Troll
07-29-2006, 10:17am
Producer Agreements—Something To Talk About
By Robin Mitchell Joyce, Bass Berry & Simms, PLC,
Lately, our office has been talking a lot about producer agreements. Our weekly meetings, which have been going on for 18 years or so, are usually devoted to the “new”: new technology, legislation, case law, clients and new ruptures in the industry fabric. Producer agreements are not new and have existed in a fairly limited universe. So why all the attention now?
The StatusQuo
The producer’s royalty, in almost all cases, comes out of the artist’s royalty. This means that provisions relating to things like foreign sales, CDs, new media, mid-line/ budget sales, net receipt participation, video receipts, accounting and auditing and a myriad of other payment issues have already been negotiated. In other words, for better or worse, the producer is almost invariably subject to the best deal that the artist was able to secure. Secondly, most logistical issues, such as the ceiling on the recording budget and the timing of recording and delivery, are already in place when the producer is hired. The remaining negotiable aspects usually fall within expected parameters, but can include: the actual amounts of the producer royalty and advance; limits on when those amounts can be reduced; the scope of the producer’s responsibility for budget overages, credit provisions; and whether the producer is bound to certain mechanical royalty rates and “caps” for songs included on the album that are written by the producer.
In With The New
Lately, however, the changing landscape has given us a bit more to talk about. Perhaps it’s because we’re moving toward a “singles” industry and aesthetic consistency throughout an album seems less important. Maybe it’s because writer/producers will often produce a master during their writing session with the artist. Or maybe we’ve simply started separating producers out by skill set (ie. “tracking,” “mixing,” “vocals,” etc.). Regardless, it is more and more unusual to have an entire album produced by a single producer…and logistically, this has made it almost impossible to negotiate and close the producer agreement(s) prior to the commencement of recording or even by the time the master(s) are delivered. Why? Because frequently it is unclear exactly how many masters a producer will end up delivering, if other producers will be brought in to contribute additional services to any given master (such as mixing or re-doing vocals), or whether a producer’s work on a master may be replaced entirely. Obviously, since the artist will want to cap the total producer royalty to some reasonable and customary amount, a producer that has negotiated a 4% royalty cannot be paid that entire royalty if two other producers have been brought in later to add or re-do elements of the subject master. Allocating the “all-in” producer royalty between several creative participants is at best complex—at worst it’s a blood bath. Producers have traditionally fought against any discretionary or arbitrary right of the artist to reduce the producer’s royalty after the producer has delivered the master(s).
An Attorney’s Nightmare
Take the not uncommon situation on my desk right now. Six masters embodying the performances of a hot new female pop artist have been delivered to the major label A&R executive in his New York office. Every one of those masters contains the work of at least four different producers. No producer has the same number of points on any two masters. No producer is receiving the royalty he thought he would be getting when he started the process, because no producer realized the extent to which he would be “co-producing” the masters. Two producers completed work that has been eliminated entirely from three masters. One producer didn’t even realize he would have a master on the album because the record company is utilizing a track that he produced as a writer’s demo and never originally intended for commercial release. Three producers believe that their contributions to their masters have a greater value than the artist and the record company have allocated. Two producers are demanding that they begin receiving their royalties at the point at which only the recording costs associated with their particular masters are recouped, even though the record company will not pay anyone anything until ALL the recording costs associated with ALL masters are recouped. One producer is demanding that he be paid a royalty for work that has been deleted entirely from the project on the grounds that he did the work requested of him and it wasn’t his decision to replace it. One producer has no attorney and has never responded to the producer agreement at all. Three producers performed their services in commercial studios and are being paid traditional producer advances against their anticipated royalty. Three producers performed their services in studios owned by them and are being paid a “per-side” amount, which includes some combination of the producer advance, which is recoupable, and other monies for the use of the producer-owned studio and perhaps engineering services, which are not recoupable.
The Nightmare Continues
What is the result of all this? We have been forced to divide the recording process into various tasks, allocate a royalty value and credit description for each and then draft six different producer agreements based upon the above factors. Needless to say, we have also had to insist that outside of the confusion of who did what, the provisions governing all of the above will be on a “most favored nations” basis. And yesterday we received an e-mail from the Sr. VP of Business Affairs asking why the producer agreements aren’t completed yet. Ironically, had we actually negotiated and completed the producer agreements prior to commencement of recording as is preferable, they would now all be wrong. And if you think this is a problem in only pop and urban formats, think again. It may be less common in country, but it’s happening more frequently…particularly in situations where an initial single or two is released prior to completion of the album. Negotiating these complex producer agreements also can put us in a position of having to argue about the relative value of someone’s creative services, which isn’t usually an attorney’s job.
