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Chris Castle Discusses Songwriter Class Action Against Spotify with Michael Brandvold & Jay Gilbert

22 Apr

Suggested Deal Points for Artist-Songwriter Split Agreements

29 Sep

This post covers suggested deal points for a split agreement from an artist/writer perspective (not from a producer/writer or outside songwriter perspective).  This is not intended to be legal advice or to be a substitute for being represented by an attorney in your negotiation.

Whenever you co-write with someone not in your band (which could be a producer or another songwriter) there are some issues you have to be concerned about. Some of this may be a little too complex legally for most people to try on their own, but we will assume that if you have a record deal (which is when most of these issues come up) you will already have a lawyer or manager to help you. These are not all the issues involved, but if you cover all of them you will avoid a good deal of confusion later on.

1. Splits: It seems obvious, but make sure there is no dispute about who wrote how much of the song.

2. Promo Videos: You will need to be sure that the co-writer agrees to whatever terms are in your record deal that cover the synchronization license for promo music videos that are in your recording agreement. Assume that you’ll need to get a free sync license for promo music videos. “Promo music videos” can include YouTube which is technically a commercial exploitation but which throws off so little revenue that is may as well be promotional. One way to refer to this is “a free sync license for promotional or “YouTube-style” music videos”.

3. Controlled Compositions: If you are an artist signed to a recording agreement with a controlled compositions clause, you want to be sure that your co-writer accepts all the terms that apply to you. If you are the unsigned co-writer, be sure you understand all the terms of the controlled comp clause that apply to your song. You can ask for a copy of the “redacted” clause from the artist contract (and artists who do a lot of co-writing should have a digital copy of this clause ready to send out as it is a fair request).

4. Demo Ownership: Make sure you are clear about who owns the copyright in the demo recording. Remember—there are two copyrights in each sound recording, the sound recording itself (the demo) and the song that’s recorded (that you are co-writing). If you are the featured artist, you want to own 100% of the sound recording copyright in the demo. The percentage ownership of the demo and the percentage ownership of the song are two very different things and the ownership shares are independent of each other. Just because your cowriter owns 50% of the song doesn’t mean the cowriter owns 50% of the recording. This will become important if you use a pitching service for film and TV placements (“syncs”) and the licensee wants to use the recording of the cowrite. If you are signed to a record company, the record company will technically own the demo (or will take the position that they do).

5. Other Sync Licenses and Pitching: Aside from music video syncs, there is a whole world of film and TV licensing as well as advertising opportunities. These often require servicing a recording of your song to the film and TV supervisors or creatives at advertising agencies. There are people who operate these pitching services, and major labels (at least theoretically) do it themselves. If you co-write with a writer who either has a pitching deal or a record deal, you need to have an understanding of who can pitch the song and who can approve synchronization licenses. If you are the featured artist, you will want to have some control over who is pitching the song because if your co-writer pitches the song for a use you do not want to approve, that can create confusion in the film and TV licensing community and may result in your not getting considered for syncs you do want. (The conversation with the co-writer will go something like this: “Want do you mean the artist won’t approve it? YOU PITCHED IT TO ME!”)

6. Creative Commons: As usual, you have to be very careful not to write with anyone who intends to make your co-written song available under any kind of a “Creative Commons” license. The “CC” license does not work very well for professional songwriters, mostly because it is very poorly drafted and it is effectively irrevocable. See “Carefully Co-Writing Without Creative Commons”, Public Licenses: The Gift that Keeps on Giving (by Prof. Jane Ginsburg), Common Understanding (by ASCAP’s Joan McGivern)

7.  Self Distribution:  Every digital distributor in the US will make the artist assume the responsibility for paying mechanical royalties.  If you are distribution a record with co-writers, make sure you have a clear understanding with them as to what your obligations are for mechanical royalties.  If you are distributing a recording with cover songs, i.e., songs written by “outside” writers, you will be responsible for paying them and you will need to get a mechanical license for their songs.

