Deal Making on Music Row, Part 3: Critical provisions of the Exclusive Recording Agreement

Join us for the 12th episode of Music Row Dealmakers, where Barry and Dennis continue their exploration of the “Holy Grail” of the music industry, the exclusive songwriting agreement, examining some of the more controversial provisions of the traditional recording agreement and discussing how the paradigm shifts in the industry have affected their application. 

Transcript

SPEAKER_00 0:07

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 Schrump and Dennis Disney.

SPEAKER_02 0:30

Greetings to all of our mutual deal makers out there. Dennis and I are glad to welcome you to our 12th episode of Music Row Dealmakers from Composing to Closing. Available wherever you listen to podcasts. Hit that subscribe button down there and share us on all your social media. We really appreciate it. We've got over 800 followers now, and uh we're we're happy for that, and that number just keeps growing. So help us uh reach a thousand, would you? Uh, I'm Barry Neil Strom, and this podcast, as always, uh, comes to you live from Music Row in Nashville, Tennessee, at uh from the Srum Disney and Associates Law Offices. You can find out more information about the firm at SrumDisney.com or um more information about this podcast at MusicRowDealmakers.com. As always, Dennis and I encourage you to uh interact with us. Call us at 800 DealMaker. That's D-E-A-L-M-K-R. If you have one of those old-fashioned phones with numbers on them. If you don't, it's 800-332-5657. Or send us an email at questions at musicworlddealmakers.com. So in today's episode, we are continuing discussion. We we started last episode. We looked at the Tim McGraw case involving the term provision of the Holy Grail of the exclusive recording agreement, and we looked at the Hank Williams contract and involving the exclusivity clause. So today we're going to continue that uh discussion and look at some of the important terms in the uh Holy Grail, some of the critical provisions that you want to pay attention to. But before we do that, we don't want to forget our founding sponsors, your microphones, for providing all the equipment and support that we're getting from them. Ryan Smith over there in the national office. We we thank you. And uh, I know Dennis thanks you. So, Dennis, let's talk about this exclusive recording agreement, some of the provisions. What provisions are we gonna be looking at today?

SPEAKER_01 2:37

Well, first of all, we need to put in a crowd war sound effect.

SPEAKER_02 2:52

So, for friends and and and all your listeners out there, I finally found my waha. And uh well, okay, I didn't want to miss the opportunity. I don't know if it took me that long. But there you go.

SPEAKER_01 3:10

Oh my gosh. A little nuttier toward the end of the calendar year, shall we say?

SPEAKER_02 3:15

Well, and uh, we we you know, this uh episode will be coming out just after Thanksgiving. Uh Dennis and I are getting prepped for that, so that's one reason we're a little bit antsy. But uh we we hope uh all of you listeners had a great uh Thanksgiving uh holiday. It's it's one of my favorites. I know I think probably one of Dennis's as well. We get to see family and sons and daughters and just all kinds of uh of good friends. That's what it's all about, isn't it, Dennis? It is that that the turkey. Well, you can't forget the turkey. So where are we jumping off today? Jumping off. Well, I think we're gonna start with what is it? What is a recording contract?

SPEAKER_01 4:01

You know what, seriously, this is what I tell artists of all every strato, but especially the new ones. A recording contract is a means to an end. That's what it is. Yeah. And by that what I mean is the artist has to, and it's and it's their sole responsibility to say, this is where I want to go. The label can't tell you that. If they try to, you will never get there because they can't give you your vision. They they're doing it right, in my opinion. They're signing you because of what you're bringing to the table and your ability to articulate at some level what that vision is, and then they can come alongside that and go, yeah, we think we can help you get there, and we'll be rewarded in that process. So labels and/or managers can help you refine it, help you sometimes define it, yes, but not give it to you. And so you have to decide where am I trying to end up? And at that point, then you can then look at it and say, okay, what kind of contract do I need to enter? And or do I need to enter one at all? But since we're talking about recording agreements now, it really is where am I trying to end up? In what time period am I trying to get there? What do I bring to the table? What are they asking me to give up? And what are they bringing to the table, and what am I asking them to give concessions on?

SPEAKER_02 5:28

Yeah, I like that um uh couching it in the phrase of uh a means to an end is is sort of putting it in perspective. And and that's something, uh at least you you know, we uh let me back up a second. We call it the holy grail, you and I. And and to a certain degree it is, and and and over the past three to four decades, particularly in the 90s and the 80s, it was the holy grail, and and an artist would do anything to get that recording agreement. After the industry sort of paradigm shifted from physical product to streaming, the role, the gatekeeper role of the label, and the reason we call it the holy grail, lessened, it diminished. And so now it's important that anybody seeking a recording agreement understand it's only one of the ways to get where you want to go. And I think when you talk about, you just talked about vision and uh what what do you want out of your career? I think that's something that young artists are are coming around to and starting, they're they're starting to have that vision. And if you don't have that vision, you're exactly right. You you're not gonna get there, and a label's not gonna get there, get you there. And an entertainment attorney's not gonna get you there. You've got to have that drive. When we talk here at Strom Disney about the passion for the arts and a passion for the law, and we do that for a reason, because you and I share a passion to support those kinds of people. But in turn, they've got to have that passion for what they do. Oh, exactly.

SPEAKER_01 7:23

It's it's easy, I think, for a lot of artists to say, I want to be a star. Well, that has no definition to it. No, it doesn't. So put some definition around that. And by definition, I mean put some specifics, and then we can help you determine whether that's commercially feasible. The label can, managers, attorneys can help you make some of those decisions. And at the same time, I will hasten to add, oftentimes the objective is very modest, and everyone sort of you know rallies around that. But then you quickly see after a point period of time, you go, wow, our vision was too small. This can go even further. But you have to have something you're trying to hit, and you have to have you have to identify that in the in the terms of how long am I looking for to get there? How long is it gonna take me to get there? What resources do I need or do I already possess that to help me get there? I just think it does a disservice to even to parents to say, oh, you are so good you're gonna be a star. And I'm sorry, you know, that's just not good enough. You have to put get real people around you who understand the commercial nature of our business and then can help put plans together uh to hopefully get you where you want to go. With all that said, it's still a crapshoot. Oh, it it's always a crapshoot.

SPEAKER_02 8:49

Yeah. But it but but the important thing about where we are in as a society in in this industry, in the music industry, is that there are so many pathways now that you can choose. The exclusive recording deal with a major conglomerate like a Sony or an EMI or someone of that that elk, that's not necessary to make a really good living in as an independent artist. You can tour, you can make money, and and you can do things without that exclusive pathway. Go find an independent record label. Find someone who shares your passion, right, and is willing to support you in that passion.

SPEAKER_01 9:35

You know, at the end of the day, and I used to use this calculation with a lot of artists as we were trying to build their merchandise sales in particular, and their website sales in particular. I said, you don't need a million people to buy your stuff. You would love that. Don't get me wrong. Oh, it'd be great. But to make a really good living, a really good living, you need about a thousand people who will spend $150 a year with you.

SPEAKER_03 10:04

Yeah.

SPEAKER_01 10:05

That's $150,000 right there, accounting cost of goods. And then, you know, and then you can grow up from that. Well, most indie artists not that I'm I'm not gonna say it's easy, but they don't have a hard time really um aggregating a thousand people.

SPEAKER_02 10:20

No, no, no.

