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Major Record Labels Under The Gun In Sales v. Licensing, Carpenters Case

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Categories: Articles, Digital Distribution, Legal Disputes, Music Contracts, Music Industry, Record Labels, Royalties, Streaming, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By:  Erin M. Jacobson, Esq.

This article was originally published on Forbes.com.

The dispute between artists and labels over the income earned from digital downloads continues to rage.

Traditionally, record labels sold physical copies of music mediums, like CDs, and then would pay a royalty to the artist for each record sold. When iTunes came on the scene in 2001, the labels treated the sales of digital downloads the same as sales of physical CDs, and ever since have paid the artist a royalty on sales of those digital downloads. However, labels actually license the master recordings to digital distributors like iTunes and after a while artists began to make the argument that the income earned from digital downloads should be treated as licensing income and not sales income. The reason why artists want downloads to be treated as licensing income is because instead of getting a small percentage for a sales royalty (most commonly ranging from 11-20%, with an average of about 15% of the wholesale purchase price), licensing income is usually split 50-50 between the label and the artist. Therefore, artists stand to make a lot more money in royalties if a digital download is treated as a license rather than a sale.

This issue came to court starting in 2007 with the case FBT Productions v. Aftermath Records, a case involving royalties paid on Eminem recordings at the “sales” rate rather than the “licensing” rate. FBT won the lawsuit, establishing that income from digital downloads should be treated as licensing income rather than sales income, but Universal Music Group (owner of Aftermath Records) argued that this case should not set a precedent for all artist or record deals. Even though Universal tried not to set a precedent with this case, many artists renegotiated their deals behind closed doors to get better royalty rates for digital downloads than was originally provided for in their contracts.

Now the issue has once again arisen with classic group The Carpenters. Surviving member Richard Carpenter (fighting on behalf of his sister Karen Carpenter’s estate, as well) audited the band’s label, A&M Records/Universal Music. Artists often audit record label books to make sure that they are getting paid the proper royalties. Richard Carpenter’s audit showed that the label was under-reporting the number of downloads sold, was calculating the royalty on those downloads at a lower base price than they were supposed to, and that the label was paying a royalty on digital downloads at the sales rate instead of the licensing rate. Apparently, attempts to resolve the issue amicably were unsuccessful, and thus Richard Carpenter sued.

The Carpenters’ suit cites the FBT case as a precedent, and if the court follows FBT’s ruling then Carpenter has a good chance of success. Another case is currently pending between Sony Music and 19 Entertainment (the producers of American Idol) regarding how labels pay on digital streams. It’s the same argument as in the Carpenters’ case, but the position of a stream being treated as a license is even stronger than in the digital download scenario. However, it’s unclear at this point which way the court will side in both cases.

The labels make the argument that if they had to pay a 50-50 split on all digital download income, they would go out of business. However, the 50-50 split model is quite common with independent labels in the current marketplace and the indie labels are not necessarily going out of business. Both artists and labels often like the 50-50 split model because it creates more of a feeling of partnership between the label and the artist rather than an adversarial view of big company versus small artist.

What should be more of a concern to major labels’ fate than royalty rates is the fact that this digital age has made it much easier for artists to be independent and make a living off of making music without major label backing. Major labels can ensure their longevity by creating a new model that involves a deal that artists want to be a part of, that is advantageous to both the label and the artist, and provides for a long-standing working relationship, rather than one where artists are constantly concerned about being taken advantage of by the label. The tighter that major labels hold on to their traditional model, the more artists are going to look for alternative means of pursuing their musical careers — whether that be making direct relationships with distributors or other scenarios that benefit them financially and allow them to create a sustainable career off making music. This issue is not going away, especially with the growing popularity of streaming as a way of consuming music, and it’s time to adapt.

 

*This article does not constitute legal advice.

