Archive for October 8, 2011

Industry Tips & Advice: Comments on Negotiating Songwriter Agreements by Jeff Brabec and Steve Winogradsky

The Songwriter Agreement establishes the basic relationship between the songwriter and the publisher. It assigns control of most issues involving the copyrights to the publisher, subject to certain areas of control retained by the songwriter and the songwriter sharing in the royalties earned by the work. As in most agreements, there are certain provisions that are deemed “standard” boilerplate based upon industry custom and practice but many points are totally negotiable by the parties depending on the stature of the songwriter, the economic realities and the flexibility of the publisher.

The following represents some of the major contractual areas of negotiation in most songwriter agreements.

1.            Term Of Services

The initial area of negotiation is the term during which the songwriter must provide his or her active songwriting services to the music publisher. In most agreements, there is an initial one (1) year contract period with options on the part of the publisher to extend the term for additional one (1) year contract periods. For example, the agreement might provide for a one (1) year period with three (3) to six (6) separate option periods. On occasion, the initial period is for in excess of one (1) year (e.g., a two (2) year initial period made up of two (2) separate one (1) year periods) with additional options or for a set period of years with no options (e.g., the term consisting of a three (3) year contract period with no options).

In the case of writer/recording artists, the term is usually tied to the delivery of recorded and released product (e.g., one (1) album with separate options for an additional three (3) albums or two (2) albums containing at least 75% of compositions written by the songwriter) or is co-extensive with the songwriter’s recording artist agreement.

2.            Copyright Ownership

There are two (2) ways that the publisher can gain ownership of newly created works under this type of agreement: (1) the works are assigned from the songwriter to the publisher; or (2) the songwriter is deemed to be an employee of the publisher, making the new compositions “works-made-for-hire.” The distinction is a crucial one.

The term of copyright for works-made-for-hire is 95 years from date of publication or 120 years from creation, whichever comes first. As of this date, the standard term of copyright for works created on or after January 1, 1978, however, is life of the composer plus 70 years. While not only allowing for the possibility of a longer copyright term, the standard term also provides for termination of the assignment to the publisher after 35 years from the date of publication or 40 years from the date of the grant, with the songwriter (or his or her heirs) gaining control of the copyright.

With established writers, the majority of agreements being entered into are co-publishing agreements whereby the major publisher and the songwriter’s publishing company co-own the copyright to all compositions on a 50/50 basis. On occasion, if there are pre-existing recorded and released compositions in the writer’s catalogue, these might be only administered by the major publisher (with the songwriter maintaining total copyright ownership) but, in most cases, the back catalogue will be controlled on the same basis as the newly written compositions. As in all areas, however, this is a matter of negotiation and bargaining power.

3.            Exclusivity of Services

Most agreements provide that all songwriting/composing services will be exclusive to the music publisher during the active term of the agreement. This does not mean, however, that the songwriter may not co-compose with other writers who are signed to different publishing companies, only that the songwriter’s portion of those compositions are controlled by this publisher. In addition, some exceptions may be negotiated in the area of writing for motion pictures or commercials when the production company demands all or a portion of the copyright as a condition to the writing assignment.

4.            Minimum Delivery Commitment

Virtually all songwriter agreements contain delivery commitments on the part of the songwriter which must be met before a contract period can end. These minimum commitments can either be phrased in terms of delivery of newly written compositions to the publisher (e.g., a minimum of eight (8) newly written compositions) or the delivery and commercial release of a minimum number of compositions (e.g., ten (10) newly written compositions delivered with four (4) being recorded and released in the United States via a record label with national distribution). If the writer is a recording artist, the minimum commitment might relate to a minimum number of compositions recorded and released under the writer’s recording artist agreement (e.g., one (1) album per contract period which features the songwriter as a recording artist and contains at least seven (7) compositions written by the songwriter). There are countless variations on this theme; many of which are dictated by the expectations of the parties and the amount of money being paid the writer in advance monies.

