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MUSIC LAW: music deals

PRODUCTION CONTRACTS
yahoo + youtube + warner and Payola

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CONTRACTS AND MUSIC DEALS
Do you think you need to go to Berkely School of Music for music/business management?
" I have never let schooling interfere with my education." ~ Samuel Clemens

~ Lefsetz - " Remember the Turtles? Mark Volman and Howard Kaylan reciting their managerial woes laughingly, in an honest way so different from today's pampered media-savvy rock stars as to single-handedly show why the sixties were so magical.

Neil Young's "Ohio" came out a week after Kent State.  Back when there was no Internet, never mind Pro Tools.  Why can't a band put out a single coinciding with a politcal issue today?  Are the artists are afraid of offending their listeners.? The 60's sold a lifestyle an image about being honest, doing the right thing, making it a better world. Your identity is king, that's what you're selling. . The only asset you have to differentiate yourself from competitors is your credibility. Honesty and integrity keep people attached to you. The Net allows you to eliminate physical retail/distribution.  You can go STRAIGHT TO THE PUBLIC!  And the costs involved are so low, you don't have to sell a lot.
A fan is someone who buys all your records and goes to your show, even if you're no longer the flavor of the moment, even if the machine has passed you by.  Radio is not a fan.  Budweiser is not a fan.  Les Moonves is not a fan.  Judy McGrath either.  Nor SoundScan.  Not even Clive Davis.  They're just business people!  The fan is that nameless person who knows your birthday, your spouse's moniker, even though you've never even met them.  You're part of their life.  Every decision you make impacts your relationship.  So, guard this relationship CLOSELY!
First and foremost, you're a person.  With an identity, a personality.  Compromise this at your peril.  It's all you've got, after the revolution, when you're in jail, it's the only thing that's going to get you through.  Big media tells us it's all right to dash for cash.  That you're nothing without the marketing monolith.  That's a bunch of HOGWASH!  Now, more than ever, the individual has power, he can reach his audience, he can make fans, that's what the Internet has wrought.  Seize this opportunity, don't blink.  Go into the wilderness, don't play by the rules.  The old game is rotten.

Internet Music Delivery
Google knows that the search for a record PEAKS upon single release.  Yup, that’s the HIGHEST INTEREST EVER, when the track is first heard.  But as you well know, almost always, YOU CAN’T BUY THE TRACK AT ANY PRICE!  CERTAINLY NOT THE ALBUM! So interest takes a nosedive.  Yes, in the ensuing four to six weeks, demand caves.  AND EVERYBODY STEALS THE TRACK! Then, on release date, there’s another bump.  But the quantity of search, although not de minimis, PALES in comparison to the peak when the single came out.  As for the AFTERMATH of the album dropping, well, search drops through the floor. What was wrong with our business.  Why didn’t they make the product available when there was DEMAND!
Don’t play by the rules. If you’re looking for licenses from the RIAA, please give up IMMEDIATELY!  They don’t want solutions, they want half-steps, no, they want MINI-STEPS! You’ve got to steal to have success.  Follow YouTube.  Follow MySpace.  Just steal the wares and pay Doug Morris after he threatens to shut you down.  Ask first, and you’re doomed. Unless P2P is monetized IMMEDIATELY, music acquisition will be driven even further underground, where there’s NO HOPE of ever getting paid for it.  Transfer via IM.  Via hard drive.  When fifty year olds are swapping hard drives, you KNOW you’ve got a problem. Make music cheap and easy.  If you think music is undervalued, if you think producers should make more, I say to look at the machine you’re reading this on, isn’t it worth a BAZILLION DOLLARS???  All that R&D, never mind hardware, in your computer??? Music is priceless.  But that doesn’t mean it should be expensive. Get the tunes in EVERYBODY’S hands, at a low price.  How come the CELL PHONE BUSINESS understands this, and the music business DOES NOT? Oh yeah, the music business is run by thugs. DON'T sue.  Don't seek legislation.  Come up with pragmatic licensing situations NOW!  Get paid NOW, before most of these sites GO UNDER! Or, kill the goose that laid the golden egg. YouTube is Napster, only seven years later.  Those rarities you see on YouTube?  They were all over Napster, and more.  It's just that most people didn't have broadband connections then.  Imagine if all that old music came out of the vaults AGAIN!  And you CHARGED for its acquisition as opposed to suing the principals of Hummer Winblad, the business at large would be healthier, and CASH WOULD ROLL IN! Radio and retail action is the same paradigm that exists in the online world.  You DON'T get rich telling people no, you make money when you say yes.  Don't ever forget it. "

