Advice for (Truly) Independent Artists

survival guide for indie rockers.  Catchy idea.  I did a lot of preparatory work on the subject but for some reason could not pull it off.  After a lot of thought, I have decided to analyze why the concept was flawed.

            The reality was that I was trying to promote myself as an attorney to artists in an environment where the traditional record deal and publishing deal was rapidly changing. In essence, I was saying to artists, “even though you’re doing everything on your own, you still need a lawyer.”

            It’s a problem of classification. It’s hard to know how to define an independent artist these days. From what I see, artists who are signed to what we once called “independent labels” have the same problems as any artists who signs a record deal – except that the money is smaller these days and the terms more potentially more draconian.  .  What drove the point home to me was a recent article about the band Grizzly Bear in New York magazine.  This piece showed in dry economic terms what the business of being a moderately successful artist in 2012 is like. It’s really worth searching out.  So, of course, artists like this need lawyers; the game is the same.

           

            So what about artists who are not tied to one particular company or who are truly releasing everything on their own?  What do artists like these need from a legal standpoint.  I have come up with several ideas:

            1.         If you are in a band you need a band partnership agreement.  I have said it before and young bands hate to deal with these things – but they are extremely important in avoiding problems and potential lawsuits down the road.

            2.         You need to register with BMI, ASCAP or SECAC.

            3.         If you are touring it is a good idea to incorporate (and investigate umbrella insurance).

            4.         If you’re a band, trademark your name.

            5.         Don’t sign anything without having a lawyer review it.  These days I have seen that even the simplest agreements are taking on crazy unnecessary dimensions.  Spend a little money to educate and protect yourself.

            6.         Register with Sound Exchange

            7.         If you are working with outside producers and musicians, make sure you get an agreement or at least a release from each of them.

            8.         Listen to the Rolling Stones (I threw that in but it’s still a good idea).

Producers in Peril

I have noticed that a lot of my producer clients don’t call me to negotiate agreements as often as they used to. They are not calling my competitors either because I’ve talked to them about this. I can’t blame anyone for not wanting to pay legal fees to negotiate a contract where the advance is small and there is a fairly good chance that they will never earn royalties.

I am thinking that one of three things is happening:

1. The producers are actually negotiating the agreements themselves, in which case, more power to them.
2. They are not signing contracts at all, in which case the record company (or artist) and the producer are acting at their own peril.
3. The producer is just signing what is put in front of him—which is what I worry about.

While it is probably statistically most often the case that most albums won’t sell enough to recoup their recording costs, there are also numerous examples of records that yield a soundtrack master use or television commercial years after their initial release. Without an unambiguous binding agreement and (hopefully) a letter of direction the producer may not have the ability to collect their share of the future income. I have seen examples of master use licenses pushing recordings from unrecouped to recouped status years after their initial release and the producer relying on their ancient agreements to get paid. It’s a beautiful thing.

I also worry that producers may be ignoring their share of Sound Exchange royalties, which are becoming a not insignificant source of income (and which are not subject to recoupment).

Finally, I worry that without carefully reviewing the document, producers might be agreeing to such punitive clauses as controlled composition clauses for producer/writers and my pet peeve, the re-producing restriction (no, not a form of state mandated population control).

I would urge any producer reading this to have the lawyer of their choice at least read the next agreement they are presented with. I can’t help but think that even a quick review be a worthwhile investment.

A Day in The Life

I have been listening lately to a lot of my fellow attorneys rant about the death of the music business lately. It is manifestly true that I no longer see the same kind of deals coming from record companies and publishing companies. But I keep feeling that I am, in fact, busy doing entertainment law work. Therefore, as a kind of practice management exercise (or maybe it was just therapy) one day, earlier this week, I kept a list of all the items that I worked on from morning till I broke for lunch.

Here’s what I came up with:

1. A telephone call with a client regarding advising his independent label on publishing and distribution issues.

2. Wrote a letter for a publisher client to someone who owed them money.

3. Wrote a letter for a client regarding a theatrical production he was involved with.

4. Wrote a letter to a client regarding several disputes regarding his Christian music project.

5. Responded to an e-mail from a client regarding a problem with their UK distribution deal.

6. Reviewed a re-draft of a Chinese licensing agreement.

7. Wrote a formal notice letter for a client to their publisher who is in breach of contract.

8. Reviewed a royalty statement for a producer client and forwarded it to him with his royalty check (clients love to receive checks).

9. Wrote a letter to SoundExchange to ascertain if certain Letters of Direction were in place.

10. Drafted an Amendment to a License with an independent record company.

11. Corresponded with opposing counsel on a litigation matter (regarding a band’s leaving member).

12. Corresponded with a client regarding a copyright infringement litigation matter.

Thus, not only did I end up having a very productive morning, I was pleased to note that all of the matters were squarely entertainment related. Plus, there was a global reach extending from Nashville to London to Hong Kong. Perhaps this is anecdotal evidence of the health of the entertainment business, even while the traditional music business suffers through its difficult current transformation.

An Apparent Tax on Musicians and Producers in Tennessee

I learned this week that two adages are true.

First: You are never too old to learn something new.

Second: Everything you know is wrong.

