This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Methods and Practices Part 1: Recording Agreements for Today’s Industry (Part 1 of 3)
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新世界：当代音乐产业导航
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从本节课中
CD, MP3, and Online Marketplace
与讲师见面
Darko VelichkovskiMusic Industry Program Director
Music Industry
Recording agreement standards and practices are at the very heart of the recording business
paradigm and its viability and, as such, should be constantly re-evaluated and modified in
order to adequately fit the new circumstances and changes in the external environment in
which the business exists and operates. The need for re-evaluation and modification of
the recording contract standards has never been greater than today, when a number of
external forces are exerting such pressure on existing business that its sustainability
and growth depends on its ability to cope with the change. We don’t need to dwell
on those forces, the threat and opportunity they represent, for they are all well known
to those even peripherally involved in the music industry – from the Pandora’s Box
of digital recording and reproduction technology, to the friend/foe nature of file sharing and
MP3s, and everything binary in between. However justified, unjustified, foreseen, unforeseen,
moral, immoral, innocuous or reprehensible those forces are, their transforming power
is undeniable and their influence on our market and the way we do business unstoppable.
One of the essential aspects of our business is legal relationship and agreement between
the artist and the record label. As the environment in which we do business changes, that relationship
and, therefore, the standards of its agreement, need to change, as well, if we want the business
to remain viable and profitable. And viable and profitable business inevitably includes
not only satisfied public, but satisfied artists, as well, a situation sadly rare nowadays.
All too often, we read of the artists leaving their labels, seeking alternatives, exploring
other options… But, why? Are the talking heads, preaching the obsoleteness of the record
companies, right? Do the prophets of the label doom indeed have a direct line to the above
after all? Or are those record companies that fail to keep their artists satisfied and productive
simply out of touch with new realities, which if properly addressed could make a true and
meaningful difference?
So why all the unrest, why the plight, why all the commotion and tension between the
artists and the labels today? It’s like in that Hans Christian Andersen’s tale where
the Emperor had no clothes on, but no one was willing to admit it. New industry executives
come and go, new record companies are formed and grow, but the old pattern persists, and
it seems like very few are willing to confront it and all its shortcoming. Many record companies,
large and small, still insist on the traditional recording agreement standards and practices
guiding and defining the relationship with their artists, erroneously and stubbornly
believing that it is the only business and legal model under which profitable record
business is possible. Very basic business model reasoning, however, shows not only that
that’s not presently the case, but that it never was the only profitable model, just
the most profitable one for the label…and the one that came at indefensibly high cost,
not only to the artists, and therefore to art itself, but to the industry’s future,
as well.
To the industry’s future? Yes. If these contractual standards, that we talked about
in our segment on the standard recording contracts, and the market practices those standards caused,
were evaluated, re-evaluated and modified in timely and relevant manner, the industry
and its bottom line would be in much better shape today. For instance, as recording, production,
manufacturing and distribution technologies and means advanced and became cheaper and
cheaper, shouldn’t those savings and advances have been appropriately reflected in recording
contracts and on the market place? Just to mention a few issues here:
1.) The price of a CD should not have remained virtually the same for decades while the cost
of producing and manufacturing a CD dropped many-fold over that period of time. For, that’s
simply a bad business practice to which the markets are sure to react adversely.
2.) The artists’ royalties should have moved to much higher levels, as the profit margins
skyrocketed with the onset of the CD technology. For, the artists are the source of the most
essential product of our industry, and should have been treated and awarded as such, because
without them there is no industry.
3.) Many artist’s royalty deductions should have been removed and contractual clauses
modified over time as those deductions and clauses became unjustifiable. For, to keep
insisting on the relevance of such clauses is disingenuous, and ultimately self-destructive
(as present situation in the industry has proven).
Satisfied public and satisfied artists make for good business, greed and voracity do not.