LimeWire - Jimmy Iovine will no longer be employed by Universal Music.  He is ankling the firm to return to New York City to run LimeWire, the P2P service based on the Gnutella protocol. So how's it going to work? At first, before the major labels sign on, LimeWire will cost two dollars a month.  Then, every time a major label group signs on, another two dollars will be added to your bill.  So when all the majors are on board, it will cost ten dollars a month for all  you can eat, unprotected MP3s.  There will be no indie bonus.  The indies, although a growing percentage of overall sales, are getting screwed again.  Yes, you see every time a major signs on $100 million is transferred to their account, which, of course, goes straight to their bottom line, staving off Wall Street until LimeWire truly takes hold.  For it's envisioned that once LimeWire takes off, within the next twelve months or so, there will be so much money distributed, the majors will be rolling in profits. The deal is LimeWire skims fifteen percent right off the top.  The rest is distributed to the labels owning the traded tracks, a la ASCAP or BMI payments.  How that money is then distributed is up in the air.  One hopes fifty percent will go to acts, and that publishers will go to a percentage rate, but expect big battles.  The only way to avoid all this is to make a deal with LimeWire directly.  Then Jimmy coughs of up fifty percent of the revenue.  Of course, then he keeps fifty percent.  On top of his fifteen percent distribution fee.  It's not clear if Jimmy wants to expand this sphere of the business or not.  After all, the money's truly in distribution, a fiber cable never called in the middle of the night looking for dope or crying about its girlfriend leaving.  Advisors are telling Jimmy to just make enough deals to launch the ultimately truly legal service.  But can Jimmy avoid double-dipping?  Only time will tell. And what's in it for the consumer, you ask?  Well, in addition to the exclusive content, Jimmy has made a deal with Mitch Bainwol and the RIAA.  Anybody owning a LimeWire license will be exempted, immune from lawsuits.  Yes, a credit card bill will with a LimeWire charge will be an absolute defense against a lawsuit.  Jimmy's kids told him that college students still would not pay, but blanket trading licenses for universities are being negotiated as I write this. The future has finally arrived.  And contrary to all the spin, it was not brought to you by Steve Jobs, but someone from the music business, who understands relationships, who understands musicians, who understands the audience.  Mark April 1st down on your calendar as the day the music business was saved. ~ Lefsetz

2008
Yahoo Music is the number one music site on the Web.  And the Web is where you break records.
We live in an era of endless narrowcasting. Although the majors still believe we live in an era of broadcasting. Traditional, terrestrial radio is toast.  When it comes to music. You can break an act on terrestrial radio, but that's the old model, that's payoffs and hype.  It's not about the audience, but the powers-that-be.  Those radio records have less impact than ever and the acts have briefer careers.  Sure, it can be quick money, but it's not the future. The future is niche, narrowcasting.  And you get this on Net radio.  The majors are fighting it because they don't like its openness, the lack of control.  But it's what the people want.

2007 The End of DRM

2006 Time Warner CEO: I stole entire Warners music catalog. In this Reuters roundup, media moguls are asked about their use of iPods. Unsurprisingly, studio heads from Warners and Disney love their portable music players (you have to wonder if they'll join with Universal in claiming that these devices are "repositories for stolen music, and they all know it"). Most interesting is this quote from Time Warner CEO Richard Parsons: "I had the whole bunch of (the Warner music collection) files put on before we sold it." That sounds reasonable, but wait a sec: he's saying that before his company sold off its record division, he copied the entire catalog for his own personal use? Well, that's pretty slick, isn't it?

