IP Lawyers: 5 Important Clauses in the Record Label Contract


Damilola Amore, Esq

In a recent media interview, the Head of Bellyflow Entertainment blamed shoddy contracts as a primary challenge facing the music industry. A recording contract is an agreement between a Record Label and a Recording Artist or Band under which the Artist undertakes to make a specified number of records for the label to sell and promote. Recording contracts must contain the essential elements for contract formation: offer, acceptance, consideration and intention to enter into legal relations.

Enforcement of recording contracts is one area where ‘prevention is better than cure’ because Nigerian Courts will uphold the sanctity of contract on the principle that the
contracting parties were or should have been aware of the terms of the Contract. In practice, Nigerian Labels have been known to withhold copyright in the Masters, Royalties and even the artist’s name pursuant to provisions contained in the recording contract.
The limited exception to this rule is in the few cases, where the Courts have found the existence of undue influence of the Record Label on the Artist as grounds to set aside the provisions of the Recording Contract.

Recording contracts may be exclusive or non exclusive. Exclusive Contracts restrict the Artist from recording with or moving to another Label during the term of the COntract without the express consent of the Label (more on this later on). Artists who wish to make guest appearances must ensure the recording contract contains a sideman Provision.

Please note that every clause in a Record Label Contract is important and should be scrutinized carefully and thoughtfully. All terms matter. Here are 5 important Clauses to note when drafting or reviewing a Recording Contract.

1.The Term/Contract Period
Every relationship has a beginning and an ending- a start and a finish time. This time frame also known as the ‘Term’ determines how long the Artiste and the Label will be contractually bound together.

The decision or choice of term differs from one contract to another- there are no industry standards here. Parties will generally make projections based on several factors such as the Talent’s age, appeal, genre and persona to determine how long the relationship should last.

You should also note that the parties often have different interests: Labels prefer longer terms with minimal changes as this allows them to maximize their investment and make as much profit from the Artist’s music for as long as possible.

Artistes on the other hand, generally prefer shorter record deals which provide an easy exit if things turn sour or if bigger opportunities are presented. Also, record labels today get passive income from the artist’s live performances, merchandise sales as well as promotional/advertising money. The shares resulting out of these rights have to be paid to the label during the contract period.

Term clauses should be drafted to balance the competing interests and not to unduly favor either party by enslaving the Talent or upstaging the Label.

One way to achieve this is to include an “Option” period which allows the label to extend the length of the record deal, on the basis of mutual agreement by the Label and the Artiste.

2. Sign-Up and Advance Fees
An advance is a sum of money paid to the artist in anticipation of future royalties. This may be in the form of an initial amount paid when the artist signs to the label, and/or on a periodic basis as further options are exercised. Please note that advances are not a “Pay Day” or “Cashout” but funds used to settle bills for management, Band members, music videos, tour support, recording, promotions and other expenses incurred by the Artiste and management.

Record labels will often make projections based on estimations as to how the Artiste’s music will perform. This can be a huge gamble. Therefore, for new entrants into the industry, Labels would prefer to wait till record sales start coming in. Larger advances can be negotiated in anticipation of subsequent albums- whether or not the previous advances have been recovered.

Recoupment is the practice of claiming an advance provided to an artist back from that artist personally. Lawyers representing Artistes should object to Recoupment Clauses which make an advance repayable as a personal debt, as this will definitely place the Artiste under undue financial pressure.
To avoid this outcome, advances should be set-off against record sales, failing which, the label should bear the loss.

3. Royalties
The Royalties clause is often the most scrutinized owing to the lifespan of Copyright in musical works and Sound Recordings. We will focus on the big picture here because this is one of the most complex clauses in a Recording Contract, especially considering the multifaceted opportunities open to exploiting musical works today. Some Labels will offer a “Net deal” which is a percentage of the royalties after recoupment of expenses.
The percentage may range from 50/50 Net Split to an 80/20 Net Split.
A balanced Clause should define clearly define the split based on the contributions of the Parties, taking into consideration what expenses are allowed and what thresholds should be subject to a joint agreement.

4. Branding, Merchandise & Promotions
Artistes leverage on the goodwill with fans and followers to sell more than just music to the public. From luxury brands to retail products, musicians influence and inspire consumers to buy merchandise and to embrace social and cultural causes. Record labels looking to take a piece of the pie, will include clauses that anticipate income from non-recording revenue streams such as merch, touring, and publishing. These “360 Deals” now represent the new normal in the label-artist dynamic. Balanced clauses should ensure that income streams are fair and represent a quid pro quo for the Artist to justify relinquishing control or title of these significant additional streams of income.

5. Territorial Jurisdiction
Copyright is a bundle of rights which includes the right to control how works are used in different geographical locations. A record deal may be restricted to apply to a single territory, such as Nigeria, while another deal may apply to the entire world. One way to balance the so-called worldwide deal is to insert a Reversionary Clause which provides that if the label fails to release the Artist’s music in specified jurisdictions, the rights would automatically revert back to the Artist, granting the Artist more control and power over the decision to self release or sign up with a better positioned record label in the target jurisdictions.

Conclusion
The growing impact of Nigerian music underscores the need to engage IP Lawyers in the formation and operation of Label activities.
It is hoped that this intervention will contribute in some way to addressing the problems associated with the use of subpar agreements by creators and IP owners.

Damilola Amore is a Legal Practitioner and Partner in the Law Firm of Trumann Rockwood Solicitors. He is an excellent litigation attorney and heads the Firm’s Media Law, Employment and ADR Practice Groups.
He can be contacted at Dami.amore@trumann-rockwood.com


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