5.            Extension of Contract Periods

If the minimum delivery commitment is not met by the songwriter, the then current contract period is usually automatically extended until a certain number of days subsequent to the fulfillment. For example, if the songwriter has a four (4) composition release commitment per contract year, and only three (3) compositions have actually been released on CDS by the end of a contract period, that contract period may be extended until between ten (10) to thirty (30) days after the release of the fourth (4th) composition. The publisher will usually have the right to exercise its option for an additional period during this ten (10) to thirty (30) day post-fulfillment period. During the extension period, the publisher does not have to make any option decisions because an option exercise is predicated upon the songwriter fulfilling the minimum commitment. The songwriter will many times try to limit the extension period to a set period of time (e.g., no longer than three (3) years) regardless of fulfillment or to a recoupment of advances criteria (e.g., if 150% of all advances have been recouped, the suspension will be lifted).

6.            Option Exercise

The publisher usually has the right to exercise its option for additional contract periods at any time prior to the expiration of the then current period or by a certain number of days prior to the expiration of said period (e.g., at any time before fifteen (15) days prior to the end of the current period. The language in certain agreements states that the publisher may exercise its option to renew at any time prior to the expiration of the current period but that the term shall not end until the songwriter notifies the publisher in writing of publisher’s failure to renew prior to the end of the then-current contract period and gives the publisher an additional ten (10) days to renew. Without such notice from the songwriter, the publisher may continue to operate indefinitely under all terms of the agreement.

Other agreements might call for the publisher to notify the songwriter in writing of its exercise of the option to renew no less than thirty (30) days prior to the expiration of the then-current period. Failure of the publisher to renew in such a manner automatically terminates the agreement at the end of the period. This will allow the songwriter time to make arrangements for future administration of his or her catalog immediately upon termination.

If the songwriter is a recording artist and the agreement is based on the delivery of albums, the option pickup can either be within a few days after commencement of recording of the new album, delivery to and acceptance by the record company of the new album or commercial release of the new album.

7.            Royalties to the Writer

With one exception, the publisher collects all revenues associated with the works and, except for print royalties, most of the income earned by the work will be split 50% to the songwriter and 50% to the publisher, minus certain recoupable expenses incurred by the publisher. Print royalties can many times be based on a per cent royalty for sheet music and a percentage basis for folios. The exceptions for print royalties are historical in nature and may not be entirely valid in today’s marketplace, where it may be more equitable to split these royalties equally as well.

The exception to the publisher collecting all the revenues is in the area of public performance royalties. ASCAP, BMI and SESAC are U.S. performing rights societies that pay composers and publishers directly for the royalties collected. They also collect foreign performance royalties from their counterparts overseas and make direct payments to the composers and publishers. Given the changing landscape of public performance rights for radio and television, however, provisions should be made for the direct licensing of these rights by the publisher and/or songwriter. While the publisher will want full control over granting of public performance rights directly, there should be some protections for the writer’s interests to prevent the possibility that public performance rights could be granted at reduced fees or even a waiver of fees to the detriment of the writer.

While a songwriter, in an attempt to retain as much control as possible, may want to negotiate his or her share of these rights directly, it is impractical for thee songwriter to be involved in every transaction. Therefore, there could be language granting the publisher the right to license both shares of these rights using the standard blanket fees charged by ASCAP or BMI as a guide to “market value” of these rights. It should be noted, however, that if a TV or film producer wishes to obtain a source license (i.e., a buyout of performance rights at inception) it is virtually impossible to judge the value since the parties are unable at the time of negotiation to determine how many times and in how many markets the program containing the music will be broadcast. As in most buyout situations, the parties are speculating as to the success (or lack thereof) of a project without any hard facts to rely on.

If there is more than one (1) writer of a song, the royalties may be divided in a number of ways. It is important to determine what percentage each writer is to receive and to document that in the agreement prior to any exploitation of the work. It is general industry practice that music and lyrics to a song receive equal weight, so if one party writes the music and one party writes the lyrics, they would each generally be entitled to 50% of the composer’s share of royalties.

Such a division is not always that simple, especially if there are more than two writers. For example, if one person composes the music with two co-writers contributing the lyrics, the split would usually be 50/25/25. Absent an agreement clearly stating each co-writer’s share, however, the Copyright Act dictates that all co-writers would share equally, no matter what their actual contribution to the work. The agreement should clearly state the method for determining each writer’s share.