History: Why are Labels so Rich and Artists so Poor?

Columbia Records
Stephen Foster born in western Pennsylvania died on January 13, 1864, in Bellevue Hospital at New York City with .38 cents in his pocket, and he was signed to Columbia Records! He circulated manuscript copies among various minstrel troupes.
His family got next to nothing and was barely able even to pay his final hospital and burial bills. Stephen Foster was an accountant who also kept his own account books, documenting down to the penny how much his publishers paid him for each song, and he calculated his probable future earnings on each piece. His contracts were written out in his own hand. They are the earliest ones we know of between American music publishers and individual songwriters. At the age of eighteen he published his first song. A year or so later another of his songs, Uncle Ned, was being sung by nearly everybody in Pittsburgh. He was twenty-one when he wrote Oh, Susanna, for which he received two fifty-dollar bills and sung by the Christy Minstrels in 1848 became a national hit pirated by more than two dozen music publishing firms, who earned tens of thousands of dollars from sheet music sales. The song brought the publisher several thousand dollars. It was sung in all parts of Europe, and when Bayard Taylor was traveling in India, he heard a native minstrel sing it. AND Florida's State Song Swanee River (Way down upon de Swanee Ribber, Far, far away,) are still both sung in 2007! Foster's only real income was the royalty he earned on sheet music sales. Altogether he made $15,091.08 in royalties during his 37 years and almost nothing in performing rights (yearly average was $1,371 for his 11 most productive years). His widow, Jane, and his daughter, Marion, equally later earned $4,199 in royalties, so that the total known royalties on his songs amounted to $19,290. Today it would be worth millions. (Source: Center For American Music, 2003.) Stephen Foster started it the music business.

License Deal

 

SOUND EXCHANGE AND ASCAP INSIDER INFO

YOUTUBE PARTNERSHIPS
Google/YouTube has signed deals with CBS, Verizon, Viacom, Universal Music Group, Sony, BMG Music Entertainment, and Warner Music Group that allows YouTube to distribute content in exchange for a share of YouTube's advertising revenue. Unlike regular cellphones, smartphones have a PC-like operating system and download and run computer programs. YouTube and Smartphones are all about music, video, and the Web downloading  that adds $10-$50/month to a phone bill.
Youtube has has deleted 30,000 clips of TV shows, movies and music videos after the Japanese Society for Rights of Authors, Composers and Publishers cited copyright infringement.
Recently, Universal Music Group accused YouTube of illegally using its content and said the video site owes Universal "tens of millions of dollars."
Warner is taking a different approach, allowing its content to be distributed through YouTube, either directly through music videos or through user-generated content that incorporates Warner material.
YouTube will pay Warner an undisclosed portion of the revenue from ads that are featured on pages that play video clips that include Warner content. Alex Zubillaga, executive vice president for digital strategy at Warner, commented that the "user-generated content phenomenon is something we believe is only going to continue to grow," saying his company wants "to be a part of it and...make sure we and our artists are being rewarded." NYT 9/19/06

BITTORRENT DEALS WITH STUDIOS TO OFFER VIDEO ONLINE 11/29/06 http://www.siliconvalley.com/mld/siliconvalley/16122678.htm
BitTorrent has made deals with Paramount, MTV Networks, 20th Century Fox, and smaller studios to permit its users to purchase or rent movies and buy TV shows when the new video service begins in February 2007.
The company signed a similar agreement with Warner Brothers earlier this year. Initially, customers will be able to play the video downloads only on their computers, but the company plans to support downloads to portable devices in the future.