In its shortsighted drive for the most for itself, instead of the best for everyone,
the main stream music industry has lost good portion of the public, while managing to hurt
and lose many of its artists, as well. If the retail price of a CD in the 90’s reflected
its realistic cost with a reasonable profit margin built in, the motivation of the public
to seek “free” music on-line would have been greatly diminished, and the overall damage
from illegal downloading much smaller. This is, of course, by no means an excuse for illegal
downloading practices. There is no excuse for breaking the law, which is what illegal
downloading is, plain and simple, no matter how much you hate RIAA and big, bad major
labels. No crafty finesse of today’s intellectual music freedom fighters can change that fact.
In particular, if a CD, in the closing decade of the 20th and the onset of the 21st century,
was priced at perhaps $7 - $10 retail, instead of $15 - $20, the outcome would certainly
have been different. Of course, that in itself would not have had averted today’s recording
business crisis all together, but the industry would have offered affordable quality product
to the public, in accordance with proper business principles, making for greatly increased number
of satisfied, returning customers, and therefore better bottom line. At the same time, if the
artist royalties were allowed to climb to 30, 40, 50 percent, instead of remaining at
mostly 10 - 15 percent, and if these were, by and large, deduction-free royalties, the
outcome would have also been very different, because the industry would have had satisfied
artists who would be looking for long term relationships with their labels instead of
the exit.
Again, satisfied public and satisfied artists make for good business, greed and voracity
do not. And it all starts with a recording agreement. So let’s look at some of the
important mainstream recording agreement standards and issues that caused such wreckage.
For instance – “breakage” deductions, that originated back at the time of old shellac-made
records. This used to be a standard artist’s royalty base deduction of 10%, well into the
CD age, that made you scratch your head and ask: Breakage deductions? Even for CDs? What
breakage? We stopped making fragile shellac records few generations ago, and CDs don’t
break in transport that easy. Certainly not 10% of them.
And then, “Packaging” deductions? Now you are just pushing it, right? Why should
the artist’s royalty base be reduced for a legitimate business expense on your side,
such as a CD cover and a shrink-wrap?
And how about the “All-In” royalty? Where the producer’s royalty is paid from the
artist’s royalty. Remember, we talked about it? You really think the artist’s royalties
should be deducted for the producer’s cut? Then, maybe we should also deduct the artist’s
royalties for new tiles in the producer’s kitchen, while we are at it.
OK, so what about the “Cross-collateral” recoupments? Tying the recoupables for a particular
album, to all the artist’s products that the company controls, instead of to just the
album for which the expense incurred. So, for instance, the profits from the artist’s
publishing that the company controls, can cover its losses from her CD and MP3 sales?
You really want to deprive the artist of her publishing income, because the company was
not successful in selling her CDs and MP3s? Maybe the fact that her compositions are selling,
while the recording of it that the company produced is not, is telling us something about
the company’s production and retail skills. Just a thought.
And then, no artist’s royalties are paid out until all the recoupable expenses are
covered? Really? And the recoupable expenses are covered from the artist’s royalties
only? (You mean the company applies only the artist’s share of the sales income to the
recoupable expenses account? While keeping the rest, not considering it a “profit”
even when it clearly exceeds the company’s investment? Now, that’s bold and audacious.
So many industries out there would kill for such contractual clauses. If only they didn’t
live on earth.)
And on top of that, the artist’s royalty to which all those deductions and clauses
are applicable should be only 10-15% of the retail? And the term of the contract should
be 5-6 renewable one-year terms, with up to 6 albums delivered? At the company’s, and
not the artist’s discretion? Come on now, Riker’s Island is a better deal than that.
Is it any wonder that many artists are looking for the exit, or avoiding labels from the
get go, trying to do it all by themselves? And can we blame them? Under these contractual
standards, how many can ever make any meaningful income for themselves from their recordings
today, when physical sales are a shadow of its former self, and digital sales are still
too far from making up the difference? And how many today will not curse the day they
signed such a “standard” contract and the company with which they signed it? The
answer is: very few, and very few. Certainly, it is high time to seriously revisit and modify
these standards to fit today’s artists’ and companies’ needs, business circumstances
and market environment, and finally start doing good for our artists and our customers,
while doing well for ourselves and our companies. That is not exactly nuclear physics…that
is just good business.