Under the usual co-publishing agreement arrangement, where the songwriter and publisher share copyright ownership in the compositions, the songwriter will receive 75% of the non-performance income received by the publisher from licensing to third parties (i.e, the 50% percent writer’s share and one-half of the 50% publisher’s share) and 50% of the publisher’s share of performance income. The songwriter usually receives his or her share of songwriter performance income directly from the performance rights organization.

8.            Accountings

The publisher should make accountings no less than twice a year, paying any royalties that are recouped beyond the outstanding advances. The songwriter should be given a reasonable period of time (the longer the better, from the writer’s point of view) to examine and object to said accountings. It may be possible to negotiate a clause whereby if an audit discloses a discrepancy of more than a certain percentage of earnings, the publisher will pay for the cost of the audit.

9.            Advances

Advances can be structured in a number of various ways depending on whether the writer is a pure songwriter or songwriter/recording artist. With an established songwriter who controls his or her own catalog, the previous earnings can be used as an indicator of how the amounts of the advances are determined. As a publisher, you want the advance to be large enough to entice the writer to sign with your company without too much risk that the money might not be recouped. Analyzing previous earnings is one method of determining future earning but care must be taken to avoid including an unusually high, one time fee in your calculations.

For example, if in the past year the songwriter has licensed one of his or her songs for a national commercial for $250,000.00, that would be a “spike” on the earnings graph that would have to be taken into consideration as an aberration, not the normal earnings pattern. It is better to examine several years earnings to determine the value of the catalog so that the impact of these large, one-time deals can be minimized.

Among innumerable scenarios, advances can be payable:

A.            One lump sum (e.g., $50,000.00 upon commencement of the agreement) with option advances paid the same way (e.g., the full advance on commencement of each option period);

B.            Monthly intervals (e.g., $4,000.00 at the start of each month of the applicable contract period);

C.            A percentage upon commencement of each period with the remainder in monthly or quarterly installments (e.g., $70,000.00 payable $37,000.00 upon commencement of the period with the remaining $33,000.00 payable in eleven (11) pro-rata monthly installments of $3,000.00 each);

D.            A portion on commencement of the period with additional portions payable on the fulfillment of specified minimum delivery plateaus (e.g., 50% of the advance payable on commencement of the contract period, 25% of the advance on fulfillment of 50% of the minimum delivery commitment for that contract period and 25% of the advance on fulfillment of 75% of the minimum delivery commitment); and

E.            A portion on commencement of the period, a portion on the signing of a recording artist agreement, a portion on acceptance of the album and a portion upon release of the album (e.g., $200,000.00 in the aggregate payable $50,000.00 upon commencement of the initial period, $50,000.00 upon writer’s signing of a recording artist agreement, $50,000.00 upon acceptance of the first album and $50,000.00 upon release of the first album).

Additionally, there may be advances payable based on chart activity (e.g., an advance paid if a composition reaches the Top 10 on the “A” side singles chart) or the achievement of certain sales plateaus (e.g., additional advances due upon the album achieving sales of 500,000 units, 1,000,000 units, etc.). Option period advances may also be structured on a minimum and maximum basis (e.g., a $100,00.00 minimum and a $250,000.00 maximum) determined by a percentage of the earnings generated in the contract period prior to the commencement of the option period (e.g., 66b% of the mechanical income received or credited to the account of the songwriter/co-publisher in the contract period prior to the commencement of the option period). There also may be provisions which reduce an option year advance by any outstanding unrecouped advance balance, many times with a subfloor below which the advance cannot be reduced (e.g., the advance shall be reduced by any outstanding unrecouped advance balance but in no event shall the advance be reduced to less than $50,000.00).

10.            Foreign Sub-publishing Fees

With respect to income earned in countries outside the United States, agreements are either on a net receipts basis, an at source basis or a combination of net receipts for certain territories and at source for others. Under a net receipts agreement, the songwriter’s 50% of royalties will be computed on the basis of foreign earning less the fee taken by the subpublisher in the foreign territory. Under an at source agreement, the songwriter’s 50% of royalties will be computed on the foreign earnings prior to the fee taken by the subpublisher.

