“I’m not a businessman; I’m a business, man!” – Jay-Z
Art is life. If it is said that art is life, and music is art, it therefore means that music is life. For some, music is not just life, it is their livelihood; it is the means by which they make ends meet; it is their record of profit and loss; the object of their risk and reward. Just as we have industries for different sectors, there is also an industry for music- an industry that is worth billions of dollars. According to the IFPI Global Music Report, global revenue from record sales in the music industry for the year 2018 was $9.1 billion. Report by Nigeria’s National Bureau of Statistics (NBS) in its GDP Report for Q1 of 2020 stated that the motion pictures, sound recording and music production sector contributed over $4.42 billion (0.99%) to Nigeria’s GDP in 2019. It should be noted that this figure does not cover the entire entertainment and creative industry- it is way more! It is so much so that under the Economic Recovery and Growth Plan of the Federal Government of Nigeria, the creative industry was listed as one of the sectors that will be a driver for Nigeria’s economic growth. Regardless of how it may be looked at, the music industry is a billion dollar industry.
Beyond the thrill of having one entertained, music business is serious business. There is a strong air of astute seriousness associated with music- and it should be approached as such. Jay-Z, a multi-award winning music artist who is listed on the Forbes list of billionaires is reputed have said, in the song “Diamonds from Sierra Leone” in which he was featured by another billionaire music artist Kanye West, that, “I’m not a businessman; I’m a business, man.” The purport of this statement goes to show why music artists ought to take themselves and the business of their art more seriously. This means beyond raw talent and great artistry, music artist and performers must begin to pay attention to the business side, the revenue generating part of their work. Top of which is that they must begin to pay closer attention to the terms of the deals they enter into and the contracts they sign. This, in fact, is a fundamental determinant of their career trajectory, for good and for bad, and it also could determine whether they will still earn from their creative efforts even after their peak or when they retire from a career in music. Very little should be left to assumptions, music is business.
In this short article, I identified certain important terms that music artists must pay attention to in industry specific contracts. Rather than dabble into explaining terms and clauses in specific contracts, I have simplified the identification and understanding of essential terms that music artists should always look out for before the close of that deal and signing of any contract. I simplified this by developing the Mofo Quadrant. Read on, you will get the gist.
The Nature of Music Contracts
Contracts are binding promises or agreements usually between two or more parties, the promises of which are enforceable at law. It is an agreement which creates reciprocal legal obligations to do or not to do particular things. It presupposes that beyond the exchange of promises by parties, there must also be an exchange of value- both must be giving something and both must be receiving. There are basically two types of contracts, oral and written contracts. It should be borne in mind that in all situations, where there is a conflict between an oral and a written contract, the written contract usually takes precedence. Thus, it is important that contracts especially in the music industry should be in writing. A written contract is easier to prove- concluding deals on a handshake alone is risky. Written contracts come in all forms. It could be in the form of a simple letter, for example, a Letter of Engagement, it could be in the form of a simple contract- nothing too complex, simple and short, it could also be a more formal contract- looking very daunting and intimidating, with high sounding legal jargon. Regardless of the form, remember that what matters the most is the substance of the contract, pay attention to the substance of that paper you are being asked to sign, not the form of the paper. Contracts are binding.
Examples of contracts in the music industry include Performance Contracts, Recording Contracts (the famous record deals), Production and Distribution Agreements, Licensing Agreements, Management Contracts, Endorsement Agreements, Profit Sharing Agreements etc. There are several other service level agreements which it won’t be necessary to delve into given the scope of this article. These contracts come with different headings and titles- don’t let this fool you, what is important are what are contained in the agreement itself. In the music industry, it is customary for record companies to have the contract printed on the company’s letter head. Don’t be surprised when you find some of these contracts on the record company’s letter head or you don’t find the contract on a letter head- remember that it is the substance not the form of the contract that is important.