SPEAKER_01 10:21

And then it just becomes multiples after that. Now you may not have the fame, you may not be getting radio airplay, you may not but if the idea is to do what you love to do, and as Walt Disney, my distant cousin, actually he is, uh but as he used to say, do something so well that people will pay you to see you do it again. So if you're doing that, you're doing what you love, doing the in this case in the music world, you're writing and performing and doing things, obviously it's gotta have a commercial element to it. You can make an above-average, uh middle in solidly middle income living by doing what you love to do with a fairly modest audience of pool to pull from. And then if you happen to hit a couple of you know, home runs with a song or a tour or something like that, then it goes, you know, almost quantum from there, so to speak. So it's it is that idea of what do I want to do, and make sure that you love doing it, the types of songs you perform, the style you perform them in, the types of venues you perform in, etc. And you can make it work and do very, very well financially with it. I was just looking today, of all things. I'm working on a catalog sale with a client, producer client. So I'm going back through some old records over the last three years. And I'm looking at uh for him, his sound exchange royalties. And just that. And this is not a household name producer, but he's a really good producer, and he's got a lot of projects out in the marketplace. But his sound exchange, which is the performance royalties paid to artists and record labels for sound recording, for sound recording performances, and he only gets a portion of that because he is producing, and the artist has to do a letter of direction and say, hey, out of my portion, X percent will go to the producer. So over the last four years, and we don't have December's numbers yet, but over the last four years, he's done $200,000 himself. And that's a good living. Now, and that's just on that, they don't include producer royalties and even song publishing royalties, his producer fees on top of that. The artist, which means the artist who only gets effectively gets 45% of sound exchange. 50 goes to the label, five is held by sound exchange, 45% to the performing artist. So if you scrape off 15, 20% to give to the producer, do the math for the artist. Again, not necessarily household name artists, but but in their genre, known to a pretty good audience. I mean, they're making what it 200, and that was twenty thousand, they're making somewhere in the neighborhood of about four to five hundred thousand dollars over that same four-year period before they get into record royalties or record advances or touring income, merchandising sales. So but the to your point, you can be just modestly successful and live like a top five percenter in income. You really can.

SPEAKER_02 13:38

Yeah. So you know, to kind of bring this back in toward the the holy grail as it as we call it, the exclusive recording agreement. What this what this does to that leverage and and negotiating a deal like that is it puts it in a different perspective to get back to that word. These days, with the ability like your client, the producer client, to make a couple of hundred grand or more just doing what you love, you don't need this exclusive recording agreement anymore. So that puts the artist in a slightly better negotiating position when it comes to some of these terms. So again, you may or may not need the exclusive recording agreement. If you don't want to be a superstar, if you don't want to be, you know, one of those A-level celebrities who we see everywhere, if you're happy playing music, producing music, and reaching a modest audience who's, as you say, is willing to spend $150 a year, you can make a good living and you can live a life that you enjoy and that you have fun with. So let's with that said, let's let's look at some of these uh elements of an exclusive recording agreement. Let's talk about the you know the term we we looked at that with McGraw last year a little bit, our last session. So, you know, maybe we skip over that one, but there there are other things that that are in the recording agreement, like the delivery commitments, certain restrictive uh covenants, recording budgets, recoupment, artist advances, clauses dealing with that, and the royalties, deductions, ownership of the S of the sound recording, and and and other fine print. And you know, if you're considering this from that perspective of hey, they the label can help me, then how does that affect how we negotiate those? Would you agree with that, Delis?

SPEAKER_01 15:52

Yeah, absolutely. And every label is going to be stronger in areas than another label. And people think the majors have everything sewn up ic you know incredibly well in every channel of marketing and promotion and services, and not necessarily so. Everybody is a little bit different. And then, of course, you come down to the indies who are have fewer services they can provide, but they also provide some other opportunities the majors can't. So but I did want to touch real briefly, I know we talked about term last time, and then we can go into delivery commitment. What I'm seeing a lot of right now, especially from the smaller labels, is that the term is actually tied to the delivery commitment. So instead of it being a term of years, it's a term of minimum delivery. Right. And it becomes a bit of a challenge how some of this gets worded sometimes. I was dealing with a contract last week, and I had to tell the clients, and we tried to red line this out, I haven't gotten it back from the label yet. But I said, look, the way this is worded right here, potentially it is four years until you get to your first option because of the way they've they've written the timing, and it's all based upon how many masters single song recordings are supposed to deliver within a particular time period. And if you hit that mark, then they get to extend the option. If you miss that mark, then there was some other language. I said, long story short, they want one guaranteed period plus four options, just to add it up. That's 16 years if they pick up every option. That's not much of an exit rim for you if things aren't the way you like it. They may love it.

SPEAKER_02 17:34

Right. But if you're if you're one of those independent artists that we've been talking about that that has chosen a different path, then that would warrant, you know, if they're using this vestigial, shall we call it, language from the physical days of you know, the the term being tied to the delivery of a physical product. And then the next delivery happens after that, and and like you say, it can extend. And that was the problem in a McGraw that we looked at in the last episode, right? He had delivered what he thought was the full delivery commitment. Now he had been with Curb 20 years at that point, and to your point, and so under that contract, he said, okay, I've delivered, but they said, no, no, no, you don't because of these things. And that was the dispute in that contract. So to me, that's language that they built that the labels built into the contracts back when delivery of product was important, and timing of that delivery was important because you had to get it into the stores before the Christmas holidays and before the all of the holidays, and when people bought music. And if you didn't do that, you missed the window, and then you had to wait until the next year. So you know, it was important at that time. I would argue, and I think this gives the artist some leverage, that that's not important as important anymore because music is streamed now. You can release music at different times unless you're listening, unless you're releasing Christmas music, the timing of it is not as important. It's important.

SPEAKER_01 19:20

Uh I can attest to this because of what we do more recently when I was at the management company for eight plus years. They uh the timing still has real importance. Right. I definitely agree with you that because of streaming and the way people consume, they consume it so much differently but in the old days.

SPEAKER_02 19:42

Right.

SPEAKER_01 19:42

The old physical days. But there still is a timing factor that comes into play. It could be everything from what's happening in the market and what big albums are coming that's going to suck all the oxygen out of the room and all the listeners away from your track because they're all flocking there to is there you know a big seasonal thing that you do have to watch out for a little bit, et cetera? You don't want to necessarily be dropping a non-Christmas record between November 15th and Christmas necessarily, even now, because it's just not going to get the listens that you want it to have. And then the timing of this the subsequent releases, even if you're doing singles, masters, I've seen everything from, hey, we're dropping four over a period of three months, and then we'll drop the full album, to we're not doing albums anymore, we're gonna drop one every two weeks. And that really just depends on your strategy, right? But there is there is a timing aspect to that, that is true. In terms of the what that means for a term and a minimum delivery, that's where the language really gets incredibly important in the contract. This one contract I was mentioning said that you were supposed to deliver uh 12 tracks within the first period. And if you do that within the first 18 months, then we have the option to extend the period before you deliver your next batch to us for another couple of years. And I looked at that and went, well, that's by the time I added everything up, I'm like, you're pushing four years before we even get to the second offer. For your first term. And so then they modified the language and said, Well, if it's 12 tracks, but we release eight of them within the first 18 months, then we get to extend. Well, well, hang on. So, you know, it's like that still doesn't work for me because again, the powers with the label that was could still extend this contract way beyond what I'm comfortable with. And that's what's what I kept telling the client. They ultimately said, you know, well, we can live with that. Um, and if it's not working, I think both of us will just get out of it anyway. They won't pick up the option, and that is true, but it's not guaranteed. That may be true. It could be working for the label and not for you, and they just pick up the option. But so, anyway, all that to say this this this uh trend now to the term is tied to delivering the minimum delivering deliverance what about minimum delivery commitment sorry the minimum delivery commitment and that commitment is structured to be delivered in single songs not just in a full album back in the old days the language was you will deliver us one album consisting of a minimum of 10 tracks with no more than maybe 14 or 15 great minimum is 10 but it's got to be a full album well now it's not even that with a lot of these deals it's just masters single song masters well and that's the the that's the negotiating leverage that I'm talking about I I think in in context like the contract you were talking about the artist has more influence to say to the label look you know we understand that there has to be deliveries certain number of deliveries but why do we have to attach it to a bundled product anymore it's not bundled anymore it's streamed and that gives a certain negotiating strength to the artist position in my mind. It does but you know again some of the newer contracts they're not tying it to a bundle they're just tying it to deliver this minimum in this period of time.

