our holy grail episodes. And so uh we'll be talking about that in the next episode. But for today, I think we've got enough fodder here to talk about some of the points. Maybe the first walkaway point might be don't just, if you're an attorney, don't just use boilerplate language. I mean, uh, you know, craft it yourself, uh, you know, uh read it three times like you do. I I I I wholly support that kind of thoroughness because, you know, it is important and words do matter. You talked about the language you and I joke about sometimes, uh, a clause that that begins notwithstanding anything else contained in this contract. That's always amused me because what effectively that does is nothing else matters. It's just this clause, right? So, and and sometimes they'll say nothing notwithstanding anything contained in the immediately preceding sentence. So, what that means is you can just kind of ignore that immediately preceding sentence if this is the case.

SPEAKER_02 54:14

So I do treat that because I I I I do use that uh only as a way of creating a differentiation on something or or highlighting a certain part of that. I use it. Don't get me wrong, I use it all the time. I'm a lawyer. But it is it it's a great tool, but you gotta know why you're using that, right? Correct. And I'll never forget, I early on I was drafted a or redlined a contract for a lawyer friend who was I was acting as his law clerk at the time. And he was loving my red line until I got down to, and I used a notwithstanding anything in the previous sentence, yada yada yada. And he said, Oh no, it wasn't that one, it was without limiting the foregoing, da da da da. Right. And he went, You are limiting the foregoing. I go, No, I'm not, because he said no. And that's when he really drilled into my head, modifiers. You've got to be very careful about what words you're modifying in the world.

SPEAKER_01 55:11

That's exactly right.

SPEAKER_02 55:12

And I go, you know what? I did limit that, didn't I? And we don't want to limit that. So that's I took it out. Language, you know, I I tell my my family a lot, but I've told my mother more than anybody. Words means mean things. So watch your language.

SPEAKER_01 55:28

Well, you can boil it, you can boil it down to articles. I mean, if I tell you, you can if I tell my son, you can have this, that, or the other thing, that's different than telling him you can have this, that, and that thing. Yes. And the difference there is one word. Yes. And when we talk about crafting contracts, when we talk about drafting to the client, that's what we're talking about.

SPEAKER_02 55:55

Exactly. The one of the first lessons I learned, I looked at a contract once and it said all things all compositions listed on schedule A, yada yada, yada. And then it tried to bring in anything that was ever written prior to this agreement would also come in that's not on schedule A. And I took the all out and put no the the compositions listed on Schedule A. That's it. Yeah. And it passed, muster. They they they they accepted it. But I've had to go to clients and say, Did uh did you put everything that you've written from birth to this contract that's not on schedule A? Well, no, well, that's what they've written for you.

SPEAKER_01 56:35

Right.

SPEAKER_02 56:36

That is Schedule A plus everything else. And they just don't pay attention to the language like we do.

SPEAKER_01 56:42

Well, and and sometimes sometimes that's intentional, sometimes it's not. So you you've got to be aware of those little gotcha kind of things like that, because that happens frequently in that music publishing agreement. They a lot of publishers do expect everything you've written since birth. And if you're not careful with the language, they will get it.

SPEAKER_02 57:05

And my comeback to those publishers has been, all right, great. Pay for it. Right. You know, you're paying in advance of X and you know you're getting Schedule A, but you want all this other stuff as well. Well, that's that's inequitable. Pay me more for this. And it had to be a ton of money, but you need to pay more and not just get them for free. Right. So but language does matter. Again, contracts are all words, and it should be as precise as possible. And the moment, as you know, because we talk about ambiguities in contracts all the time, that if you're the drafter of the contract and there's an ambiguity, then the court weighs that against you, not in your favor. That's it. So words matter. And that's why by the way, that's why you do find the boilerplate line uh this contract will be deemed to have been drafted together, both of us.

SPEAKER_01 57:59

Yeah. For that very reason. And that is frequent in the contract, and it is for that very reason. And and so so, yeah, we also talk about the fact that there's that old adage, what the fine what the large print giveth, the fine print taketh away. I mean, that's when we talk about drafting like this, and we talk about some of those phrases, those limiting phrases that we we just mentioned, that's what we're talking about. You you know, you can say, oh, well, look, it gave me this, but then immediately follows it says, notwithstanding the contrary. And all of a sudden, what what it gave you is limited somehow. So you gotta be aware of that. Something else I think that ties into this is the the lesson from the Tim McGraw case, right? That again, words matter. How that term provision in Tim McGraw's contract was worded matters. How the the one for Hank Williams was worded, it matters. And and when it matters is when there's a conflict, a misunderstanding, right? It matters when five years later or ten years later, you go to court and you get a judge, William Haynes, who looks at this and says, Well, that's not what it says, right? Or at least that's not how I understand it. And at that point, his opinion is the only one that matters. And if you haven't drafted that correctly, you're gonna get an adverse ruling.

SPEAKER_02 59:31

We went through an arbitration last year, and the arbitrator, that was one of his comments. Hey, the partnership agreement says what the partnership agreement says. Right. Now we had a different interpretation, but he said, no, in black and white, this is the way I read it.

SPEAKER_01 59:44

It clearly says. There you go. That's right.