We also have contracts called 360 deals also known as “multiple rights deal”, which have become very common. Simply, 360 deals are deals that allow the music recording/distribution company to get a share from at least four or the entire income stream of the music artist which includes but is not limited to record sales, ticket sales from tours, honorarium from performances, endorsements, income from live streaming, merchandise sales and other ancillary revenue of the artist. The record company need not necessarily invest in the particular venture producing the income or contribute their own capital to get a cut from these income streams. They simply get a cut from everything the artist makes. The record company may also seek to own the intellectual property in the artist’s work, own the brand name, image and likeness of the artist. Sometimes the deals the company will benefit from are specified. In many cases, catch-all phrases are used to capture all and any deal, so that they will be able to benefit from any ancillary or related income relating to the artist. There are also deals that have been described as 270 deals, 180 deals and even 90 deals- these deals are very specific, by limiting or expanding the number of income streams and the percentage ratio of benefit to the record company from the artist’s activity. A 360 deal refers to a record label benefitting from at least four income streams, 270 deals refer to the company benefiting from three income streams, 180 deals refer to two income streams, and 90 deals refer to a single income stream. For instance, if a company specifies that they are to benefit from income coming in from royalties, performance contracts and ticket sales, this is a 270 deal as it refers to three income streams, i.e. 90 x 3 = 270. Going into the specifics of these deals deviates from the purpose of this article.
The purpose of this work is provide a general approach that will help you identify important terms, banana peels and red flags in common music industry contracts through my proposition of “the Mofo Quadrant”. The Mofo Quadrant does not cover all the terms that may be contained in an agreement, it only attempts to cover those terms which I consider the most important to pay attention to. It should also be noted that this article does not substitute for legal advice; you should consult a lawyer for legal advice.
Through the Looking Glass- The Mofo Quadrant
The Mofo Quadrant is a proposed approach that artist can employ in protecting their rights when they are presented with an agreement for signing. Mofo represents money, ownership, freedom and opportunities. It is a proposition that while reviewing agreements clauses that affect these four factors or drivers of a transaction must be thoroughly examined. The Mofo Quadrant is a checklist of essential considerations necessary for the structuring of a successful deal for a recording artist. It is better implemented as a first step approach to know what terms, clauses and provision in a contract to look out for, even more so in situations where you cannot immediately access the services of a lawyer. It can be employed effectively in most music industry contracts. However, it should be noted that it does not apply in all cases especially in more complex transactions where they may serve only as a first step approach in the review process to understanding an artist’s obligations. Consider the Mofo Quadrant as your looking glass to contract review. In sum, the Mofo Quadrant signifies that you should:
M: Look out for terms that affect your money.
O: Look out for terms that affect your ownership.
F: Look out for terms that affect your freedom.
O: Look out for terms that affect your opportunities.
M for Money: Look out for terms that affect your money. Always follow the money. As emphasized earlier, music is business and businesses are established for the purpose of making profit. You want to make as much ethical profit as you can, that is capitalism. You should always follow the money, and this involves paying attention to the commercial terms of the agreement. It is imperative that in any transaction you pay attention to terms that require you getting paid, and also those terms that require you spending money. Pay attention to the money. Attention should be paid to the amount you will be getting from the performance of your obligation under the contract, and the amount you will be surrendering. This is not just about the signing bonus you must focus on such terms that are contained in clauses like the Payment Clause, Royalties, Profit Sharing, Commission, Consideration etc. Make sure the royalties are reasonable. Don’t just accept it when they tell you that it is industry standard, the terms should be reasonable.
You also need to determine the income streams and also make sure you are getting a fair percentage on every part of those income streams. It is also not important that they should benefit from all of the income streams as seen in 360 deals. You want to make the payment provisions as clear as possible, they should be no fuzziness and nothing should be left to eventualities. You want to also pay attention to clauses on deductions, if any, on profits or royalties by the label before they pay you. Make sure the deductions are not unlimited; the deductions should be very specific, fair and reasonable. Don’t just give them carte blanche. It is business after all.
After you are satisfied with the sharing formula, you should also decide the mode you want to be paid, the frequency of payment and the timeframe for payment. You want to also exact obligation that accounts and records will be kept, and that you should have access to those accounts. This means that you should include an audit provision in the contract to give you a right of audit. If payments will be made on a percentage or ratio basis you want to pay attention to how they will be calculated and how accounts will be reconciled. This will involve a bit of mathematics and a great deal of informed advice. No two deals are the same, pay attention to the money.