SPEAKER_02 23:25

Aaron Ross Powell Right and and my point is it's a shifting it's sort of a shifting understanding of that term and and that is an example of how things evolve according to the zeitgeist and how people consume music.

SPEAKER_01 23:40

And interestingly the way they produce music because there's economies of scale to go in and record a batch of songs at one time. At least get the basic tracks done meaning we're gonna you know if we're if we're having to pay studio rental and hiring musicians we're gonna come in and over two or three, four days we're gonna knock out you know six to ten songs. Why? Because I can get a group rate I get economies of scale and my production costs to do that right under the contract though you don't have to deliver it that way. This client I'm talking about I said what is your intent that our intent is deliver them 12 songs all at one time I said okay if that's your intent and that's allowable under this contract you don't have to do it that way. But if if that's what you're you're doing then we can probably deal on how these the term of this needs to work because you're not stretching 10 12 tracks over 18 months to deliver you're doing it all at one time. I said that'd be fine. Again that's the way it used to be done but these labels even if you do that are not obligated to release an album necessarily they can release it as individual masters.

SPEAKER_02 24:52

Right right well another example I think of of how an independent artist needs to perceive these things is the concept of recoupment. Under the traditional exclusive recording agreement that we're kind of talking about the the typical like in the 90s for example when people were selling hundreds of millions of physical product units artists were getting seven figure advances and and we're talking life changing money that doesn't happen as much anymore but even in in those days when they were getting that life changing money all that was recoupable. Dennis spend a little time telling the audience what that means does that mean the the record label is like a bank and that you have to pay back in in due time or or what?

SPEAKER_01 25:48

In many respects yes yeah and the label people will tell you that's the way they think they get treated sometimes as just the bank but it it it's it's really more than that it for first of all they're fronting the label's fronting that money their investment in that whether it's fronting the recording costs or fronting an actual in advance against your record your artist royalties that's an investment on their part and in my opinion you you need to have a you have to have a certain floor amount just to record a great record. You just do I'm sorry you can't have a uh synthesizer a podcast mic and garage band and create hit records unless you just are funking out on something it doesn't happen. It requires great skill great musicianship great equipment to get the sonics and everything correct so it takes money to do this right and for them making the investment they're putting skin in their skin in the game the label is so then that generally I say generally because it doesn't always happen but generally means hey if we're investing it's into our selfish best interest to then support that every way we can to get our money back because we have put out the money and the way these contracts are written with some exceptions is that those monies are recoupable meaning that yes the label gets to recover those costs the recording costs and the artist's advance costs before they pay you another royalty.

SPEAKER_02 27:25

Again the artist royalty advance is an advance on your royalties so that's like saying hey I'm gonna make $100,000 over the next five years with my record royalties yeah guess what we just gave it to you when you signed the contract so until we get that back you won't see another royalty check from us until we get that part of it back and the recording costs back typically and now it's always been this way they throw other stuff in as you know marketing and video tour support and stuff well in the old days there were the consultants across the country that programmed the radio and at some point in history they were involved with the mafia but that's that's in the old Payola days but so we think the so we think you know maybe it still happens but there's six or seven consultants across the country and when they wanted to roll it out say in the Northeast you know they would hire that consultant at a cost of somewhere near you know $200,000 a month for six months. And so you're into the label again because that's recoupable. Yes anything they spent on your career was recoupable if they made a video to put on MTV in those days. That was recoupable and those often cost millions of dollars for production and so anything that they spend on the artist was recoupable.

SPEAKER_01 28:51

So now with that there is varying uh percentages it started out a lot of that was 50% 5-0 recoupable yeah but that's sort of a long time that was a long time ago. Now most of it is 100% recoupable. Right when it comes to videos because videos can be monetized that that doesn't sting as much for the artist because eventually that can get an earnout you can see royalties from some of that of course but and tour support is not unreasonable necessarily if label's giving you tour support to help pay for your bus or production costs or some of those things. Yes they're recoupable but otherwise you would have to go to the bank and get a loan that is paid back with interest. And this is where the recoupable brilliance is for the artist your recording costs, advance on your royalties any of those third party costs that are quote recoupable A, there's no interest tied to that for them to re for the label to recoup it and recover it. And B if you depart the label before it's recouped 99% of the time some contracts are a little different but 99% of the time you can just walk away if they say we're not going to do another record with you well I still owe you half a million dollars in recoupables yeah yeah that's another but we can keep selling your product and we can earn it out over time.

SPEAKER_02 30:20

Well and that ties into the ownership of SR that we'll talk about in a minute uh ownership of the sound recording and the reasoning for that but that's a good point that when you when the uh agreement term ends of its own accord whether the label says we're not renewing or or whether you've delivered everything that recoupable amount stays with the label as an account in your name and any royalties generating by the ongoing sales of your product go back to pay that back. Just one example of that is when I represented Leon Russell may he rest in peace. Leon was the hardest working guy I knew but Leon the day he died was still unrecuped in the millions because of all the monies he had been advanced over the years. So it does still sit in their accounts and their records even when they merge and acquire other companies and you know you're on doing your own thing that product is still paying them back and you likely won't never see any of the royalties. But the difference is you don't have the bank attaching your house and that is an that is an important difference and that that that plays to to what we were talking about earlier. If you're an independent artist now you're going to be looking at an exclusive record deal a little bit differently because you know in the past that was your only path to distributing records and becoming a musical recording celebrity. Now if you can find that base of people who will spend money on your product your question becomes a different one do I want to get the advance from the label in order to make my career go further and am I willing to give up certain things in order to get that exactly so it's a different equation.

SPEAKER_01 32:27

It is a different equation I mentioned last time I I tend to be more of a time value of money person. And because I think if they're giving you six figures multiple six figures seven figure advance there's a whole lot you can do with that now as opposed to earning that out through royalties over time. But you have to keep in mind that I I got my royalties I received them way early. I got paid up front and some artists and creatives get a little frustrated that they're not seeing the royalty checks in their mailbox and I've had to remind more than one that's because you got it two years ago or three years ago and you haven't earned it out yet.