Letters Of Direction and Recoupment
A producer letter of direction is the artist’s signed letter to the record company telling the company that it is okay to pay advances and royalties directly to the producer. Artists like this and producers insist upon it. The record companies, however, although willing to do it, are careful to point out that it’s simply an “accommodation” to the artist and not intended to create any right for the producer to deal with the record company directly. Traditionally, record company forms for these Letters of Direction have only varied slightly from each other. Not so anymore, adding an additional layer of confusion to this once smooth process.
In addition. record companies will not pay any royalties to anyone until all actual recording costs have been recouped. Traditionally, exception has been made for the recoupment of personal advances to the artist—included in the definition of recording costs in the artist agreement—which, if large enough, could delay payment of the producer royalty indefinitely. Also excluded from that definition is the recoupment of the producer advance, since the producer’s royalty would not be paid anyway until that royalty exceeded the producer advance. In other words, once all recording costs, specifically excluding personal advances to the artist and the producer, have been recouped, the producer’s royalty is calculated all the way back until the very first record sold. Then the advance, which has already been received by the producer, is subtracted from the royalty due to theproducer and the producer is only paid the balance of what is owed.
One label, however, has now taken the position that it will not calculate the producer royalty until all recording costs, including the producer’s advance, have been recouped. Obviously, this further delays the moment at which recoupment occurs, again risking the possibility that not enough records will ever be sold to reach the magic number and that no royalty will ever have to be paid to the producer. Also, since the producer will not receive any royalties until the producer advance is applied against the producer royalty, in a way, recoupment of the producer advance is happening twice—once when it is recouped as part of the total recording costs and a second time when it is applied against payment of the producer royalty itself. For obvious reasons, producers don’t like this. For many years, most producer agreements have specifically excluded producer advances from the definition of recording costs for purposes of calculating the recoupment point of those recording costs. This language has been mirrored in the Letter of Direction. Now, at least one major record company will not accept a Letter of Direction containing this definition of recording costs…and so all producer agreements with artists signed to that label will have to be negotiated with the producer differently. This complication took many attorneys by surprise and we suspect that some will have producer agreements already fully negotiated and signed by the time they find out that the label will not agree to the accompanying Letter of Direction. Once more, this makes the negotiation of a fairly simple agreement much more difficult and expensive.
Summary
Clearly, producer agreements are taking more time to negotiate, which means additional legal fees on both sides. Strange how a year ago we thought there wasn’t much left to say about these agreements. Now we don’t have room in a single column to discuss even half of them. We love the music industry. There’s always something to talk about.
http://www.musicrow.com/
By Robin Mitchell Joyce, Bass Berry & Simms, PLC,
Lately, our office has been talking a lot about producer agreements. Our weekly meetings, which have been going on for 18 years or so, are usually devoted to the “new”: new technology, legislation, case law, clients and new ruptures in the industry fabric. Producer agreements are not new and have existed in a fairly limited universe. So why all the attention now?
The StatusQuo
The producer’s royalty, in almost all cases, comes out of the artist’s royalty. This means that provisions relating to things like foreign sales, CDs, new media, mid-line/ budget sales, net receipt participation, video receipts, accounting and auditing and a myriad of other payment issues have already been negotiated. In other words, for better or worse, the producer is almost invariably subject to the best deal that the artist was able to secure. Secondly, most logistical issues, such as the ceiling on the recording budget and the timing of recording and delivery, are already in place when the producer is hired. The remaining negotiable aspects usually fall within expected parameters, but can include: the actual amounts of the producer royalty and advance; limits on when those amounts can be reduced; the scope of the producer’s responsibility for budget overages, credit provisions; and whether the producer is bound to certain mechanical royalty rates and “caps” for songs included on the album that are written by the producer.
In With The New
Lately, however, the changing landscape has given us a bit more to talk about. Perhaps it’s because we’re moving toward a “singles” industry and aesthetic consistency throughout an album seems less important. Maybe it’s because writer/producers will often produce a master during their writing session with the artist. Or maybe we’ve simply started separating producers out by skill set (ie. “tracking,” “mixing,” “vocals,” etc.). Regardless, it is more and more unusual to have an entire album produced by a single producer…and logistically, this has made it almost impossible to negotiate and close the producer agreement(s) prior to the commencement of recording or even by the time the master(s) are delivered. Why? Because frequently it is unclear exactly how many masters a producer will end up delivering, if other producers will be brought in to contribute additional services to any given master (such as mixing or re-doing vocals), or whether a producer’s work on a master may be replaced entirely. Obviously, since the artist will want to cap the total producer royalty to some reasonable and customary amount, a producer that has negotiated a 4% royalty cannot be paid that entire royalty if two other producers have been brought in later to add or re-do elements of the subject master. Allocating the “all-in” producer royalty between several creative participants is at best complex—at worst it’s a blood bath. Producers have traditionally fought against any discretionary or arbitrary right of the artist to reduce the producer’s royalty after the producer has delivered the master(s).