Erin M. Jacobson is a music attorney whose clients include Grammy and Emmy Award winners, legacy clients and catalogues, songwriters, music publishers, record labels, and independent artists and companies. She is based in Los Angeles where she handles a wide variety of music agreements and negotiations, in addition to owning and overseeing all operations for Indie Artist Resource, the independent musician’s resource for legal and business protection.

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Erin M. Jacobson featured on Forbes.com

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Categories: Articles, Business, Music Contracts, Music Industry, Record Labels, Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,

I am honored announce I am published on Forbes.com.  My first article for Forbes discusses Frank Ocean’s decision to go independent after his split from Def Jam.

Below is the text of the article and stay tuned as more will be published!

Checkmate:  Frank Ocean Goes Independent

By:  Erin M. Jacobson, Esq.

Originally published at Forbes.com.  Also reposted at Hypebot.com.

Frank Ocean has chosen the road less travelled for major label artists. He recently split with Def Jam, independently released his latest album, Blonde to chart success, and has refused to submit the album for Grammy voting consideration. While a major label deal was once the holy grail of industry success, what does it mean for artists in today’s industry?

Def Jam released Ocean from his deal in September 2016, a relationship described as “a bad marriage” by Spin magazine who also reported that Ocean’s release from his deal was negotiated. A condition of the split allowed Def Jam to distribute Ocean’s album Endless, while then freeing Ocean to release Blonde under his own imprint. In a recent interview for the New York Times, Ocean described his deal with Def Jam as “a seven-year chess game” and used his own money to buy himself out of his contract and reclaim his master recordings.

Ocean’s “seven-year chess game” refers to the seven-album deal structure typical for major labels. Major labels will sign an artist to a seven-album deal, meaning that the artist is obligated (often subject to pick-up options exercisable only by the label) to release seven albums with the label. This concept can be deceiving to those who don’t understand the structure because the length of the contract is tied to the number of albums released rather than a term of years. Fifty years ago the industry moved at a pace where an artist could release at least one album per year and then be done with the contract in seven years. However, artists today often take more than one year to write and record a new album, often not getting back in the studio until being on the road for almost a year after a prior album’s release. The reality of this schedule means that it often takes two years or more before a follow-up release and thus locks the artist into the contract for as long as it takes to complete the seven albums.

What is more unique about this situation is that Ocean not only bought himself out of the contract, but bought out the rights to his recordings as well. Major label (and most independent label) recording agreements stipulate that the label will own the artist’s recordings, as the label is usually fronting the money to make the recordings. Recording agreements don’t automatically come with the right to buy back masters; that clause is usually included via a good music attorney that knows to negotiate for it. However, many artists that have buy-back rights included in the contract don’t get to exercise those rights due to lack of funds. Ocean was in a privileged position in that he was able to accumulate enough of his own money to meet what was probably a hefty price for his freedom.

Ocean’s move towards independence echoes the increasing trend within the industry to control one’s own destiny and retain ownership of one’s work, a view shared by the majority of my artist clients. Today’s artists relish being independent, but the challenge is remembering that a music career is not only creative, it is also a business and needs to be run as such. Ocean seems to have that mentality. “I know exactly what the numbers are,” Ocean states. “I need to know how many records I’ve sold, how many album equivalents from streaming, which territories are playing my music more than others, because it helps me in conversations about where we’re gonna be playing shows, or where I might open a retail location, like a pop-up store or something.” This level of attention to detail is essential for independent artists looking to build a lasting career.

Ocean’s fame earned while he was backed by a major label puts him in an advantageous position because he has already accumulated a fanbase whose continued support will earn him a lucrative living as an independent artist. Artists in this position no longer need major labels because they have enough fame, opportunities, customer loyalty, and cash flow to finance their future efforts. It is much more difficult for artists still building their followings to achieve the same level of success outright, but many independent artists now look more towards making a living off of their music rather than superstardom. In today’s market, ownership and control of one’s work coupled with keeping a majority of the profits entice artists more than a major label’s deep pockets. As Ocean said:

It started to weigh on me that I was responsible for the moves that had made me successful, but I wasn’t reaping the lion’s share of the profits, and that was problematic for me.”