SPEAKER_02 33:07

Yeah most artists have short-term memory when it comes to to that that big advance that they got and I I remember in the 90s some of these uh country acts shall we say got the big advances they go out and buy the big ass truck um I'm sorry big beep truck and and buy the big house for their mother you know and and and spend the advance on all these short term things or you know immediate satisfaction things and then all of a sudden they're like touring and they're they're like well geez I can't afford to go mc to McDonald's you know why how am I a star? How am I a you know recording artist celebrity and I'm not making any money well you got your money back two or three years ago when you spent it on the truck.

SPEAKER_01 33:52

Exactly and I've heard so many complaints over the years oh I'm still unrecooped and my label's so bad because I'm unrecooped and I have to say well first of all it's how much did they advance you? Yeah and let's take a look at it from from that perspective first and then as I'm writing into contracts these days when it comes to those ancillary recoupables marketing etc etc the label we're putting in contracts the labels can't run amok on that they can't just run up the cost because I don't you know I'm sorry labels are still making money and making a lot of money but the lay the artist has every right if they're going to recoup that they have every right to know and speak into how is that money being spent that I'm that you're getting ready to spend for my third party publicity my outsourced radio promotion etc and and am and am I comfortable with that amount knowing that it's adding to my recoupment because I do want to get back into getting checks every month. Sure. Everybody wants to start making more money than you just were paid but if we can help the artist find that balance between get a a really good deal for you that allows you to to do what you need to do and want to do and live the lifestyle that you would like to live while at the same time having it structured so that if you're successful you also get benefit you know over time. And we can help work with the the label not as a partnership because that you know I don't want to use that word but with that attitude of being partners and nobody just runs off and does their own thing because then it doesn't work for anybody.

SPEAKER_02 35:32

But I uh well I will say that the labels these days have taken in their defense somewhat have taken a different approach to some of these types of deals if you are an artist who's making a great deal of money they will become somewhat like a partner in that they say okay here are the services we offer we offer distribution we offer you know marketing maybe tour support and these days you have a little bit more flexibility as a successful independent artist to pick a la carte what you want the record label to help you with.

SPEAKER_01 36:09

Sure. And I will say the old adage used to be go become a star and we'll make you a bigger star. Right. In some cases they were finding also people that just like Trisha Earwood was a background singer. That's how they found her originally and and so they're always defined it but today they put so much emphasis on social media presence what's your TikTok numbers have you had a song or two that went viral on TikTok or Instagram or something and those things are are weighing heavily into the types of deals and advances that you can get now I just read an article and I can't remember the person but it was some influencer not even an artist just a social media influencer that signed with somebody for something and it was a $3 million deal three million dollar package and it might have involved podcasting and some other stuff but it's three million dollars for social because they have strong social media presence. So if you're an indie artist and you can build that social presence that gives you so much more leverage. Even when I was in management we would find an artist that we thought was really interesting that was our first question what are your socials like and then if we look to sign them and we went to talk to a label we knew their very first question what are their socials like so that's just become a the the norm now so you've got to have that presence a part of that equation and you're right the stronger that is absolutely the more leverage you have.

SPEAKER_02 37:34

Yeah without a doubt and and that that shows up in places like the royalties and and so we we've talked a little bit about recouping those royalties and and the advance going against them. Let's talk a little bit about what what the royalties were in the traditional deal and and how those have evolved to the point where we are now you know back in the day in the 90s again a typical royalty was somewhere between 12 and 18 percent did you ever hear back in those days anything higher?

SPEAKER_01 38:08

No and I've heard of it lower. Yeah you know I've seen 10 and 12 back in the day. Yeah 12 to 18 18 was probably on the top end I saw a lot of a lot of deals that were 12 maybe 14 or 15 and then had kickers escalators if you hit certain either units or or dollar volume threshold they'd add another point anything above that then another point after you hit another threshold that type of thing and so for the half point for a half point.

SPEAKER_02 38:37

And so eventually you can look at it and go, yeah, I've got an 18 point deal yeah but you started at 14 you had to get these milestones to work your way up well but and and too in those days when you had let's say you had an 18 point deal right that doesn't mean the artist is getting 18 points because there was something called an all-in royalty rate which means you're paying your producer three to four points out of that 18% which means you're only getting 14%. Exactly and then when you start talking about foreign sales right then there was this whole structure of wait a minute well if we're selling it in Canada we're not getting quite as much and it's there's different taxes up there so we're only going to pay you 85% of the royalty rate when you get to Canada. And oh by the way over here in Japan or or somewhere else you know we're only going to pay you 65% or maybe even 50% of your royalty rate. So all of a sudden your royalty rate gets down to like five percent.

SPEAKER_01 39:31

And in the States if they put it at budget price midline price or budget price I didn't even talk about that yeah your percentage dropped it would be you know 75-80 percent of what your normal rate was if it was a midline price product if you got the budget price it dropped down to maybe 50 or 60 percent of your normal royalty rate to your point.

SPEAKER_02 39:53

For those listeners who don't understand what a mid-priced album is you've never walked into a record store because there aren't any record stores anymore. And so that's what we're talking about because you know back in the 2000s when record stores started disappearing I'd walk in Dennis you probably had this experience and all of my favorite music was over in the sales bin 50% off you know and that's what you're talking about.

SPEAKER_01 40:18

That's that's a a budget priced album or a fire sale kind of they had um you know having worked with labels and in distribution a method to the madness there really was based upon uh volume discounts and other stuff you would give to stores but essentially a budget price was I mean I'm sorry midline price was if we price it between 80 66% and 80% of our normal retail price that was considered a midline price. If we went below the 60% price it was considered a budget price but if we sold it for less than 80% discount or more than 80% discount which would put it down on a physical good maybe maybe put it in a buck ninety nine range we would have to pay you royalties at all.

SPEAKER_02 41:08

Yeah yeah a lot of that was to recover manufacturing and distribution costs and I'm I'm sure you've had this experience too but when you start explaining some of these reductions and and caveats and and all of these things on the royalty rate to an artist they start getting that deer in the headlights look and and you know they're off in the in their own head creating a new piece of music or something and uh but but honestly if you look at it from the record label's perspective you start to understand that the concept of a music business includes both elements it includes the creative which is the artist and and the creator and the songwriter and the producer but it also includes the conglomerate this the Sonys of the world the corporations who really their headquarters are over offshore somewhere you know outside of the United States and they've got shareholders to answer to they've got investors to answer to and so when when you start talking about paying a royalty on a piece of product right you've got to account for those expenses you've got to account for all of that which is where the artist just doesn't bridge that gap and of course factored into that is our recording costs that's RD.

SPEAKER_01 42:28

If you're at a corporation that's research and development right so we have RD of X to produce the record and create the album cover all that then we're gonna have an advanced to the artist that we have to recover we have advertising costs advertising costs distribution costs we have our staff salaries the SGA for the company comes into place and oh by the way even back in the day when you were seeing almost $20 retail price CDs generally speaking only 10 of that was going to the label to the distributor who then took their 15% cut the rest went to the label who then had to cover all the cost that we just mentioned. Right. And so it it's not this idea when I used to was teaching distribution at Belmont University I was telling and showing the grids I said this is not the big bad record company screwing people left and right. That does happen don't get me wrong but when you start going just through the the basic numbers there's not a lot of profit margin at least on an album sale and even lower on a single sale not a lot of profit margin for the the label. They do make it up in volume and that's why the the general percentages are eight or nine out of every 10 at least albums are not profitable. But that one or two can be so profitable you know they cover the the sins and shortcomings of this other stuff. It is it's being labeled is not for the faint of heart at all.

