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Artists and Investors

I have often been asked to prepare deals between investors and artists. These are not complicated limited partnership deals, but rather basic agreements between individuals. When the arrangements work they can be beneficial to all parties involved. When they do not, they can be a nightmare for everyone. The funds offered are usually from a family member who wants to support an artist’s career, or from a successful business person who wants to diversify into the entertainment field (of course, given the current recession, you don’t see as many of these types of investments). The latter example sounds intriguing, but it can be dangerous unless everyone involved understands the risks.

Many people, although savvy in their own professions, do not understand the financial intricacies and huge inherent risks in the music business. Additionally, many people lack the patience it takes to see a return on music business investments. Frankly, the best investors are family members who do not mind risking their extra money to help a deserving artist.

From an artist’s perspective, the most important aspect of structuring the investment agreement is to specify the sources of all the returns and to limit it to just the specific areas upon which the parties have agreed. Will the investor be paid on record sales, live performance income, merchandise, music publishing, etc.? How does this relate to existing or future contracts? The other important aspects are to specify the duration of both the term of the agreement and the period for which the artist must ensure the investor’s income participation and ensure that the agreement does not interfere with any potential agreement the artist may enter into.

There are great Nashville stories about artists, who, in their early career, gave away more than 100% of themselves. While these cases can be amusing, they can lead to litigation, which is, of course, not so amusing.

In sum, both the artist and the investor must have a very clear understanding of the risks and obligations of such an arrangement

Billboard's “Maximum Exposure: The Top 100 Ways to Get Your Music in the Public Eye”

I seem to get most of my music industry news from the Wall Street Journal theses days. For example, Friday’s issue had an article about the antitrust implications of the proposed Ticketmaster Live Nation merger as well as a profile of Tim McGraw which demonstrated the challenges facing a ‘mature’ talent in today’s country marketplace. However, Billboard magazine is always worth keeping up with. Their issue from two weeks back had a cover story entitled “Maximum Exposure: The Top 100 Ways to Get Your Music in the Public Eye”. The article contained a lot of smart ideas such as #5 “Synch Placement on “Grey’s Anatomy” (oddly enough the same day I read the article I had a client call me with a synch request from that very show); #31 Album Featured on Amazon.com MP3 Daily Deal; #14-Interview/Profile in the New York Times, #56- Feature on NPR’s Morning Edition (I have seen this in practice, it can have a huge effect-so can a feature on “All Things Considered”) and #63, review from Pitchfork.
The article also contained some more interesting international twists on the formula. For example, in China, they suggest “hire an intern to start a discussion thread about your album on Douban.com”. In Japan, they suggest landing a song on the “featured Artist” homepage of Recochuko.com, Japan’s largest mobile music retailer.

Admittedly, many of these ideas are perhaps beyond the reach of artists who are just getting started but I found the sheer breadth and novelty of the article’s suggestions to be both eye opening and encouraging. I would recommend this to anyone trying to figure out how to market their music.

What Nashville Needs: More Lawyers

I was surprised to read last week that Nashville’s Belmont University plans to open a law school in 2011. This will be the first new law school to open in Tennessee in over a century. Nashville already has two law schools, Vanderbilt University and the venerable Nashville School of Law, so one wonders why the area needs another law school or indeed more lawyers. On the other hand, the school has apparently identified a specific need. In an interview in the Tennessean, one of the schools’ consultants pointed out that over fifty percent of the applicants for the Tennessee Bar came from law schools outside of the state (myself included). Also, Belmont has already established itself with a strong MBA program and a strong music business program (they even have a Turtle on the faculty). The school is hinting that it might offer a focus in entertainment and intellectual property law; that would be a very good thing.

I DISAGREE WITH MOSES AVALON

I am a big fan of Moses Avalon, the former record producer, writer and teacher who wrote the influential book “Confessions of a Record Producer.” I like the book so much I put it on a recommended reading list at the university where I teach Music Business Law.

However, I must take issue with something Avalon said in a recent blog. In a post called “The New Team” (8/3/09), he basically advised new artists that they no longer needed lawyers as part of their “team.” I found this advice fairly short-sighted. While it is true that there are no longer the sheer number of record deals and publishing deals out there, there is no shortage of people with their hands out looking to make a buck off of young artists. These range from the traditional allies like managers and booking agents to a vast array of “new model” promoters, consultants, etc. Artists need lawyers to counsel them as to how to best work with and compensate these people. We are also called on to advise about all sorts of new “services” for artists; these seem to appear every day, and they range from brilliant technological developments to glorified pyramid schemes. Additionally, artists still have to deal with the basic issues of figuring out what the revenue sources are in the music business (i.e., how to get paid) and how to structure their internal agreements and protect their intellectual property.

With all that in mind, and hoping that I still had a place on the new “team,” I recently attended a Nashville Bar Association Continuing Legal Education Seminar entitled:

Challenges for the Entertainment Lawyer in a “Do It Yourself” World.

While I was pleased with the program in general, I was a bit disappointed that they did not address the topic raised by the title of the seminar, nor did they confront Moses Avalon’s assertions head-on. However, I was impressed by my friend Lynn Morrow’s presentation “Legal Challenges for the Indie Artist” during which she listed eighteen separate legal issues an independent artist should consider before releasing a record (I would reproduce the list here but Lynn wisely copyrighted her work).