*This article does not constitute legal advice.

Erin M. Jacobson is a music attorney whose clients include Grammy and Emmy Award winners, legacy clients and catalogues, songwriters, music publishers, record labels, and independent artists and companies. She is based in Los Angeles where she handles a wide variety of music agreements and negotiations, in addition to owning and overseeing all operations for Indie Artist Resource, the independent musician’s resource for legal and business protection.

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Is It Ever Worth It to Give Up Copyright Ownership of Your Songs? A Music Lawyer Explains.

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Categories: Articles, Business, Copyright, Legal Issues, Music Contracts, Music Industry, Tags: , , , , , , , , , , , , , , , , , ,

ESQ-givingupownershipRetaining ownership of the copyrights may be one of the most important decisions in an artist or writer’s music career. The person who owns the copyrights is the one with the control over how those works are used and also the one entitled to the money earned from those uses.  However, sometimes holding on too tightly to copyright ownership may prevent an artist or writer from taking advantage of opportunities to grow his or her career. The age-old adage that sometimes you have to give a little to get a little is true, but one needs to look at the opportunity cost and decide if giving something in a specific situation is worth what will potentially be gained.

Here are a few instances when giving up copyright ownership may be permissible.

1.  When it will make you a lot of money.

I’m not suggesting one should sell out just for a hefty paycheck, as sometimes dollar signs can’t substitute for artistic integrity.  I’ve also seen a lot of deals (especially in music library situations) where an artist or writer is being offered just a few hundred to a few thousand dollars in exchange for full or partial copyright ownership of a song that is really valuable to the artist or writer’s catalogue and career.  In this instance, such a small amount of money may not be worth the control and potential revenues lost later if the song does well in the marketplace.

On the other hand, I have some clients that write consistently and don’t care about giving up ownership as long these songs will churn out money, especially for placements.  They feel they can always write another song and are more concerned with making their music earn money for them over crafting songs to define their careers.

2.  When it will give you opportunities you wouldn’t get otherwise.

This is a situation where working with a certain company, or in many cases a certain producer, will be able to propel an artist’s career forward and help that artist achieve notoriety that wouldn’t be achieved otherwise.  As mentioned, a typical example of this is working with a big producer who is considered to be a hit-maker in the industry.  Often these producers don’t even co-write on the compositions, but granting them a percentage of songwriting ownership is mandatory for being able to work with them. After all, one could retain 100% of a song that most people will never hear, or one could give up 20% and have the song hit top ten, make a lot of money, garner name recognition, and bring the artist more opportunities than the artist would have gotten otherwise. In this case, it seems like a small trade-off and can be used as a means to an end – one might have to give up some ownership in the beginning of a career, but that could lead to a level of status in the industry where one can retain ownership and call the shots on future projects.

3.  When it is in line with your goals.

A new artist seeking a label deal, especially a major label deal, will not own their masters.  An up-and-coming writer wanting a publishing deal will have to give up all or part of songwriter ownership.  This is what comes with the territory of growing one’s career via the traditional industry structures.  It also makes sense from a business standpoint because a label or a publisher is not going to invest time and money into an artist or writer without getting something in return , and part of their return on investment is ownership of intellectual property.

However, if an artist has a vision of making a living off of music in a completely DIY structure, or that the freedom of complete control is more important than working with others more established in the industry, then sharing ownership might not be the right choice.

Longevity and sustainability in the music business, especially in its current state, comes with catalogue ownership.   Giving up ownership comes with some loss of control, but that loss of control may lead to notoriety and other opportunities putting one in a position of control higher than would have ever been achieved otherwise.

Whether to give up copyright ownership is a big decision, and it is one that should be discussed with the artist’s advisors. The choice right for one artist may not be right for another.  The decision will come down to what is right for each artist’s career.

If you need help deciding whether to give up copyright ownership in a deal you’ve been offered, book a consultation now.