DEAL REACHED FOR ONLINE MUSIC ROYALTIES
Songwriters and record companies in Britain reached an agreement over royalties for online music sales just as a copyright tribunal that would have decided the issue went into session. In the dispute, record companies were represented by the British Phonographic Industry, and
Adam Singer represented songwriters. Singer heads the
Mechanical-Copyright Protection Society Ltd and the Performing Right Society Ltd. Songwriters and composers had sought a royalty rate of 12 percent, an increase from the existing rate of 8 percent. Record companies wanted the rate to drop to 6.5 percent. In the final negotiations, both sides agreed to accept the 8 percent rate for three more years, which amounts to about 10 cents per song sold on Apple's iTunes service. The tribunal accepted the settlement, which is legally binding only in the United Kingdom. Nonetheless, experts said the deal could influence similar negotiations in other countries, including the United States and Germany. September 2006

Loudeye License

 

A very clear concise explanation from  Martin Tobias - Loudeye former CEO regarding the technophoic Music Labels (industry) refusal to get with digital music licensing. Label wants 95% of the money generated by an artist. It's really really great to listen to. Loudeye has digitized all the music in the entire universe.

Sell by the Byte

Allofmymp3 sells the tracks by the megabyte
($.02 per mb) about $.12 per song.

Creative Commons, MP3 Model, Larry Lessig, Courney Love, RIAA, JibJab, Copyright CopyLeft

Plugola & Payola

 

Plugola & Payola "This is not a pretty picture; what we see is that payola is pervasive," Mr. Spitzer said, using a term from the radio scandals of the 1950's in describing e-mail messages and corporate documents that his office obtained during a yearlong investigation. "It is omnipresent. It is driving the industry and it is wrong." FCC Chairman Kevin Martin has launched an investigation
Chairman Martin's statement:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-260446A1.doc
* Commissioner Adelstein's statement:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-260453A1.doc
* FCC Plans Payola Investigation
http://www.washingtonpost.com/wp-dyn/content/article/2005/08/08/AR2005080801388.html
* FCC Launches Bribery Probe Over Payouts for Radio Airplay
http://online.wsj.com/article/0,,SB112354064480608033,00.html?mod=todays_us_marketplace
* U.S. to Revisit Payola Inquiry
http://www.latimes.com/business/printedition/la-fi-fcc9aug09,1,548728.story?coll=la-headlines-pe-business


Senator Introduces Payola Bill
By Bill Holland, Washington, D.C. November 18 2005
A leading lawmaker long critical of the negative fallout of radio consolidation introduced legislation today (Nov. 18) that seeks to close the loopholes on payola-like practices and stop alleged "muscling" practices by broadcast-venue owner companies from forcing performers to play for reduced fees or for free.
Sen. Russ Feingold, D-Wisc., says he crafted his "Radio and Concert Disclosure and Competition Act of 2005" after studying the New York Attorney General Eliot Spitzer's $10 million settlement in July with Sony BMG Music Entertainment, and realizing there is a need to help artists and also regulate such practices on the radio side.
Labels and independent promoters are not the focus of the bill. In his Senate floor statement, Feingold said that in addition to payola, "there are other abuses of power over airplay decisions by radio stations and their corporate parents," especially when they also own concert promoters and venues.
"This cross-ownership sets up a situation where the same corporation that is negotiating a contract for an artist to perform at its concert also controls the lifeblood of that artist's success," he added. "The result can be intense pressure on artists to play radio station-promoted shows and, often, to do so for less than the normal rate."
Moreover, Feingold added, "for any artist who deigns to refuse the direct or implied extortion from the conglomerate, as Don Henley's courageous testimony in a 2003 Commerce Committee hearing clearly explained, there is the risk of retaliation."
In addition to requiring such companies to pay performers or provide compensatory goods and services, the bill would simultaneously strengthen
the FCC's ability to prove violations and punish offenders -- by authorizing the commission to increase fines and look at possible license revocation in some cases.
"The prospect of putting a license in jeopardy will get their attention," quipped Feingold.
The bill would "close the loophole allowing indirect payola, and prevent radio-venue crossownership from hindering fair competition," he said. It would require stations to disclose all receipts of payments or consideration that could be used as a front for payola along with a list of the songs played every month, broken down by label and artist.
It would also offer greater transparency through disclosure of the payments to radio stations from artists, labels, promoters and others who may have an interest in improperly influencing airplay decisions.
Artist groups praised the introduction of the bill.
"Payola has always been a big problem for recording artists and it has been exacerbated by the horizontal and vertical consolidation of the media," said Randall Himes, assistant national executive director of sound recordings for the American Federation of Television & Radio Artists (AFTRA). "Updating the law in this area is long overdue."
"We're hopeful that the senator's efforts will encourage Mr. Spitzer and others to continue their valiant fight against payola and media consolidation in the radio and concert business," said Rebecca Greenberg, national director of the Recording Artists' Coalition (RAC).
RIAA chairman and CEO Mitch Bainwol said: "This bill is a step in the right direction. We support the artist groups in backing an update to the law that will prevent abuses and showcase more artists to fans across the country."
Other supporters include the American Assoc. of Independent Music; the American Federation of Musicians; Consumers Union; Free Press; the Future of Music Coalition; NARAS; and the RAC.
A Feingold spokesman says the lawmaker will seek co-sponsorship after the Thanksgiving recess.