SPEAKER_02 43:48

It is not and and and you know the labels all of them all of the recording industry labels are also part of the movie industry Industry and part of other entertainment aspects. Disney, of course, does it all. And then you've got the television ownership coming in. All of those entities have to work together in order to generate dividends for their shareholders. And when you start getting to that level, you know, that's when you understand why some of these seemingly obscure and seemingly oppressive, shall we say, clauses tend to make sense from a big news perspective.

SPEAKER_01 44:34

They do. And I I'll be the first to say I love indie artists and also love record labels. I like working with both of them. They each have their own unique challenges. But what I do believe, this is my nearly 40, well, 40 years of being in this business coming out. What I really do believe that when things go sour with a record label, it isn't really about somebody trying to screw you out of money. It's something else. I didn't get to make the record I wanted to make. They wouldn't, they wouldn't release the tracks I really thought I wanted to make. They wouldn't work with me on that. Maybe they didn't put enough marketing attention into me and I or I feel they didn't. And that's what I'm upset about. But it's never uh we had this conversation yesterday about audits, did we not? With the on the phone with somebody. Yeah have we ever seen an audit come back in our time in this town? Do we know of any instances, maybe one or two, where the actual audit of the royalties came back and the artist was underpaid?

SPEAKER_02 45:36

Yeah, though your point is very well taken. I mean, uh the there is rarely a time when the dispute or or the reason that there's that breakup, termination of the contract, is based on money or somebody deceiving somebody into signing this contract. It's usually something relationship-based or creative input-based. Somebody feels slighted, things of that nature. It's almost always personal.

SPEAKER_01 46:09

It really is. I know labels will look at it sometimes and go, hey, even if we're making money, maybe it's not enough money. So we need to take those resources and put them somewhere else. We just don't see that we're going to get where we wanted to go. So it's time for the contractor to expire. We're not picking up the option. Right. Some artists or labels are going, man, this looks feels like it's going really, really well. But the artist says, and I've had this experience with one client, but you know what? I don't feel that they really paid attention to me. But you were looking at the success we've had. Yeah, you know, but I didn't really know the people in marketing, and they were doing stuff I didn't really dive with. And even though it was successful, it just didn't feel like we were a real team. And I think I need to make a change. Okay. Yeah. But it's very I I've yet to experience it where it's truly been the fact that, hey, you underpaid me such an egregious amount of money, I can never do business with you again.

SPEAKER_03 47:00

Right.

SPEAKER_01 47:01

I've yet to find that, honestly.

SPEAKER_02 47:03

With that in mind, let me talk about another little this is kind of um a segue into the old back into the old language, right? We've been talking about the various deductions that they would go against the the royalties and and how they'd carefully calculate out, you know, how much money they're making and all of that. There was a a clause in the old exclusive recording agreement, and very frequently you'll find similar concepts in the newer agreements. But when a company pays an artist to go in and make these masters, and then they start distributing those masters, there are times when the sound recording is going to be used or licensed to be used on a flat rate kind of basis. Let's say it's used in a movie, right? Well, there was an old kitchen sink kind of clause in the royalty provision that says company shall credit artist royalty account with 50% of the net amount of that flat rate received by company under each such license. You know where I'm going with this. I can see it in your eyes. This is known as the MM clause now, because Eminem sued his label in the beginning of the iTunes days, right? When Apple was coming out with its iPod and it wanted a way to, you know, feed the the sales of those. And so it came up with iTunes and it started licensing all these products from the labels. And they were one of the first, I'll give them credit, for licensing and actually paying songwriters and some other things for digital music. And but when when that happened, Eminem says, Well, wait a minute, you're only paying me 10%, my my royalty rate on this, but that's a flat rate license you did with Apple. So you owe me some more money. You owe me 50%. And damn if he didn't win. Yeah.

SPEAKER_01 49:06

Now correct me if I'm wrong, because I was I was I was a babe back then. I was such a young. I know you're laughing now. So correct me if I'm wrong. Part uh of that argument was the label is sending a master to Apple, who is storing it on their server.

SPEAKER_02 49:27

Right.

SPEAKER_01 49:27

And then from there it is being, for lack of a better term, let's call it, replicated or duplicated down to the individual digital files that people could could buy and access. Right. And so on the one hand, and this is where we eventually got to, and it came back around to being, well, we'll treat it as a retail sale. But back then it and I think he was correct, honestly. No, no, no, no, no, no, no, no, no. No. It's you licensed them, you didn't sell them a master and didn't give them the rights to redistribute and make copies and redistribute. You licensed that to them. That is a license. So 50% of every dollar that you get from that license for every single download should be mine.

SPEAKER_02 50:15

Well, uh your basic logic is correct. However, the problem, and this is what the labels, of course, argued, they didn't license MM's recordings only. They licensed a repertoire, they licensed a bundle of recordings, including hundreds of other artists. So the flat rate that they were getting was not the flat rate that was anticipated in the language of the clause I just talked about. It was a flat rate for their entire catalog. So technically, Eminem got some royalties from the downloads of other artists, and that's how he that's how that award shook down. I personally think that decision was an incorrect decision because the judge didn't really understand the music industry. However, I will say that those clauses back in those days were ambiguously drawn, so they could be interpreted against the label because they drafted them.

SPEAKER_01 51:20

So the way I get it, and and I'm I haven't gone back to read that case. Matter of fact, I only read the articles, I never actually read the opinions on it. But my understanding was, and I knew I knew what was happening because I worked with labels or at labels at the time. And and so essentially the rate was 70 cents or 70% of every download would go to the label. That 30% is called an agency fee, basically. So Apple said, Hey, we're gonna put this up here for 99 cents. If you remember, that was the price point. I'm gonna I'll round it to a dollar for easier math. So 30 cents of that, we're gonna keep, we're gonna send you 70 cents. That was the deal. And he was arguing, you don't pay my royalty off of the 99 cents. You don't pay my royalty rate off of the 70 cents. You give me half of your 70 cents, 35 cents. Because his I don't know what his royalty rate was, but it was probably high teens, low 20s at that point, I would imagine. So instead of giving me 20, 25 percent of your 70 cents, I need 50% of your 70 cents. I thought that was the the argument that he won because that because if you remember, he won what was it, double-digit millions? Oh yeah. In that in that ruling.

SPEAKER_02 52:43

Yeah.

SPEAKER_01 52:44

And I remember there was a a point in time I was a few years later, I got to a management company, and when I got there, they already had one of our clients doing an audit from their label, which every artist is has the right to do. And they were finding all this money, but a lot of it was based upon this MM approach, going, wait a minute, all this digital money you have here, downloads and streams that you're you're collecting, that should be 50%, 5-0.

SPEAKER_02 53:14

No, I get it. I get it. But the the I guess the ambiguity was in the word license, because the license that the label had was a license deal for their catalog. Whereas the argument MM was making is exactly what you just articulated that you know it's a 70-30 split and I should be getting 50-50. So that argument ultimately won out, I think, because of the ambiguity in the clause.

SPEAKER_01 53:41

But I would think the argument from the label side would have been a harder one to make. Hey, this is a flat rate. Well, whoa, whoa, your flat rate's a percentage. Your flat rate isn't a dollar amount, yeah. It's a percentage.