Case in point: I had a client call and ask me whether, as a musician and producer, he was required to have a business tax license and pay business taxes in Tennessee. I confidently told him “no.” I had researched this very point some time ago and had never heard anything to the contrary. He persisted in saying that his accountant told him I was wrong, so after reviewing the statute (which neither mentions nor exempts musicians), I asked a music business accountant. She confirmed that musicians and producers are, in fact, subject to the Tennessee business tax.

Here is what the statute states:

The Business Tax Act makes it a taxable privilege to make sales or engage in any vocation listed in Tenn. Code Ann. Sections 67-4-708(1)-(4). Any county or incorporated municipality in Tennessee may levy the privilege tax on those listed activities that take place within its geographical boundaries. (Tenn. Code Ann. Section 67-4-704).

Engaging in any business, business activity, vocation, or occupation described under this act is declared to be a privilege for state purposes and taxable by the state alone. (Tenn. Code Ann. Section 67-4-705).

The tax imposed under the Business Tax Act may be collected in addition to any other applicable privilege taxes established by law. The tax will be in lieu of any or all ad valorem taxes on the inventories of merchandise held for sale or exchange by persons taxable under this law. (Tenn. Code Ann. Section 67-4-701).

Registration

Prior to engaging in business, every person taxable under the Business Tax Act, except for those taxable under Tenn. Code Ann. Section 67-4-705, must register with the county clerk, in the case of taxes owed to the county, and/or with the city tax collector, in the case of taxes owed to a municipality. Taxpayers must contact the respective county or city official for registration information and forms. (Tenn. Code Ann. Section 67-4-706).

The fee for registration is $15 and must be paid at the time the application is submitted. Upon presentation of the application and payment of the $15 fee, the registering official will issue the taxpayer a license.

Annually thereafter, upon notification from the Department of Revenue that the taxpayer has filed the required business tax return and remitted the amount of tax due, the licensing entity will renew the taxpayer’s business license for another year. There is no additional fee for annual business license renewal.

The taxpayer must exhibit the license in the taxpayer’s place of business.

“Business” as defined by
Tenn. Code Ann. Section 67-4-702(a)(2):

“Business” includes any activity engaged in by any person with the object of gain, benefit, or advantage, either directly or indirectly. “Business” does not include occasional and isolated sales or transactions by a person who is not routinely engaged in business.

There are all types of businesses included and excluded (attorneys, for example, are excluded), but curiously, musicians and producers are not mentioned. Presumably they are meant to be covered under the catch-all category of “each person making sales of services or engaging in the business of furnishing or rendering services…” It just seems strange to me that in a state with such an important music industry, that such an activity is not mentioned at all.

The bottom line is that this is a tax that I was not fully aware of, and I would urge you to check with your accountant or tax professional to determine if your particular business requires a license and is subject to this tax.

Sound Recordings: Termination of Assignments and Works Made For Hire

Attorney Wallace Collins wrote a great opinion piece in a recent issue of Billboard about the looming effect of Section 203 of the Copyright Act. This “obscure” section of the law recognizes an author’s right to terminate an assignment of copyright 35 years after the initial grant. The reason that it has been obscure up until now is that it won’t have an effect until 2013. The 1976 Copyright Act did not become law until January 1, 1978. Of course songwriters have been exploring termination issues with respect to old copyrights under the revised Section 204 (which applies to grants of copyright completed prior to January 1, 1978) for some time now.

The termination of assignments with respect to music publishing agreements will no doubt be handled in a fairly straight-forward manner, again, because publishers are used to creating fairly sophisticated arrangements with respect to the termination of pre-1978 copyrights. What promises to be more complex is the application of Section 203 to sound recordings. Anyone who has ever read a major label recording agreement (or a recording agreement modeled on a major label agreement) will recall that there is language in the agreement that states that every recording created under the agreement shall be deemed a “work made for hire.” Most people seem to know that a work made for hire is a work in which the “employer” is deemed to be the author of the work for copyright purposes and the original author has no right to ever terminate the assignment of the work. However, it is less well known that under the copyright act, the “work made for hire” doctrine applies to a limited number of works, and sound recordings are not part of this group. (Although for a brief period of time about a decade ago the recording industry managed to amend the Copyright Act to include sound recordings under this definition.) In other words, presumably, just because a record contract says that masters created under the deal are deemed works made for hire, this does not make it so.

The somewhat uncomfortable part is that none of this has been tested in Court yet, and won’t be tested for several years.

Section 203 provides that the author shall send a Notice of Termination “at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant; or, if the grant covers the right of publication of the work, the period begins at the end of thirty-five years from the date of publication of the work under the grant or at the end of forty years from the date of execution of the grant, whichever term ends earlier.”

All of this seems extremely civilized, and as stated above, there is some precedent for this under the industry custom with respect to copyright in musical compositions. However, it is unclear how the record companies will react given their stated position that master recordings are works made for hire.

It is also unclear how the concept of derivative works and joint authorship will apply. For example, producers might begin to assert an authorship right in the sound recording at issue. Also, as many commentators have noted, U.S. law will not apply to exploitation of the recording outside of the United States.

Nobody really knows how this will all play out, but it will be an interesting time to practice law in the music business.