Sony

Sony has already agreed to pay $10 million for payola abuses after Attorney General Spitzer found they had funneled millions in money and prizes to radio broadcasters. FCC commissioner Jonathan Adelstein told reporters that Spitzer gave the agency “an arsenal of smoking guns” to ramp up enforcement against payola broadcasters. Several days later, FCC Chairman Kevin Martin pledged to do just that. The FCC and New York Attorney General’s office are now investigating reported payola deals at large recording labels. Attorney General Eliot Spitzer has subpoenaed the records of the nation's biggest radio station chains. In November 2005, Sen. Russ Feingold (D-Wis.) introduced legislation, the "Radio and Concert Disclosure and Competition Act of 2005," expanding the definition of payola to eliminate the inside dealing and structural abuses in consolidated radio, which have locked local and independent artists off the airwaves for years.

Cost to Launch

The cost of a major label signing an artist, is about  500 thousand dollars. New Model: $189 Million in music downloads in 2005, CDs still account for 95% of music sales in 2004. Promotion on music-oriented social networking sites such as MySpace.com and PureVolume.com label emphasizes speed to market and spending money to promote artists rather than the manufacture of CDs. Artists signed to Cordless also keep the rights to their master recordings in the old deals record companies owned your masters in perpetuity.

The Internet and how it helps to level the playing field when it comes to music distribution

Music- Performing Rights Societies
Creative Commons, MP3 Model, Larry Lessig, Courney Love, RIAA, JibJab, Copyright CopyLeft

Big Champagne .  Find statistics on what is being traded, and by whom, but without membership, you can't evaluate all the data.  However you can "click here to see more detail" at the bottom of the chart.  And then, use the drop down menu to change formats.  Funny how you can get an INSTANT picture of what's TRULY happening in America.  What people WANT as opposed to what the labels and the mainstream press SAY they want. "In America in December, 2005, on average, 6,978,715 people were simultaneously logged onto the p2p networks at any given time, says p2p research firm BigChampagne, which produces statistics centering on the file sharing phenomenon.
In 2004, the number was 5,500,314 and in 2003, 3,239,298, says the firm, which compiled statistics for the Organization for Economic Co-operation and Development Information Technology Outlook report for 2004."
http://www.p2pnet.net/story/7693

Podsurfing and the future of music.

 