11.            Retention of Rights

Some agreements are for life of copyright; others provide for a set date on which the compositions will revert to the songwriter (e.g., 20 years after expiration of the term); and others provide for a reversion date which becomes effective upon the later of either a set date or recoupment of all advances (e.g., 25 years after the expiration of the term or recoupment of all advances, whichever date is later). Some agreements will provide that the major publisher will retain its rights to the compositions but that the writer’s songwriter and co-publisher share will revert to the songwriter. Irrespective, unless the songs were considered “works-made-for-hire” (see comments on ownership, above), the songwriter (or his or her heirs) has the right to terminate the publisher’s interest in the copyrights thirty five (35) years after publication or forty (40) years after the grant of rights and reclaim one hundred percent (100%) of ownership. Termination of this grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.

12.            Reversion of Unexploited Compositions

Regardless of the retention rights on exploited compositions, occasionally the parties will agree that unexploited compositions will revert prior to the date specified for exploited compositions. For example, reversion may take place after a set number of years after expiration of the term or after advances have been recouped. If there is an agreement as to reversion of unexploited compositions, the negotiations will then turn to the determination of what definition is to be placed on the word “unexploited.”

In a single song agreement, sample language could be as follows:

1.            The term of this agreement shall commence on the date first set above and shall continue in full force and effect for the duration of copyright (and all extensions thereof), subject to the following:

A.      Publisher shall, within twenty four (24) months from the date of this agreement, secure a “use” of the Composition. “Use” shall be defined as:

I.            The release of a commercial sound recording of the Composition in the customary form and through the cus­tomary commercial channels;

ii.            A license authorizing the synchronization of the Composition in a motion picture, television program, home video release, commercial or any other audio-video synchronization right;

iii.            A license authorizing the right to reproduce the Composition up­on elec­tri­cal transcription for broad­cast­ing pur­poses.

b.      If, at the end of the period defined above, Publisher has not secured a Use of the Composition, then, subject to the provisions of the next succeeding subdivision, this contract shall terminate.

c.      Upon termination pursuant to paragraph b, all rights of any and every nature in and to the Composition and in and to any and all copyrights secured thereon in the United States and throughout the world shall automatically re-vest in and become the property of Composer and shall be reassigned to Composer by Publisher.

13.            Indemnity

Some indemnity clauses make the songwriter accountable for any costs related to a claim that is inconsistent with any of his or her warranties whether or not a breach is established. Other clauses would limit indemnification only to a writer-approved settlement or a final adjudicated court judgment. There are many variations in this area and all are subject to negotiation.

14.            Approvals over Exploitation

The songwriter’s right to approve the uses of his or her compositions represents a major area of negotiation between the music publisher and the songwriter’s attorney. The extreme positions are, on the one side, the music publisher having total control over how and to whom compositions are licensed and, on the other, the songwriter having total approval over all uses of his or her compositions. In most cases, the final resolution of these two disparate positions is somewhere in between the two extremes. For example, a publisher might agree to give a songwriter approval over uses of a composition in an advertising commercial or in an “NC-17” rated motion picture and reserve the right to license the composition for use in a television series or in any motion picture which is rated other than NC-17. These are based not only on the desire for control but the practical realities of licensing. For example, most television programs licensing music must have a response within 2-3 days. If the songwriter is also an artist, it may not be possible for the publisher to reach the songwriter within the time period necessary to make the deal, thereby losing the revenue opportunity. Some other areas of negotiation on the right of a songwriter to approve uses relate to grand or dramatic rights, inter-active media, mechanical licenses at less than a statutory or 75% of statutory rate, certain philosophical, social or political ideologies (e.g. an animal rights activist prohibiting the use of his or her song in a commercial for cosmetic companies who experiment on animals) changes in the lyrics and/or music to the composition, and use of the title of a composition. The above list is certainly not inclusive of the exploitation uses included in the negotiation process as, depending on the bargaining power of the various parties, anything under the sun is fair game for discussion.



Industry Tips & Advice: Major Labels vs. Independent Labels

Owen Husney, a manager, explains the pros and cons of signing with major and indie labels. Indie labels offer less money to make your record and don’t have enough funding for major airplay. However, indies are able to give a lot more attention than major labels. They are able to help the artist build a fan base. A major label is meant for those artists who believe they will be successful. While they offer more money to make your record and offer larger promotional dollars, major labels are bean counters. If the majors feel that you aren’t making enough money, they will drop you quickly. Husney points out that there are still some good major labels in the music industry. Also in this segment, he discusses his ideal situation – major labels with indie offshoots.