O for Ownership: Look out for terms that affect your ownership. Own your intellectual property and other related rights. Your intellectual property refers to your copyright which includes your songs, albums, audio or video recordings, music composition; it also refers to your trademark which includes your brand name and likeness, logo, brand merchandise etc. This is perhaps the most important item in the Mofo Quadrant as it determines the extent of ownership you have in your work. You want to pay attention to the intellectual property clause; it determines whether that song, that album and your brand name is actually yours. If there are any red flags you want to raise you should raise them at this point. Not owning your intellectual property means that you will not be able to benefit from your work in the future especially after the contract has ended.
You also want to pay attention to exclusivity provisions in the agreement. You don’t want to give the record company exclusive right to your work, you don’t want to give them an exclusive and non-revocable right to use the work for any purpose whatsoever. This means that you don’t want to give them exclusive ownership of your masters. A masters in this context refers to the original music recording of an artists song. Though the handing over of ownership of masters in a song is common practice in the music business, it is usually not a good bargain for the artist. For example, in 2019 American born music sensation Taylor Swift was stopped from performing and using for a documentary her early songs by Big Machine Records due to the fact that from the record deal she signed, she gave away her rights to the masters. She lost several opportunities that would require her using those songs. There is also the case of Nigerian reggae artist Cynthia Morgan who signed a record deal where she was not the owner of the masters.
Indeed, there are other material considerations that determine why an artist would want to sign a contract that would require the artist yielding ownership of the artist’s work to the record company– an artist looking for an opportunity for a music breakthrough, for instance. It should be noted that these terms can be negotiated. You don’t want to give them a right to your intellectual property in perpetuity. You must pay attention to the intellectual property clauses. You don’t want to be left out in the cold.
F for Freedom: Look out for terms that affect your freedom. Your aim should be to achieve freedom and flexibility. One factor that makes for an effective relationship in contracts is that there are stipulations on clear and flexible timelines. You want to pay attention to dates and to the time periods for the performance of obligations. This means that the duration of the relationship between the parties must be clear, they must know how long it will last- the effective and termination date, when it starts and when it ends. Provisions must also be made for when the parties may mutually or unilaterally terminate the agreement during the life of the contract- before the end date of the agreement- and how accounts are to be settled after the end of the contractual relationship. No one enjoys an abusive relationship. They may provide for events in which a party will want to get out of the deal, and may also provide for remedies when the event was as a result of a fundamental breach of the agreement by any of the parties. You don’t want to be tied to a deal that is not favorable, you want to be able to move and move unscathed. Artists, therefore, before signing a contract must look out for provisions that impede their freedom and independence. For instance, you don’t want to be tied to a deal that will not allow you join another record label, record and release new songs and conduct live performances under the banner of another music outfit after a music contract has been terminated for any reason. That is why provisions in the contract should make it easy for parties to be able to terminate the contract and move on with their lives without any outstanding obligations except for maybe standard confidentiality provisions.
The parties should also make provisions on periods when the contracts may be reviewed at the instance of either of the parties. This will require the parties inserting a contract review clause in the agreement. For the purpose of practicality, the parties could agree that at the instance of either of the parties the contract may be reviewed on a periodic basis, two months, three months or six months for example. This makes it easier for a party to initiate the negotiation of new terms in the event of a change in circumstances. It should be noted that a contract review clause is different from a contract renewal or extension clause. A contract renewal clause gives the parties the option of continuing the contractual relationship after the stated expiration date. Many contract renewal clauses are provided to renew automatically after the stated expiration date.
Furthermore, you want to exercise some level of creative control over your work and have a say on the final output, you don’t want to leave that decision solely to the record company or management. You want to be free to make decisions that affect your music and brand. This also brings to mind brand control. Provisions relating to decisions on media appearances, control of social media accounts, licensing of your work to counterparties, and situations of conflict between management decision and the artist’s decision should be stated in the agreement. This also indicates that provisions on dispute resolution in the event of conflict or disagreement should be clearly stated.