What's The Deal With Production Deals?
By Bob Donnelly

reprinted from Billboard 7/31/99

The production agreement is the single most regressive and anti-artist contract introduced in the music industry during the last two decades. If I told you there are many artists who have signed a deal that, in return for little or no advance, provides that they (1) give up the administrative control of their music publishing and 25%-50% of their publishing income to a company that never has, and never will be, a true music publisher, (2) give up 50% of their merchandising income to a company that never has, and never will be, a real merchandiser; and (3) give up their recording rights for the next 14 years in return for a retail record royalty of only 3%-5%, you probably would think I was referring to the dark days of the 50s when African-American recording artists were routinely deceived by white managers and record companies. While the days of cheating unsuspecting bluesmen may be over, I'm sorry to say the days of ripping off naive rappers and hip~hoppers is in its ascendancy.
The only difference is that this time it's often black managers, producers, and record companies that are taking advantage of black artists (frequently with the assistance of white music lawyers).
But the use of the production deal concept is not limited to black music, and its popularity seems to be growing exponentially into all other musical genres. God help us if that's what passes as progress in the music business these days.
In order to understand why a production deal is so virulently anti-artist, you must understand how a production deal works. In a conventional recording agreement, an artist is signed directly to the label. Let's assume for the sake of creating a hypothetical case that the artist was offered a signing advance of $50,000, a recording fund of $200,000 (out of which $180,000 went to pay off third-party recording costs and $20,000 in “backend" money was left over to distribute to the artist), and a retail record royalty of 12%.
That means that in this direct artist-to-label signing, the artist winds up with $70,000 and a 9% royalty (after deducting 3% for an outside producer). If that same artist signed the same deal with identical terms but did it through a production agreement in which the production company is entitled to 50% of whatever the artist receives, the artist would be lucky to net $35,000 and a 6% royalty.
But it gets much worse. Many production agreements provide that all costs (including recording costs) are recoupable solely against the artist's share of royalties. It is also common for production deals to require that the royalty payable to the producer of the album (usually 3%) comes solely out of the artist's share of royalties (thus reducing the artist in my hypothetical case to a total royalty of 3%).
The effect of these provisions is that the entire $250,000 paid out by the record company so far will be recouped only against the artist's meager royalty share rather than on an equal basis with the production company; which is gladly willing to accept 50% of the "'upside" but only a disproportionately small percentage of the "downside."
As in the days of Robert Johnson, Muddy Waters, and others, many artists are still not represented by a music attorney when they enter into these agreements. If the artist is wise enough to use an experienced music lawyer, there is some reason to hope that a production deal might be improved in the artist's favor. For example, the production company might agree to split the financial responsibility for the royal to paid to the producer, even though this is still more disingenuous than generous, since the artist's principal motivation for signing with a production company in the first place was to allow it to handle all production responsibilities and to be compensated for doing so out of its share of the proceeds.
Unfortunately, many rap and hip hop artists come from disadvantaged urban neighborhoods and can’t afford to pay what often amounts to sizable legal fees. As a result, these artists are sometimes encouraged to sign retainer agreements whereby they agree to pay their attorney 5% to 10% of all gross royalties and gross advances (in perpetuity).
HOW IT SHAKES OUT
Applying this arrangement to hypothetical production deal, artist who used this retainer plan would be required to pay his lawyer $25,000 (ie, 10% of the gross sign advance of $50,000 and 10% of gross recording fund of $200,000) and a royalty of 1.2% (10% of the gross royalty of 12%).
So even if we assume that artist's attorney was able to get production company to reduce its share of record royalties by one-half of the producer's royalty (i.e. by 1.5%) the 6% royalty due to the artist for his half of the original 12% royalty would still amount to only 4.5%.
If you then reduce it by the 1.2% due to the lawyer, that royalty would equal an embarrassingly low 3.3%. And when you deduct the attorney's share of the advances (i.e., $25,000) from the $35,000 that the artist was due to receive, the artist will actually net a paltry $10,000.
And just when you might be saying to yourself it can't possibly get any worse than that--it does. Most production agreements allow the production company to recoup any coats that it incurred prior to entering into the recording/distribution agreement. Conceptually; this makes sense, because anyone who makes a capital investment in an artist's career should have the opportunity to recover that investment. At this point, I doubt that it would surprise anyone to discover that the entire amount of the production company's investment (let's say it was $10,000) can be recovered 100% out of the artist's share of income, despite the fact that the production company stands to gain 50% of all the monies earned under this deal.
So if the production company exercises its right to deduct this $10,000, the artist in my hypothetical case is now left with a royalty of 3.3% and a advance of zero dollars. It can't get worse than zero, you say? I say it can, because it is not uncommon for artists under these circumstances to also sign a management agreement with a "division” of the production company at the same time they enter into the production agreement.
One hopes the production company would avoid the outright conflict of interest and not commission the artist's income from the production deal. But if the company does commission it, or if a third-party manager is involved, the artist's royal points (which are currently 3.3%) could be diminished by an additional 20%, leaving the artist with a whopping royalty of 2%.
In other words, the artist who is the engine that drives this entire process may actually wind up receiving only 17% of the total royalty points in the deal and 0% of all the money that record company handed over to the production company in order acquire the artist's services.
STILL WORSE
Can it possibly get any worse than that, you ask? Of course it can. Most production agreements contain a clause that allows the production company to award itself a substantial portion of the artist's publishing rights for free. (This is exceptionally greedy when you consider that in many cases the production company already owns half of the publishing because it provided the “tracks.").
Young artists have been trained through music business seminars, self-help books, and the advice of fellow musicians to adhere to the mantra "Never ever give away your publishing rights." Apparently, there are still many young artists who are not getting the same good advice. As a result, they are routinely assigning over these rights for little or no consideration.
They don't understand that in doing so they are