SPEAKER_02 53:54

And they're just not sure when that 70-30 split came along. I don't know if it was after the MM case or before. Well, I can tell you it was that it was after the MM case. And I think it was a result of the MM case. I think after they were forced to pay MM the double-digit millions, then the label said, well, wait a minute, we've got to restructure things. And we're gonna do things differently than they did.

SPEAKER_01 54:19

By the way, every contract now is very explicit about how to handle it. It is much more clear at this point. Uh uh new mediums now known or later created. Yes, yes, yeah, we we've got it covered. And and the term of normal retail channels has came out in a big way. In normal retail selling channels came out in a big way because again, is a stream a normal retail selling channel what is now. I mean, that's that's what it is. So, yeah, that would be. So they they really revamped the language after this whole fiasco with MM, yeah, which is very fascinating to read.

SPEAKER_02 54:59

All right, let's go to a different term in the contract now, in the the traditional contract, and and a and a term that is still in most contracts with uh with a conglomerate like this, because as I referred to earlier, ownership of the masters is extremely important to the label in order to recoup the millions of dollars that they invest in in making a celebrity well known. Um and let's explain, I guess, to the audience what that means. Essentially, when when you have a piece of recorded music, let's just call it uh an MP3, what you have is a combination, it's a derivative work. There is a musical composition that gets written by the songwriter. Songwriter owns a copyright in that musical composition, but then the label gets authorizations through a license to record that musical composition, uh mostly a first-use license, to create a sound recording, which is a derivative from the original copyright. When you create a derivative with permission, that gives you, the new owner, the ability to own that sound recording. So by default, that falls to the author or the performer and the engineer and the producer and the musicians who record it. But the record labels institute a series of work for hires, works made for hire, which allows them to then capture ownership of that sound recording. How has that been affected, Dennis, by the new trend of the democratization of music and artists being able to go out and do their own thing and then solicit labels to do these things? Do you see that changing in some of your deals?

SPEAKER_01 57:02

It's become more prevalent to do master licensing deals.

SPEAKER_02 57:08

Right.

SPEAKER_01 57:09

And and those come in all variations in flavors. So on the one hand, and I just did a deal recently with an independent artist signing with a small label, and she is doing her own recording and delivering finished masters, finished recordings to the label, and they get to exploit and distribute that master for a period of years.

SPEAKER_02 57:36

This deal was eight years. So instead of just licensing the musical composition to be uh used in a sound recording produced by the s the record label, she is taking her musical compositions, exercising her own derivative rights, and creating a sound recording that she then owns the copyright to. Correct. And then licensing that to the conglomerate.

SPEAKER_01 58:00

Correct. And and this this one was a we use conglomerate, it was an independent label, but of significant strength. Probably still a conglomerate, and yeah, true. A common conglomeration of something. And they then own and have full exclusive rights to that recording period. Now, within that, there's a period of time where she can't record for anybody else. She couldn't go and do another record and license it to a second label. No, she's there is some exclusivity for a period of time through all this as well. And they have an option for the next album and some other things. So we've got that where the artist does everything on their own, creates it, records it, and takes a finished product to the label and do it, does the licensing deal. Then on the other hand, I've been involved with a significant artist who, again, was a licensed deal, but he had enough leverage that the label is paying really big advance and all recording costs, recoupable, both of those, and all marketing and promotion, and a pretty high royalty rate. And they get that license for I think it's 10 years to do all that, because they're putting out a whole lot of money, and they have options on that. So we've seen both of those happen. And unlike the old days, where the label will do all that same stuff that we just talked about, but they're gonna own the copyright, they're gonna own the finished recordings. And in one instance I just dealt with recently, no, we won't do a reversion. Just finished negotiating a small deal with someone and said, well, hey, this is a legacy artist. And, you know, literally every one of her previous albums had been had a reversion clause in it, meaning after a certain number of years, or assuming it had recouped whatever cost, then the ownership of the copyright in those recordings would revert to her. And they just flat out said, yeah, no, we don't do that. And I found out later the reason they don't do that is that they were bought, which I knew they had been purchased a few years earlier by a for lack of a better term, a private equity fund. And the private equity fund said, no, no, no, no. We when we buy, we buy to keep when and you know, we're not looking to revert masters to people's.

SPEAKER_02 1:00:19

Well, and here's a good example of of what we were talking about earlier. If you're an independent artist and you do have a following and you are making a significant living doing what you love, is it worth it to go to a company that says, no, we won't give you a reversion and we do want to take ownership of the masters? Or in today's environment, is it not better to take what we've referred to earlier in this podcast series as the botna, the best alternative to a negotiated deal? Do you really want that holy grail? Do you really want the exclusive recording agreement if you're gonna have to give up your creation for eternity? I mean, you know, now we've got options. Absolutely.

SPEAKER_01 1:01:08

Keep in mind that even if the label owns it, you're still tied into your artist's royalties, assuming it's an album that's gonna recoup. Assuming you're recouping. Even down the road, if you ever wanted to do some sort of a uh if you wanted to convey your revenue streams to somebody for a big payday, that's theoretically you might still have that. But the idea of ownership and ownership of assets and copyrights and recorded masters are assets that you can continue to make money from, more so than just your artist's royalty. So it is important, more important even these days for artists to try to hold on to those the best they can, whether that's I'm gonna just partner with you, I'm gonna own it all, and I'm gonna deliver my recording, you're gonna bring in the other half of marketing and promotion, we'll split everything 50-50, but I own it all, and we'll do that deal, you know, for a 10-year period, or you know, other scenarios. It it it's if you can get the asset, try to. And in today's market, the artists have been more able to hold the asset or some significant portion of that asset better than they ever have.

SPEAKER_02 1:02:22

No, I agree. And much more successful at negotiating those better deals. That said, let's talk a little bit about the fine print. And you and I have this favorite saying, what the what the large print giveth, the the the the fine print taketh away. And and that is nowhere more true than in the exclusive recording agreement of the traditional music industry. There's a lot of fine print that that comes back around to haunt you in later years. One example, one of my favorite examples in in current uh culture is the post-term exclusivity. In other words, because you've recorded all this music and given it to the labels to exploit, and they've given you money in exchange for that, they will put in a clause in the fine print that says you're not going to perform these compositions that you recorded under our exclusive recording agreement for any other company or person for a period of let's say five years. Right? Now, you know exactly where I'm going here, don't you? Oh, yeah. This is called the Swifty Clause. Yes, tailor-made. It is tailor-made. Well, it was certainly around long before she was ever a uh twinkle in her father's eye. But she leveraged that in such an amazing way. Well, she tried to. I I think, you know, ultimately she just waited for the clause to expire. But what did that generate? Well, it generated, of course, she's a she's a master, I will say, at the marketing. She knows how to get her Swifties to do her bidding. That's great. And and she makes a lot of money doing it. But in that case, you know, you gotta admit, she wasn't exactly justified in that. Her father helped establish Big Machine. Big Machine, she changed. She paid to, yeah, and she gendered up, she knew what she was getting into because her father hired her good lawyers when she entered the contract with Big Machine, that was he owned an interest in. I mean, there's a lot of uh things going on in all of that. But point being, that kind of clause will appear somewhere in the contract.