Disclaimer: This article is for educational and informational purposes only and not for the purpose of providing legal advice. The content contained in this article is not legal advice or a legal opinion on any specific matter or matters. This article does not constitute or create an attorney-client relationship between Erin M. Jacobson, Esq. and you or any other user. The law may vary based on the facts or particular circumstances or the law in your state. You should not rely on, act, or fail to act, upon this information without seeking the professional counsel of an attorney licensed in your state.

If this article is considered an advertisement, it is general in nature and not directed towards any particular person or entity.

This article was previously published on Sonicbids.com.

 

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“You Signed a Deal You Shouldn’t Have. Now What?” My New Article Published in Music Connection Magazine

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Categories: Articles, Legal Issues, Music Contracts, Music Industry, Tags: , , , , , , , , , , , , , , , , , , ,

I am extremely honored to have an article published in Music Connection magazine.  The article is entitled “You Signed a Deal You Shouldn’t Have. Now What?” and appears in the “Expert Advice” column on page 46 of the April 2016 issue.

Music Connection cover with Jimmy Page and Erin M. Jacobson, Esq. music attorney music lawyer los angeles

What’s more, the title is advertised on the cover of the magazine — a cover that features none other than Jimmy Page.

Here’s a link to the article online:  http://www.musicconnection.com/expert-advice-you-signed-a-deal-you-shouldnt-have-now-what/

Here’s a link to the PDF:

“You Signed a Deal You Shouldn’t Have, Now What?  by: Erin M. JacobsonPublished in Music ConnectionVol. 40, No. 4, April 2016 

Follow Music Connection:

Facebook: facebook.com/musicconnectionmagazine
Twitter: @musicconnection
Instagram: @music_connection

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Erin M. Jacobson discusses the Kesha / Dr. Luke case on the Break the Business Podcast

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Categories: Legal Disputes, Music, Music Industry, Music Industry Interviews, Tags: , , , , , , , , , , , , , , , , , ,

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I was recently interviewed on the Break the Business podcast about the ongoing legal drama between Kesha and producer Dr.Luke.   Download or listen to the interview on iTunes  or Soundcloud.  The interview is on Episode 28 and my interview starts at 20 minutes into the show.

Have a question about your deal?  Contact Erin to book a consultation.

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Interview with Carl Caprioglio of The Oglio Entertainment Group, Inc.

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Categories: Business, Crowd Funding, Management, Music, Music Industry, Music Industry Interviews, Record Labels, Tags: , , , , , , , , , , , , , , , , , , , , , , ,

Today’s interview is with Carl Caprioglio of The Oglio Entertainment Group, Inc., a great independent record label that is a lot more than just a record label.

Oglio 20th Anniversary LogoNow in its 20th year, Oglio achieved worldwide recognition as a successful niche marketer of entertainment products. Oglio releases have received acclaim and significant sales success including a Billboard Top 50 hit benefiting the Make A Wish Foundation, and projects with Brian Wilson (Beach Boys), Cyndi Lauper, Robby Krieger (Doors), Ray Manzarek (Doors), Nerf Herder, Parry Gripp, Kool Keith, Ultramagnetic MCs, Rob Schneider, Jackie Martling (Howard Stern Show), Andy Dick, Craig Gass, and George Lopez. Oglio’s growth has been significant enough to earn a position on Inc. Magazine’s 1998 listing of the 500 fastest growing companies in America. In 2013, Oglio extended into the management space with the launch of “Manage It Comedy” – a service designed to help the working comic manage their business. Manage It Comedy helps comedians release their merchandise to market, build a web presence and use social media to market themselves.

1.     Describe a typical day at the office.

One of the great things about being in the entertainment business is that there is not typical day. That said, I do have a bit of a routine that starts with attacking my email in box and checking all the regular social media sites for my artists’ activities. Once I have a handle on the mayhem that has ensued since the last time I checked those places, I write up my daily priorities on one of my office white boards and get to work. My office is in Torrance, a bit of a drive from the media centers of Los Angeles, so I try to set up a lunch meeting or two each week. My workday ends with more email and project development from home after dinner.