Probably the greatest irony of this publishing situation is that the major labels, which are the entities usually taking most of the financial risk by funding the cost of recording, manufacturing, distributing, and marketing the artist's albums, are themselves receiving 0% of the artist’s publishing, which probably makes production companies the highest paid middle men in the history of the music business!
And yes, of course, it gets worse. Many production agreements also include a clause that allows them to own a 50% interest in the artist's merchandise rights. Do they get this interest in return for the large amount of capital that they have tied up in manufacturing and distributing the artist's merchandise? Of course not, they get It for precisely the same reason that they were able to command 50% of the artist's record royalties and the artist's music publishing royalties--they get it because they can. And they can get it because they are part of an industry that would prefer not to confront a system that works for everyone--except the artist. If a record label deals directly with an artist, it costs a 12% royalty. If a label deals with a production company for the services of that same artist, it still costs a l2% royalty. So why should they care? How about because it's wrong to allow anyone to be exploited, especially those who form the heart and soul of our business.
Production agreements prove the old adage that "no good deed goes unpunished." The genesis of these deals was an attempt to reward producers who could get new artists signed to record deals just by dint of their affiliation with those artists. .For example, if a producer with the stature of R Kelly or LA Reid and Babyface agrees to produce a previously unknown and unsigned act, chances are that it won't be long before several major record labels will be beating down the door to sign that artist. Reid and Babyface probably receive a 4% producer's royalty to produce an album by an established performer like Whitney Houston. Therefore, it makes sense that they should receive something more than their normal producer's royalty if it was really their stature as producers (rather than that of the artist) that caused the label to sign the new artist in the first place. Consequently, the concept of the production agreement was born.
One reason for the growth of production deals is that record companies have abandoned a good portion of the obligation to "develop" new artists. If a production company truly takes on the responsibility for helping an artist locate good songwriters, choose the right producers, fund the recording of an album, and "shop" for a deal, then I believe the production company is entitled to share in any financial rewards that the artist may receive. But like so many other things that have a benign and logical beginning, this process has become increasingly bastardized so that today it is not uncommon to find high school students who have never had a single record released handing out production agreements to young "wannabe" recording stars.
Even more distressing for me is what I perceive to be "racial profiling" on the part of some of my colleagues. Lf a white rock'n'roll artist comes to a lawyer with a production agreement that requires the artist to turn over 50% of his record royalties, a substantial portion of his publishing royalties, and 50% of his merchandise royalties to a production company when there is no record deal on the table, most of us will discourage that artist from mortgaging his future simply to have the opportunity to record a few demos. But if you assume the identical scenario, only this time the artist is a black rapper, I believe most music attorneys will try to negotiate better terms but will allow the deal to go forward. At best, there is a double standard in play here; at worst, it is a classic form of racism. In either case, it is the artists (and ultimately the entire music industry) who are the big losers.
HOW TO FIX IT
Here are my suggestions as to what can be done to fix this problem:

Let's do it ourselves simply because it's the right thing to do.

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