One of the points Lynn made in her presentation is that now more than ever, if we as lawyers are advising independent artists, we are advising them as small business people and I think this is a really important mission. Years ago, I was on a panel myself with a number of well-known lawyers and judges, and one of the questions that came up was how do you prepare yourself to be an entertainment attorney. I said, among other things, that I found it helpful to develop a background in the general practice of law (e.g., knowing a little about business formation, divorce, collection law, bankruptcy, wills and estates, even landlord/tenant law – which comes up a lot more often than one might think). One of the lawyers on the panel (who shall remain nameless) blasted me because he thought that spending time on general practice basics was a waste of time in dealing with the entertainment industry. I disagreed with him then and I still do. Of course, if he has an endless supply of major label clients with the ability and willingness to pay him for the deals he negotiates for them, then I see his point, but it’s not really like that out here in the less rarified air of the real world. Plus, I know that as lawyers, we get a lot of satisfaction from helping clients set up and run their business the right way. This is one way I believe entertainment lawyers can remain relevant and part of the team as this new model of the entertainment industry develops. We are also the first person who gets called when the team falls apart.

The Fray's Fray

I have been curious about the filing of a new lawsuit involving The Fray: King, Slade, Welsh and Wysocki v. Gregg Latterman and Gregg Alan Corp. in Federal Court in Colorado. The press reports made it seem as if the members of The Fray were suing their manager Gregg Latterman for somehow stealing all or part of their copyrights. However, after I reviewed the Complaint, I see that the cause of the action is much more subtle.

The manager in question is Gregg Latterman, a well-known entrepreneur, who, among other things, founded AWARE Records in 1993 and has been responsible for discovering and elevating a large number of talented artists over the past two decades. Apparently, Latterman had some sort of deal with EMI Music which gave him a share of EMI’s cut of income (and perhaps copyright interest) from any writer he brought to the company.

The suit alleges that Latterman entered into an oral management agreement with The Fray in November 2004 and helped sign the band to EMI in July of 2005. The suit claims that the oral management agreement was reduced to writing in 2007.

The suit DOES NOT claim that Latterman took any portion of the band’s publishing. Rather, it claims that as a manager, Latterman breached his fiduciary obligation to inform the band of his deal with EMI. The suit references a clause in the Management Agreement which prohibits the manager from commissioning any “engagement or agreement under which Artist is employed by or otherwise engaged by Manager or any firm or corporation owned by, controlled by or affiliated with Manager.”

As one would expect, the causes of action spelled out in the Complaint are fraud and misrepresentation, breach of fiduciary duty, unjust enrichment, fraud in the inducement and breach of contract.

As is often the case, I am sure the backstory is fascinating. It is rare that disputes break out in public involving people with profiles as high as this. I am sure that one of the real issues here is leverage. When The Fray entered into their agreement with Latterman in 2004, they had little bargaining power and were in need of someone connected enough to get them noticed by and then signed to a major label and major publisher. Once a certain level of success is reached, the dynamic often changes.

An interesting question raised by The Fray’s lawsuit is how much they really knew about the relationship between Latterman and EMI. In the pleadings, they claim they thought he was receiving a “finder’s fee” from the company, and that in fact may be the case, albeit a highly lucrative one. It does seem hard to believe that were not somehow on notice as to Latterman’s deal with EMI.

However, this is also a cautionary tale for managers who attempt to fill different roles in this new environment. Nearly every management agreement ever drafted contains the above-described language prohibiting “double dipping” and managers should not attempt to circumvent the effect of the clause; they should be upfront in disclosing these arrangements to their artists.

I am betting this case will settle quickly. But one never knows…

Songwriters and Bankruptcy

Back in June, Gary Roth, Head of Business Affairs at BMI, posted an article on the organization’s website explaining the potential ramifications of bankruptcy on songwriters and composers. This information is timely, especially in a state like Tennessee where we have the highest bankruptcy rates in the nation.

Many people do not realize that not only their copyright, but also their royalty income (i.e., public performance royalties, mechanical royalties, synchronization royalties, performance royalties, etc.) are considered “property” for bankruptcy purposes, just like any other piece of property, tangible or intangible. When a debtor files a Chapter 7 bankruptcy seeking liquidation of his debt, this property is subject to collection by the U.S. Bankruptcy Trustee, whose job is to try and use these assets to pay creditors. These assets can be sold by the Trustee, by auction or otherwise, to satisfy debts.

This is a very real probability.

I have represented both songwriters contemplating bankruptcy and publishers and other investors who have purchased these rights from the Trustee. In many cases I have learned that the songwriters were never even made aware that they could lose their copyrights and their rights to royalty income in bankruptcy. Either their bankruptcy attorneys never told them, or the writers never volunteered the information to their bankruptcy attorneys. Either way, they lost the rights to income from some significant copyrights and in some cases, the copyrights themselves.

One should always consider the risks of losing their rights to royalty income from their songs before filing a petition in bankruptcy.