An Attorney’s Nightmare
Take the not uncommon situation on my desk right now. Six masters embodying the performances of a hot new female pop artist have been delivered to the major label A&R executive in his New York office. Every one of those masters contains the work of at least four different producers. No producer has the same number of points on any two masters. No producer is receiving the royalty he thought he would be getting when he started the process, because no producer realized the extent to which he would be “co-producing” the masters. Two producers completed work that has been eliminated entirely from three masters. One producer didn’t even realize he would have a master on the album because the record company is utilizing a track that he produced as a writer’s demo and never originally intended for commercial release. Three producers believe that their contributions to their masters have a greater value than the artist and the record company have allocated. Two producers are demanding that they begin receiving their royalties at the point at which only the recording costs associated with their particular masters are recouped, even though the record company will not pay anyone anything until ALL the recording costs associated with ALL masters are recouped. One producer is demanding that he be paid a royalty for work that has been deleted entirely from the project on the grounds that he did the work requested of him and it wasn’t his decision to replace it. One producer has no attorney and has never responded to the producer agreement at all. Three producers performed their services in commercial studios and are being paid traditional producer advances against their anticipated royalty. Three producers performed their services in studios owned by them and are being paid a “per-side” amount, which includes some combination of the producer advance, which is recoupable, and other monies for the use of the producer-owned studio and perhaps engineering services, which are not recoupable.
The Nightmare Continues
What is the result of all this? We have been forced to divide the recording process into various tasks, allocate a royalty value and credit description for each and then draft six different producer agreements based upon the above factors. Needless to say, we have also had to insist that outside of the confusion of who did what, the provisions governing all of the above will be on a “most favored nations” basis. And yesterday we received an e-mail from the Sr. VP of Business Affairs asking why the producer agreements aren’t completed yet. Ironically, had we actually negotiated and completed the producer agreements prior to commencement of recording as is preferable, they would now all be wrong. And if you think this is a problem in only pop and urban formats, think again. It may be less common in country, but it’s happening more frequently…particularly in situations where an initial single or two is released prior to completion of the album. Negotiating these complex producer agreements also can put us in a position of having to argue about the relative value of someone’s creative services, which isn’t usually an attorney’s job.
Letters Of Direction and Recoupment
A producer letter of direction is the artist’s signed letter to the record company telling the company that it is okay to pay advances and royalties directly to the producer. Artists like this and producers insist upon it. The record companies, however, although willing to do it, are careful to point out that it’s simply an “accommodation” to the artist and not intended to create any right for the producer to deal with the record company directly. Traditionally, record company forms for these Letters of Direction have only varied slightly from each other. Not so anymore, adding an additional layer of confusion to this once smooth process.
In addition. record companies will not pay any royalties to anyone until all actual recording costs have been recouped. Traditionally, exception has been made for the recoupment of personal advances to the artist—included in the definition of recording costs in the artist agreement—which, if large enough, could delay payment of the producer royalty indefinitely. Also excluded from that definition is the recoupment of the producer advance, since the producer’s royalty would not be paid anyway until that royalty exceeded the producer advance. In other words, once all recording costs, specifically excluding personal advances to the artist and the producer, have been recouped, the producer’s royalty is calculated all the way back until the very first record sold. Then the advance, which has already been received by the producer, is subtracted from the royalty due to theproducer and the producer is only paid the balance of what is owed.
One label, however, has now taken the position that it will not calculate the producer royalty until all recording costs, including the producer’s advance, have been recouped. Obviously, this further delays the moment at which recoupment occurs, again risking the possibility that not enough records will ever be sold to reach the magic number and that no royalty will ever have to be paid to the producer. Also, since the producer will not receive any royalties until the producer advance is applied against the producer royalty, in a way, recoupment of the producer advance is happening twice—once when it is recouped as part of the total recording costs and a second time when it is applied against payment of the producer royalty itself. For obvious reasons, producers don’t like this. For many years, most producer agreements have specifically excluded producer advances from the definition of recording costs for purposes of calculating the recoupment point of those recording costs. This language has been mirrored in the Letter of Direction. Now, at least one major record company will not accept a Letter of Direction containing this definition of recording costs…and so all producer agreements with artists signed to that label will have to be negotiated with the producer differently. This complication took many attorneys by surprise and we suspect that some will have producer agreements already fully negotiated and signed by the time they find out that the label will not agree to the accompanying Letter of Direction. Once more, this makes the negotiation of a fairly simple agreement much more difficult and expensive.
Summary
Clearly, producer agreements are taking more time to negotiate, which means additional legal fees on both sides. Strange how a year ago we thought there wasn’t much left to say about these agreements. Now we don’t have room in a single column to discuss even half of them. We love the music industry. There’s always something to talk about.
http://www.musicrow.com/