Shoot Date: Nov-05

Industry Tips & Advice: Ty Cohen’s Indie Music Biz / Business 101 : Call 2 – Part 6

Industry Tips & Advice: The Role of a Producer

Bruce Lundvall, CEO of Blue Note Records, talks about what it means to be a producer.

Industry Tips & Advice: Tax Tips for Musicians by Christopher Knab

Musicians – you probably spend a lot of  money supporting your craft every year, paying for instruments and amps, photos and photocopies, practice room space and van rentals. Wouldn’t it be nice to deduct some of lose expenses on your income taxes? Maybe you can.

Business or Hobby?

First you need to figure out if making music is your hobby or your business.That is, do you do it for pleasure, or to make a living? If it’s a business, you can probably deduct the cost of your equipment and other expenses and fees on your tax return. If it’s a hobby, you can only deduct only up to the amount of income you earned from the hobby. Intuit offers expert advice on their website, with several sections dealing with common questions about the hobby/business differentiation.

Sections include “What you need to know about turning a hobby into a business,” “How do I convince the IRS that I’m serious about my business?” “What can I do if my business is audited?” and “What if my business really is a hobby? Can I write off my expenses?”

What if it’s more than a hobby, but you’re not in it for a profit (and haven’t made a profit)? See this page from the New York State Society of Certified Public Accountants, particularly the section about 3/4 the way down the page, entitled ACTIVITIES NOT ENGAGED IN FOR PROFIT. (Keep in mind that this site was created for people who are accountants, not for those of us that need accountants.)

Play the Part

If you have decided that yes, your music is indeed a business venture, you need to know that the IRS says “The music business… present(s) unique problems in an income tax audit.” Translation: tread carefully. While you are entitled to deduct expenses from your business, you have to make sure to learn what you can and cannot claim, ensure that you report all your earnings from music and document everything.

Solid Business Advice

  • Make sure you are operating like a business.
  • Keep good books and accurate records.
  • Advertise.
  • Get business cards.
  • Get a business license or separate taxpayer ID number (TIN).
  • Incorporate your band. Open a P.O. Box.
  • Join Musicians’ organizations and/or unions.
  • Copyright your work. Register your songs with a performing rights organization (such as ASCAP, BMI or SECAC).

How You File

To deduct business expenses, fill out a Schedule C and file it with your Federal Form 1040. If you’re self-employed, you will probably have to also file a Schedule SE. (According to IRS Publication 533, you must pay self-employment taxes if your net earnings from self-employment activities were over $400.)

On Schedule C, Line A, you’ll need to know your principal business code. It’s listed in TurboTax under “Services: Personal, Professional & Business,” then under “Amusement & Recreational Services.” (So that’s what the IRS thinks musicians are!) Code 9811 is for musicians – as well as theatrical performers, agents, producers and those in related fields.

Having a hard time getting the forms you need? Try the IRS’ Tax Fax

Services or download them over the Internet. Many of these forms are in PDF format, which requires you also download the free Adobe Acrobat reader.

What can you deduct?

If you spent money to run your music business, you should be able to deduct it from your income taxes. The IRS says in Publication 535: “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”

Here are some categories to think about (while keeping in mind that you’ll have to separate business use from personal/pleasure use, at least in the eyes of the IRS):

  • Instruments
  • Equipment/gear & accessories (amps, pedals, effects, straps, carrying cases)
  • Consumable supplies (such as drum skins & sticks, guitar strings & picks)
  • Music business books, record company directories, venue directories
  • Subscriptions to trade magazines (such as Billboard and CMJ))
  • Sheet music and “How-To” books and manuals
  • Promotional: CD/tape duplication (for demos), photos, bios
  • Office supplies: paper, envelopes, photocopies, stamps
  • Fees related to maintaining your website and e-mail access for your music-related activities
  • Rent for storing your gear and for your practice space
  • Membership in professional organizations, associations & unions
  • Professional fees (attorney, manager, agent, accountant)
  • Copyright and registration fees
  • Lessons & instruction
  • Travel expenses

Losses by theft

Some of these expenses can be deducted in full, while others must be depreciated. See IRS Publication 946 (“How To Depreciate Property”) for more information.