SPEAKER_02 59:46

That's the ruling at that point. This is where I just wrote a note down to remind me to bring this up, but this goes into definitions. So a a the better contracts will have a definition section of some sort, like that kind I was talking about earlier with the extra masters. Nowhere in that contract was extra masters actually defined. Oh my goodness. And so that's what gave that's what gave us fear that an extra master would be anything that you recorded during that contract period. So you've got a new album, you delivered the 10 songs. Oh, but now something comes up, not even been Christmas. Hey, let's do a new Christmas song. All right, great. So we do that. Well, that's an extra master because it's during this time period. Add six more months to the to the term. And and so definitions are uber critical on most contracts. Now there's some that are not as necessary, in my opinion. If they're smaller, there might be a feature agreement with an artist, or there might be a even some producer agreements potentially, even though I've seen 15, 20 page producer agreements. But if it's an artist agreement, because you're talking about multi-year, multi-album, multi-masters, you better have a definition section.

SPEAKER_01 1:01:00

Oh my gosh. I, you know, that's a really important walkaway point for the audience. I think, you know, make sure your key terms are defined. And uh again, keep going back to my contract class because these things trigger in my mind. I I take it down to the the the word party or parties, right? A lot of rookie lawyers will assume, particularly when they're adding some of that language at the end that would that we've designated as template or form language, because a lot of those form provisions use the word both parties agree to this with a little lowercase P. For the audience, generally in a legal agreement, defined terms are capitalized. So it's not capitalized. So who the hell are the parties? Does that include just the two people up in the preamble, or does it include other people? And you know, for that reason, I will often in the preamble define the the terms as, you know, Joe and Jim will be defined herein uh sometimes as uh a party, quotes big P, or collectively as the parties. Exactly. Uh now uh somebody listening to this might say, well, is that really important? Well, yes, it is. If you're trying to, again, 10 years later, if a judge is saying, okay, well, there's several people mentioned here, does that word party's there that's not capitalized, does that include all those people? I, you know, I don't know. And so who's that going to be interpreted against? Exactly.

SPEAKER_02 1:02:37

It's it's words mean things, pay attention to the detail, get your definitions in, and and definitions, just like representations and warranties, which we'll talk about in the next podcast, I'm sure. Those can be some of the most hotly debated sections of a of a contract if you're not careful. Now we'll we'll argue about you know money and percentages and why you need to pay us more, why we should pay you less, and some things like that, sure. But where the rubber real ultimately meets the road is well, how is the term how are the key terms defined? And what are the representations and warranties that are that each party is guaranteeing, so to speak, in the contract. I represent warrant that I am free and clear to enter this agreement, that I have no encumbrances, you know, et cetera, et cetera.

SPEAKER_01 1:03:30

Right.

SPEAKER_02 1:03:31

And some of that gets a little dicey, honestly, at times, because I've had to go back to the other side and say, well, hang on, especially in a catalog sale. Hang on. We can't represent this because of this.

SPEAKER_01 1:03:43

Right.

SPEAKER_02 1:03:44

Well, that's what we need. Okay, well, let's find a way either out of it or give us some sort of a concession or something. And and it it's you you know you gotta pay very close attention to these things. A lot of things that people go, well, yeah, I'm not gonna violate this. Well, yes, I wrote that. Well, hang on. It's not that you're just saying you wrote it, you're guaranteeing that nobody can come after you with a claim of copyright infringement.

SPEAKER_01 1:04:09

Well, I'm gonna geek out a little bit here because I just can't wait to talk about representations and warranties in in the next next uh podcast. Audience, I hope you will join us next time. We're really looking forward to talking to you about the specifics of a recording agreement in the next podcast. Dennis, you have some uh exit note there.

SPEAKER_02 1:04:28

I was just going to say, because we've not done it yet, get your trigger finger ready over there. I'm gonna give you a dad joke to end the show on.

SPEAKER_01 1:04:36

Oh my gosh, I get to use my trigger finger. Tell me when you're ready. I will hang on just a second. Let me see. Where did I put that?

SPEAKER_02 1:04:46

Yeah, you've been waiting all this time. What? Is this is this episode 10, 11, something like that?

SPEAKER_01 1:04:53

Well, I haven't used it yet.

SPEAKER_02 1:04:54

And you haven't used it yet. So I wanted to give you a fair warning that I'm going to give you a uh a dad joke. So you can use your wah wah wah. And if I can't find it. We have all this dead air. Yes, we do. By the time you find it, I can give you about four if you're all music related. No? It's a that's not it. That's not it. Well, I'll tell you what, we'll pick it up next time, but in the in the in the moment.

SPEAKER_01 1:05:27

In the meantime, I'll find my one.

SPEAKER_02 1:05:30

I will I will ask you if Johann Sebastian Bach was reincarnated as twins, what would you have? Reeboks.

SPEAKER_01 1:05:40

Oh my gosh. All right, audience, thank you for your time. We will see you next time.

SPEAKER_00 1:05:58

Music Row Dealmakers is a production of Shroom Disney and Associates. Recorded on location on Music Row, the heart of Music City, Nashville. Subscribe to future episodes wherever you enjoy your podcasts.