SPEAKER_01 1:04:38

It it does, and it appears that way also in uh pu producer agreements. Oh, yeah. You cannot prove or will not produce that track for uh usually it's two years, maybe three, and I've seen it tried to be longer. There's there's justifications for a lot of that. Yeah, we we call those restrictive covenants in contract drafting language, but but when you think about it, if I'm the label and I'm putting money into this recording artist and they've they're delivering a certain number of masters to me, individual song masters, I want the ability to put that out under that artist's name for the longest period, the longest period I can to make my money back. Because as soon as, as we saw with Taylor, and what she did was she started putting out Taylor's versions of those records, they dwarfed what was selling on the original versions.

SPEAKER_03 1:05:29

Yeah.

SPEAKER_01 1:05:30

And and and so you don't want the artist to cannibalize your sales of that song that she recorded or he recorded just because they went to another label and recorded it for them as well, and maybe freshened up some stuff.

SPEAKER_02 1:05:46

Well, that's the business um reasoning or logic for having that in there. Absolutely. So I get it. You don't want the the sales of the product that you've spent millions to promote being diminished by. Additional product being put out by somebody like Taylor Swift.

SPEAKER_01 1:06:03

But on behalf of the artist client, or even for us the producer client as well, you want that m minimized, that that time period is.

SPEAKER_02 1:06:12

Negotiate it down as much as you can. That's right. Another example in this uh restrictive covenant uh fine print area is an attempt by the label to enforce the delivery requirements we talked about before. There's a minimum amount of delivery. And I've seen clauses that basically talk about if you do not do that, if you don't give us the adequate number of deliveries, then you've got to repay your unrecuped amount. So there the bank the the the label really does begin to resemble a bank. Because now you do have to repay them from whatever you do, even if you're you know working at a uh as a barista in Starbucks after the deal. That's in the fine print.

SPEAKER_01 1:07:07

That's very much in the fine print. It you see that a lot in publishing agreements, by the way, where you have a minimum delivery, say it's a three-year term for the contract. You're supposed to deliver 12 full songs in that each year. One per month. Pretty much one per month, but you only get the credit for the fractional equivalent that you wrote. So if you're co-wrote with two people, that's 24 songs a year. It's three people, it's 36 songs a year. But then they add that language that says the term ends in three years, unless you haven't met your minimum delivery, or there's unrecooped monies, in which case it will extend until those two pieces are met.

SPEAKER_02 1:07:52

Well, another way they deal with that, particularly in the songwriting situation, because as we know, sometimes you know songwriters have two times of day, either morning or evening, and they really only work evening. And so, you know, they often fail to meet their delivery requirement of writing songs. So they will put in the fine print, something called a suspension clause, which allows them in that event to suspend the term. So as long as you're not delivering songs, the term, if it's a five-year term, it just kind of suspends. And if it takes you five years to deliver another song, now you got another five years to live under that contract.

SPEAKER_01 1:08:33

Yeah, I always find it interesting the difference between recording artists and songwriters. Recording artists and their managers, they're watching those delivery terms pretty closely. How many songs or tracks do we need to deliver by when? Songwriters, not so much. You know how many songwriters I've talked to at the end of their contract? And I go, okay, so have you hit your minimum? Well, let me go count them up. Not exactly. And then they're they're light. And I go, dude, and then I had one case where the guy said, Oh, wait a minute, I've got like 15 songs that I never turned in. They've been sitting here for a year. Bro, you know, come on, man. And and so, well, you got to turn them in and they got to accept them, and and then we get the report from them whether you've recouped your advances or not. So, yeah, the that those type, that type of language, I know when I'm dealing with a client or their manager, I don't just red line and send them a red line. I go through it with them and I and I go, look, here on this line, I might not have needed to redline it because that's a term that's not going to come out, by the way. I don't know of any label or publisher that will allow it to come out, honestly. I said it's not going to come out, but you need to be aware and mark it down in your notes and in your calendar. You've got to deliver this by the end of this term on this contract, or it will extend until you do.

SPEAKER_02 1:09:53

Yeah, but you know full well that songwriter forgot that the minute he walked out your door.

SPEAKER_01 1:09:57

Yes, and that's why you try to put ticklers in your own file that says, catch up with Joe Blow over here. Did you turn in all your songs this year?

SPEAKER_02 1:10:08

The last uh fine print I want to talk about is it I guess really not so much fine print, but it was. It was in the fine print originally. Then we ultimately put it into a separate section of the contract. But back in the days when when uh Napster sucked the revenue out of the life of the music industry and uh and labels were were literally struggling and trying to figure out how to make some of that money back we've been talking about, investing in these artists. It was difficult when the product wasn't selling because Napster was giving it away for free. So they began to explore fine print that would give them interest in other parts of the uh touring business, the recording business that was making money, that being the touring, that being endorsement deals that the artist was involved in, that being the music publishing, and they started taking pieces of that pie. That's where we get the name the 360 deal, because the labels were literally taking money of every angle of your business. So tell us a little bit about that. What kind of percentages were we talking about?

SPEAKER_01 1:11:16

Yeah, it's first of all, I will say I early on in my career at labels, we had these types of discussions when, especially when we weren't selling records on a particular artist, but they seem to be touring well and some other stuff. There is some truth, I think, that the label doing what they do, helping these artists become quote unquote stars. I'll use that very loosely. That a lot of that is because of what the label has done. So I don't think that it's unjustified for them to want to talk about some of that. The question is, what is it and how much?

SPEAKER_03 1:11:54

Right.

SPEAKER_01 1:11:55

And it has run everything from a piece of every booking agreement that you get, a piece of any sponsorship and endorsement that you get, and it might be a higher percentage if we bring it to the table. Some of the numbers I've been involved with over the years have usually run somewhere in that 5 to 15 percent, averaging right around 10, especially on booking. Our argument when I was in management was well, wait a minute. If I'm if the manager gets 15 dealing with this artist day in and day out and making this stuff happen, the agent gets 10%, that's already 25. You get another 10, plus all the record royalties. And by the way, even though an artist is unrecooped, doesn't mean the label hasn't made money. They have. It's just unrecooped at the rate of the artist's royalty. Right. And so our argument would be, you know, no, 5% is more than enough. But even then, we tried to work in a minimum threshold, such as, and I just did one of these in the last couple of months. If the artist is making any any booking that is a gross of $7,500 or below, they get nothing. I've seen other ones where it doesn't kick in until on an aggregate basis it crosses like $250,000 for you know that period of time in the year. And at that point for the rest of the year, it'll go, you know, that it'll apply. So it can be sliced and diced in myriad ways. And again, it's not necessarily unjustified. And on the sponsorship, that one in particular, I have no problem if the label brings something to the table and says, hey, we need to get 25% of what we bring to you and you accept. You went out and found it. No, exactly. Don't have a problem with that. But if we've got people coming to us or we go out and find something, I have a big problem paying you 25% of that. You didn't do anything for it, really. Yeah. And but can they play in it? Maybe. The great news about all of that is the negotiability of it.

SPEAKER_02 1:13:52

Well, the and the thing about that is uh if if you even if they didn't bring it to the table, let's say it's a million-dollar deal, the the the fact that you were able to get the million-dollar deal may have had something to do with the fact that they spent $10 million getting you to that point. So there is some justification. Maybe it's not a 25% justification.