2.     What is your favorite part of your job?

To quote the great Hannibal Smith from the A-Team – “I love it when a plan comes together.” Whether it is a record that goes from concept to release or a licensing deal or a new direction for my business, the most satisfying part of my job is that feeling of that success when it comes to fruition. It really isn’t tied to money (although that helps) but it is more about that great rush of satisfaction.

3.     What are some projects that you are currently working on that you can discuss?  

On the record side we have two new releases – one from the metal bash-up band Beatallica that combines the sounds of Metallica and The Beatles and the other from comedian Craig Gass of Howard Stern Show fame. They are wildly different projects but both are personal favorites.

Recently my attention has been moving toward artist management. Over the years a few of the artists on my label have asked me about managing them, but I liked the label side and didn’t pursue it at the time. I’ve come to realize that I enjoy the interaction with the artists and bringing that interaction to another level seems like a natural move. I can provide the bigger picture help they need and still handle the label side if needed. It seems like a logical move and I use much of the same skillset that have developed over the last 20 years in business.

4.     What do you think are the most important issues facing labels and artists at this time?

Top of the list has to be the idea that music should be free and that both artists and labels can make up the income by selling t-shirts or touring. As a label owner and a friend to artists, I’ve had many discussions about how “fans” find a justification for stealing music. Despite the perception that labels and artists were caught off guard, we could see this train coming, but unfortunately we weren’t able to do much about it. For me I simply underestimated people’s willingness to steal and the ease of which they justify their actions.

5.     What do you think is the most profitable area of the music industry for independent artists today?

For your typical independent artist, I’m going to go with the new broad definition of “merch.” Merch (short for “merchandise”) now encompasses music, t-shirts, hats, hoodies, iPhone cases, tote bags, jewelry, USB drives and anything else you can put on your merch table or sell on your website. At one time the music part of the merch table was controlled by the labels but now that control is back with the artist in most cases. My favorite merch items are USB drives in fun shapes that artists can load up with not only their music but also videos, art and even a recording of the show from that very night. One of my artists, MC Lars, sells a small metal USB robot loaded with the music, videos and art from his album “This Gigantic Robot Kills” and it is a best seller for him on the road.

6.     What other avenues are still profitable for artists?

I see PledgeMusic and Kickstarter as great avenues for artists with a fan base that can be mobilized. I have seen PledgeMusic and Kickstarter album campaigns that have raised substantially more than the actual recording costs. The extra revenue goes right into the pockets of the artists and the artists then have the ability to sell their music for 100% profit from the release date forward. This is a very powerful tool available to artists that have a following.

7.     What types of deals are mostly being offered now among the independent labels?

In 1999, Oglio started offering “profit split” deals to artists that brought us recordings ready to be released. At the time it was a very unusual proposal but we felt that the partnership feel made for a more positive and collaborative working relationship. We treated our artists like business associates and we set our plans based on our mutual goals. Those deals worked well for both sides and Oglio was able to work with some legendary artists that would not have normally been interested in an independent label. I see those joint venture deals becoming more and more popular as artists have more control and labels look for ways to mitigate the risk involved in recording costs.

8.     What is an independent label looking for when considering signing a new artist?  Is there any criteria an artist needs to have to even be considered for a deal?

At Oglio it starts with the music. We have to feel strongly about the music itself and also its commercial potential. Every artist feels that their music is fantastic but the point where we often disagree is what we can offer as a label and still make a profit on the project. If the artist doesn’t have a fan base, touring history and traction, it just might be too soon for a label to get involved. We often turn down artists with the suggestion to self release and play live shows while they gain the momentum we would need to get involved.

Thanks so much to Carl for some very insightful comments.  To learn more about Oglio, visit www.oglio.com.