Can you deduct for a home office?

If you’re a performing artist, Certified Public Accountants tell us that no, you can’t take a home office deduction: For musicians, the principal place of employment is where the performance occurs, not the home practice area.”

If you run a studio out of your home, or your principal business is not to perform but to record or sell your music otherwise (such as by the sale of CDs or tapes, or if you operate principally as a songwriter/jinglewriter), that rule may not apply.

Be Prepared

I remember hearing that self-employed people are at more of a risk for an audit, and I can believe it. Add into that equation that you’re an artist (which may make the business side of things a little harder to substantiate) I’d suggest that your expenses may well exceed your profits, and you’re live bait. That’s not to say it’s not worth claiming legitimate expenses because you run the risk of an audit, just that you need to be accurate and be prepared.

You need to also be ready to answer questions like these below, culled from an IRS audit guide. This document was secured by AIM’s Tax Center from the Internal Revenue Service through the Freedom of Information Act. (As it is part of a government document, I’m reproducing this list here.)

Important Questions that the IRS might be concerned about:

  1. Explain all the different roles you play in the music industry. (Such as performer, songwriter, studio musician, recording artist, etc.)
  2. What form of organization have you designed to be involved in these ventures? (Such as sole proprietorship, partnership, corporation, etc.)
  3. Are you self-employed for any of your activities? (File Schedule “C” and “SE”).
  4. From what sources do you receive income?
  5. How are these sources of income reported to you? (Form W-2, Form 1099, statement, settlement sheet, contractual agreement, partnership Schedule K-1, etc.)
  6. Who keeps up with all your records and where are the records currently located?
  7. What type of expenses do you incur?
  8. Who keeps up with your expenses and where are the supporting records located?
  9. What contractual agreements do you have through your business? Furnish copies.
  10. Have you been examined [audited] previously? If so, what were the results?
  11. What assets have you purchased that you use in your business?
  12. How have these assets been handled for tax purposes?
  13. Have you ever made or received any “payoffs” to obtain or maintain a position in the music industry?
  14. Do you ever receive cash payments? If so, what is done with the money? (Used to pay bills, deposited into a bank account, etc.)

More of the document is on the AIM website, and is well worth reading, at least to get an idea of what the gameplan might be in case of an audit.

Proving It

So now you know – if you didn’t already – that the IRS are absolute sticklers for detail. Document everything! I suggest you make a copy just for your tax file of pretty much anything related to your music, such as:

  1. Every letter and every press release you sent
  2. Responses from record companies, radio stations – anyone – to verify that you have been active in the pursuit of your music
  3. Gig fliers/postcards (even the postmarked “return to sender” ones are helpful for this)
  4. A copy of your mailing list
  5. All press mentions – and if you have none (or very few), keep the ad or newspaper listing from any shows you play
  6. All receipts and invoices for everything you pay out or earn that’s band-related. Make sure everything has a date and any other supporting information written down on it somewhere.
  7. If you haven’t already kept detailed records, start now – and do your best to reconstruct everything up to this point NOW, rather than some random point in the future when you might get audited. Really put some effort into keeping this up – if you don’t, and you get audited with a poor end result, you could owe back taxes and penalties otherwise, and any future music-related deductions will be closely scrutinized.
  8. When in doubt, ask a professional or don’t deduct it. (I recommend that you keep those “questionable but not deducted” receipts, though – if you ever get audited, they might be helpful.) Keep all of your tax-related records for at least seven years.

Is It Worth It?

You definitely should take whatever deductions are allowed – we don’t get many tax breaks in the country… well, not unless you’re rich. ;-)

While I’m not a tax professional, these tips represent some of what I’ve learned when filing several IRS Schedule C’s over the years. When all is said and done, and especially if you have earned a lot or are deducting a lot of money, you might be better off doing what the guys Hyperreal suggest: get yourself a tax attorney and/or have her or him advise you. This is particularly true if you’re not used to filling out tax forms.

Many happy returns!


Christopher Knab is an independent music business consultant based in Seattle, Washington. He is available for private consultations on promoting and marketing independent music, and can be reached by email at: chris@chrisknab.net




Quote Of The Day

Your present circumstances don’t determine where you can go; they merely determine where you start.


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