SPEAKER_01 1:14:12

No, I'm I think the labels do a lot and deserve a lot of credit uh for helping these artists get the profile that they get. It's not just the talent in the song alone. It is the AR direction, it's the producer, it's the timing of the release, it's the other stuff the label brings around. It's them funding all this stuff for you. They have a very significant play in this, so I I don't have no problem with that. Taking a piece of everything in a 360-degree fashion, A, I've never seen that fully. As I someone manager joked to me one day, he goes, Yeah, I've never seen that, but I've seen a 270, a 135, yeah, 57 degree. Oh, you know the old expression.

SPEAKER_02 1:14:54

Now we're just quibbling over price.

SPEAKER_01 1:14:55

Yeah.

unknown 1:14:56

Exactly.

SPEAKER_01 1:14:58

Exactly. Thank you for leaving out the first half of that joke. Yeah, exactly. Yeah, yeah. That would have got us in real trouble.

SPEAKER_02 1:15:04

Didn't want to go there. That would have gotten us in real trouble. Well, audience, I think we've probably given you enough to digest that expression we have what the large print giveth, the fine print taketh away. It certainly is applicable here. Uh, we're gonna take a short break and then uh we'll be back with some walkaway points. Remember to subscribe wherever you like to listen to the podcast or send us a note at questions at musicworlddealmakers.com or call us at 800 D E A L M K R. Dennis, what can we let let the audience take home with them today, the walk away points? If you're looking to do a deal, call a good lawyer.

SPEAKER_01 1:15:46

Oh, I like that. I like that, yes. That's the first one. These contracts, the language is could get very dense. Oh, seriously. And very, in some cases, somewhat opaque if you're not reading it. I haven't done that. I've seen 65 and 70. I've never seen I've never seen that whole thing.

SPEAKER_02 1:16:06

Well, 60 65 to 70 is more typical. But this this was a 360 deal, and it had the attachments and everything else. So it was essentially three or four contracts.

SPEAKER_01 1:16:14

I mean, I do I do a lot that's in the 20 to 30 page range, a lot of those. Some smaller, but boy, 100 and some odd pages, holy cow.

SPEAKER_02 1:16:24

But to your point, you know, for for the artist out there, and and you know, you need a team. And one of the first people you should get on your team is uh a lawyer. You might have to pay some money to engage a lawyer, uh depending on your relationship with them. But it is worth it. Have a lawyer on your team that understands the business and can help guide you toward what you call the vision early on in this podcast.

SPEAKER_01 1:16:56

It's the there are a lot of managers who are great managers, and they actually do a great job of negotiating the macro points. Well, and that's another important part of the team. Yes. But but they don't take the place of a lawyer. They they don't, and and they shouldn't, honestly. But they do a really great job of the macro points. Now, many times I will say, dude, you way undershot where you that could have been. Yeah, but we've agreed. I'm not going to negotiate negotiate those points. Okay, fine. We'll just work on the rest of the language part of it. But I'm working on a deal right now that's very significant dollars, and I'm working very closely with the manager and the artist that they will talk and then they call me, and the three of us will talk, and we'll work through is that a good number, is that a good time schedule, et cetera. But just yesterday I was on the phone with them looking at this latest red line from the the company who sent it over, and all they wanted to talk about were the were those big numbers. And I said, that's great. Here's three or four other notes. This line is written in here. One said that actually called them partners in this deal. I said, so we can't have that in there, just so you know. And they immediately went, Oh, no, no, no, no. I go, Yeah, because as we know with partnership law, if you are a act as a partnership, you're a de facto partnership, and right, and in this case that actually said we're a partner, that means the other they could the other company could go and make some commitments, walk away from it, and our guy might be on the hook. That's right. So just stuff like that that a man that a manager doesn't look at as closely because they're looking at the big numbers, how much money, how many songs, if you will, when do I have to deliver them? When do I get it? Do I own the master or not? That type of thing.

SPEAKER_02 1:18:40

That's a good piece of advice. Get a get a lawyer. One thing I would say too, at the at the risk of well, I'll say this. Remember, even if you're an artist, remember that it's the music business. Now, before you go to your happy place, let me say this. I'm only talking about developing a mission statement, right? You talked about it in context of a vision, right? Well, every company has a mission statement. You talked about your your distant relative Walt, right? His mission statement for for the Walt Disney Company. You know what it was? I have read it and I forgot it. It's to make people happy. Yeah, that's right. Isn't that amazing? He wanted when when you go to his parks, he wanted to make you happy. And I think I think the company for for the most part is probably still achieving that mission.

SPEAKER_01 1:19:31

They can make me happy if they made me part of the coaster family for some money. Yeah, just yeah. Just a free park ticket. That's all we want. But no, you're right about the mission statement. That drives your whole focus, your your whole methodology has to be toward that mission statement.

SPEAKER_02 1:19:50

Right. You don't have to get involved in the numbers. You can get accountants for that. You don't have to get involved in the law, you can get lawyers for that. But understand your passion, your vision, and make a mission statement that you can live out and achieve. If you can do that, you're going to be successful.

SPEAKER_01 1:20:08

I agree. The only other thing I would add to what we just said is approach these with as little emotion as possible. We talk about this being the holy grail and the exhilaration and exuberance that comes with getting that first deal and telling all your high school buddies about it and all that good stuff, right? But the moment you get too emotional, this is where a lawyer needs to come into play to help temper all that, you st you lose perspective. You lose perspective on is it is taking this level of advance good now or or not? And I've had that debate with people, and they go, well, I just don't want to have to repay all that. What do you mean you don't want to you want to wait five years to earn that amount of money out or just take it now? No interest, no obligation to repay it if they let you go. They just thought, yeah, but I just don't want that. I don't want the debt. Well, it's not debt.

SPEAKER_03 1:21:04

Yeah.

SPEAKER_01 1:21:05

You know, they don't so they look at it from an emotional, not fully logical perspective. And um, we've got a ruckus in the hallway. Yeah, somebody's celebrating Thanksgiving early. It's not even five o'clock, man. They can't be celebrating too much, but hey, okay. So hopefully not many people are hearing that. So yeah. But anyway, but no, I do think emotion gets too tied up into this because of your how you like to call it the holy grail of a contract.

SPEAKER_02 1:21:36

No, I do too. And I and even even in today's culture, you know, it it it is tempting to have that perspective on on something like an exclusive recording agreement. And and I think you're exactly right. You've got to keep keep your cool about that, don't get emotional, don't think this is it, because then you don't have an alternative. You haven't explored all of your options.

SPEAKER_01 1:22:00

Well, and then don't get sidetracked by thinking just because they will not give you a certain concession that they don't believe in you anymore. Right. They're looking at it from a very pragmatic business perspective. This is what we need to work within our system and to make our numbers and to help you be successful, we believe. So because they won't give you everything that you want, if you can take the emotion out of it, as we said at the top, view this as a means to an end, just what I'm trying to get to. Then you can look at it and say, okay, I understand why they can't give me that, but if I can't get that, can they give me this instead? Exactly. But you can only do that if you're not emotional about it.

SPEAKER_02 1:22:44

And I think that's a good lesson for all a business audience, and I think we'll leave you on that note. Uh we hope you have a great two weeks. We'll see you again mid mid-next month with another episode, and we hope you uh tune in. Appreciate it.

SPEAKER_00 1:23:05

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

SPEAKER_01 1:23:20

Every time the music plays, our head starts popping.