O for Opportunities: Look out for terms that affect your opportunities. You should be able to decide your opportunities. You should keep your options open. Opportunities under this head is linked to F for Freedom as it also touches on the artist’s right to creative and brand control and also prerogative to decide during the agreement. First, you don’t want to be locked into a contract that will be keep you with the record label for a long time such that it will affect your creative and financial future. No matter how rosy the present may be, you must work to retain creative control; this also means control of your time. Second, an artist would want to get the record company to make promises and guarantees on provision of resources, studio recording time, live performances and shows, tours, marketing, branding, music videos etc. You want to make it imperative for them to invest in you. You want to make them put in the work to get your music produced, packaged and distributed during the period you will be with them. This means that you have to peruse the agreement to determine the level of investment they are ready and willing to put into your brand within a specific period of time. The amount of songs and albums to be produced during the life of the contract, the nature of publicity etc. These terms should be comprehensive and clear.
You want to also include clauses in the agreement that will give you the right to decide what opportunities to take and reject. The artist should be able to decide whether to perform at a particular event or not, the artist also wants to be able to decide what deals to take. This can come from a place of an ideological, religious, political or any other personal preference of the artist. For instance, with respect to endorsement deals, if as an artist you are openly vegetarian you don’t want to be compelled to perform at a show organized for the promotion of a hotdog company or endorse them in anyway because the money is good. Also lets say as an artist you are passionate about a cause, for instance, environmental protection, the artist should be able to decide whether to perform for free for an environmental rights campaign. The artist should be able to decide whether to do or not to do particular things or ground of religion, conscience, sentiments or beliefs. The artist should also look out for onerous non-compete provisions that may deter them from exploring other opportunities from competing record labels. The considerations are numerous, however, it all boils down to the particular disposition of the artist.
Conclusion- The Bigger Picture
In an age of high digitization and the internet, hundreds of deals are closed in the global entertainment industry every day. In an age where streaming and online subscription services have fast replaced the traditional mode of music distribution, where the amount of streams and downloads are now more important than the amount of CD sales. It is not rocket science to deduce that the music industry is changing fast and the expectation of record labels from the artist now goes beyond the traditional method of recording and distribution of songs. In this sense, artist in meeting these expectations must also ensure that they are meeting their own expectations. The Mofo Quadrant is a guide. It is like a looking glass through which they can effectively map and track their interests; requiring them to pay attention to terms that affect their money, their ownership, their freedom and opportunities.
It is important to recognise that no two deals are the same; circumstances are different, and the expectations of the record label and the artist are not usually the same. Artists have different needs, experience, capabilities and background. It then means that particular consideration must be paid to align the interest and expectation of the record company and the artist in structuring a mutually beneficial undertaken. Sometimes what the artist may need is not full control of his intellectual property but a break in the music industry the support of which only a record label can provide. No two deals are the same.
Due to the complexity of certain deals, it is necessary that artist should employ the services of experienced professionals in the reviewing of agreements and in the brokering of a favorable deal structure, especially to align the artist’s interest with that of the record label and also in compliance with the law. Also, depending on the level of experience and need of the artist, the professional services of consultants and accountants may be required to assist in the management of the artist’s affairs. It is important to note that the Mofo Quadrant is a first step approach the artist may employ in reviewing contracts before signing any agreement. It is, however, preferable that the engage the services of a legal practitioner in more complex cases.
Flowing from the above, the objective of this article is to help artists recognise that the business of their work is as important as the creative aspect of creating the music. Artists, therefore, should learn about the business of music. They should learn about the industry structure and value chain. They should also learn and acquire soft skills such as negotiation, communication, reading and understanding of financial statements etc. This will ensure that in the long run they don’t go broke, and that in fundamental respects they don’t lose, and will keep benefiting from, what they have created.
About the Author
Emmanuel Inyada is a Deals Lawyer in the broad aspects of commercial and corporate law. He advises on deals in the investments and finance space, and is also a consultant in sector focused areas like energy (oil and gas/power), banking, intellectual property, entertainment and technology. He is a Co-founder of Law Axis 360° and the initiator of Finance “Yoga”.
You can reach him via email at firstname.lastname@example.org.