The recording contract series; (part 16) the record company’s obligations (continued)

Payment And Accounting Of Royalties

Consult previous articles for the process that should be followed. However, what should be the action taken when a label does not pay the artist his due royalties? Clearly, this breach of contract and the three remedies discussed previously under the “General Principles of Contract” article series, apply. But this means proving it, and it is therefore important for the artist to be vigilant in auditing the label on a regular basis. Yes, that means sending your business manager or accountant in to check their books, to make sure they are properly declaring your sales and paying your royalties. But you cannot do this unless you give yourself the right to do so by inserting a clause that gives you that right.

In the US, a very famous case called the “Spitzer Case” highlighted the problem of labels not doing enough to find artists and pay them what they owe them.

Publishing Issues

Either the songwriter or his music producer own and control the copyright in the compositions. Thus, record companies technically have to pay publishing companies (or unpublished writers) whose works are controlled compositions or copyrights for the use of these compositions. Thus, in technical terms, the label must actually receive publisher permission to, for example, reprint lyrics in album booklets, and to use the composition in any other way (including, of course, recording the material and distributing it). Naturally, this issue is mostly taken care of in the “controlled compositions clause”, but the label will still seek to dissolve any remaining responsibility to the publisher, by specifically providing that it will not have to pay for the use of the compositional copyright for reproducing lyrics etc. Be very sure to consult your publisher before agreeing to this.

Another concern is that of synchronisation rights (where a song is synchronised with moving images, such as film or video). Normally, for usage in feature films and TV, publishers expect significant payment. However, in the case of promotional clips, the record company will expect to receive a free or nominally priced synchronisation license. The question is whether a music video is a promotional clip or not. The label, of course, will argue that it is, the logic being that the showing of the video will increase record sales and thus bring mechanical royalties to the publisher. The publisher might not agree, but labels are tending to get their way more and more often on this issue.

Ownership And Exclusivity

A record company will invariably ensure in the contract that the artist is restricted to making records and videos only for it, to the exclusion of all others, for the entire term of the agreement and option periods. In terms of the agreement, the artist is sometimes permitted to appear as a guest on other artist’s records as long as the company receives a credit (you know the one – “...appears by kind permission of...”). Generally, this permission will involve the payment by the other label of a fee called an “override” royalty.

Record-keeping Is Vital When Licensing Recordings

Naturally, both the artist and the label will want very accurate records to be kept if the master is to be licensed. As the years go on, particularly where the recording has made a mark and continues to sell, it can become a very murky issue later on, as to who actually owns the rights.

Re-recording Restrictions

Quite apart from the record company’s copyright ownership, artists must appreciate the significance of the so-called “re-recording restrictions” contained in most recording agreements.

Ordinarily, any person has the legal right to record his own version of a song. However, it would obviously dilute the value of a record company’s rights in a particular artist’s recordings if that same artist was free to re-record new versions for another record company.

Consequently, the artist will be restricted in the contract for a period of time (usually two to five years after the end of the term) from re-recording any of those recordings for another company.

This often has a great impact on the ability of an artist to record a live album once he has changed record labels: usually he will have to pay an “override” royalty to his (old) record company for the record company to waive the re-recording restriction. This clause may also have an impact on “demos” and “out-takes” and other unreleased material.

A re-recording restriction issue took place with Elton John’s famous song “Don’t let the sun go down on me”, which was re-recorded only with the permission of, and payment of override royalties to, Rocket Records, Elton’s original record company. It is presumed that the same happened with ‘Candle in the wind’ which was re-recorded at Diana Spencer’s funeral and went straight to the top of the charts.

Restrictions on the record company’s rights

Here’s the thing – the squeaky wheel gets the grease. If you don’t at least try to limit the label’s power over you, you have but yourself to blame when, later on, that power gets abused. So what limits can we try to impose at time of negotiating the contract?

As the copyright owner of the recordings (whether “in perpetuity” or for a “limited rights” period under a licensing agreement) the record company will ordinarily provide in the contract that it is free to exploit the recordings in whatever way it wishes, e.g. at mid-price, through record clubs, on compilation albums, using mail order schemes, on a “best of” or “Now” –type albums, on any particular label chosen by the company and so on. The label will also try to give itself unfettered power to deal with the product as it sees fit. You need to think about whether this is acceptable to you or not.

Consequently, the artist should consider whether the record company should be asked to agree to some or all of the following:

1. A “hold-back” against releasing at budget price or mid-price (particularly if this means reduced royalties).

2. A restriction against deletions or “cut-outs”. (Cut-outs used to be a regular trick in South Africa – the company would “cut-out” a small hole in the cover of the record to purport to sell it at a discount price, having provided in the contract that the sale of such marked cut-outs would not bear royalties because they have had to be identified as poor sellers.) This “cut-out” practice was unacceptable. All it did was give the label the ability to give up on a product with great ease, because the product would now be marked down, due to no royalties having been paid. Avoid this at all costs. Not only was it an unfair practice, it was also hugely open to fraud (i.e. making products as cut-outs but still selling them at full price).

3. ‘Deletions’ are where the record company not only “cuts-out” and gives up on the product, but where the label has the contractual right to delete the recordings from its catalogue. This can literally mean deleting the masters (which they own), or simply taking them off its list and putting them in a vault. If the record label owns the copyright and there is no reversion clause, this effectively the death of the recording. It also means the death of a song as a composition, if there happens to be a re-recording restriction clause in the contract. This is not a situation you want your music to be in if things go sour with the label, because it allows your label to use your music against you as a weapon, simply for vengeful purposes, if it so chooses.

4. Restrictions against the record company’s right to re-mix the recordings. (the artist may not want the song to be re-mixed, for example, as a dance track. This happened to the legendary rock band Yes, when their great single “Owner of a Lonely Heart” was re-mixed by the record company into a rather poor dance track without the band’s knowledge, thereby alienating their established fan-base, which traditionally despises dance music. This was very embarrassing for Yes.

5. Restrictions against the record company re-coupling either the recordings or videos (with recordings/videos by other artists. If you are a ‘serious’ metal band, you probably won’t want to be coupled with, say, Mariah Carey...)

6. A restriction against placing (“synchronising”) the recordings in TV commercials and/or film or television soundtracks might be necessary. (This might be for commercial or other reasons, e.g. moral or ethical ones – e.g. you might not want your music synchronised to pornography). Just as a mechanical royalty has to be paid by the label to the publisher every time a CD is pressed, the use of the recording on film or video synchronisation would carry a synchronisation fee, also payable to the publisher.

7. Restriction on URL use: This is a new and important restriction. There is a new trend in the industry for labels to register the band’s obvious website name and own it. This has presented problems for some artists, e.g. Courtney Love, who had to fight Geffen Records for two years to get the URL for her band “Hole” back. Similarly, the Goo Goo Dolls struggled unsuccessfully to gain control of their domain name “googoodolls.com” from Warner, to whom they were no longer signed. Warner claimed they owned the name because they had set up the website. Yet the band, who were by then signed to another label, had no control over the website – not a good position to be in. The band had to go back to Warner, cap in hand, for distribution. You need to state clearly in the recording contract that the URL belongs to you.