Controlled Compositions Chart: Meetings 1 and 2

23 Sep

We spent some time going over “controlled compositions rates” in the introductory Meeting 1 and will spend much more time going over songwriter issues and the detail behind controlled comp rates in Meeting 2.  This chart will be helpful in understanding these concepts:

Controlled Comp Terms Rate in Pennies Per-song rate in pennies   (11 song LP or bundle) Non-controlled   rate Delta
Minimum statutory (from 17 USC Sec. 115) $0.0910 $0.0910 $0.0910 0
¾ rate $0.06825 $0.06825 $0.0910 -0.0227
10 x cap $0.6825 $0.0620 $0.9100 -$0.2275 (10)-0.3185 (11)
No protection (1 outside 100%) $0.5915 $0.0537 $0.0910 -$0.0372

New Streaming Mechancial Rates and Hypotheticals: Chris Castle at @thecacopyright

12 Sep

The following is from Chris’s presentation at the California Copyright Conference “Legal Eagles” Panel on 9/11/12 in Los Angeles.  Chris covered the new streaming mechanical rates that are expected to soon be in effect.  See complete proposed regulations in the Federal Register.

Service Type

Definitions

2012 Rate

Promotional Clips Increased from 30 to 90 seconds
PRO Payments Actual or estimated All rates include PRO payments
Total Content Cost Applicable   consideration means anything of value given for the identified   rights to undertake the licensed activity, including, without limitation,   ownership equity, monetary advances, barter or any other monetary and/or   nonmonetary consideration, whether such consideration is conveyed via a   single agreement, multiple agreements and/or agreements that do not   themselves authorize the licensed activity but nevertheless provide consideration   for the identified rights to undertake the licensed activity, and including   any such value given to an affiliate of a record company for such rights to   undertake the licensed activity.Greater   of formula:“the total amount expensed by the service provider   or any of its affiliates in accordance with GAAP for such rights for the   accounting period, whichamount   shall equal the  applicable consideration   for such rights at the time such applicable consideration is properly recognized as an expense under GAAP”
Proration Licensees paid their prorata share of greater of formula for activity   during the accounting period
Mixed Service Bundles (385.21) The combination of locker services, limited interactive   services, downloads and ring tones with other non-musical products such as a   mobile phone, a consumer-electronics device, or Internet access Greater of 11.35% of revenue or 21% of   total content cost
Music Bundles (385.21) A package of music products such as CDs, ring tones and   permanent digital downloads (20 or fewer dpds) Greater of 11.35% of revenue or 21% of   total content cost
Limited Offerings (non-interactive services) (385.21) Subscription-based and offer access to certain genres of   music or specialized playlists at reduced prices, including monthly playlists   of a limited set of recordings Greater of 10.5% of revenue or 21% of total   content cost or 18 cents per subscriber
Paid Locker Services (385.21) Subscription-based cloud music storage for streaming and   download, such as those offered by Apple, Amazon, Google Greater of 12% of revenue or 20.65% of   total content cost or 17 cents per subscriber
Purchased Content Locker Services (Free Lockers) (385.21) Free cloud storage for digital music previously bought by   the user as a permanent digital download, ringtone, or CD Greater of 12% of revenue or 22% of the   total content cost
Physical  Phonorecords (2009   rate unchanged in 2012) 17 USC 101 Larger   of 9.1 cents or 1.75 cents per minute of playing time or fraction thereof
Permanent Downloads(2009 rate unchanged in 2012) “Digital phonorecord   delivery” 17 USC 115(d)/385.2 Larger   of 9.1 cents or 1.75 cents per minute of playing time or fraction thereof
Limited Downloads(2009 rate unchanged in 2012) 37 CFR 385.11 10.5% of   revenue, less PRO payments (rate formulas at 37 C.F.R.§385.10 through §385.17)
Interactive Streaming(2009 rate unchanged in 2012) 37 CFR 385.11 10.5%   of revenue, less PRO payments (rate formulas at 37 C.F.R.§385.10 through   §385.17)
Ringtones (2009 rate unchanged in 2012) 24¢
Late Fees 1.5   percent per month, or the highest lawful rate, whichever is lower. See 37   C.F.R. § 385.4

This is Chris’s Total Content Cost hypotheticals:

385.11 Applicable consideration means anything of value given for the identified rights to undertake the licensed activity, including, without limitation, ownership equity, monetary advances, barter or any other monetary and/or nonmonetary consideration, whether such consideration is conveyed via a single agreement, multiple agreements and/or agreements that do not themselves authorize the licensed activity but nevertheless provide consideration for the identified rights to undertake the licensed activity, and including any such value given to an affiliate of a record company for such rights to undertake the licensed activity.

TCC is a percentage of “the total amount expensed by the service provider or any of its affiliates in accordance with GAAP for such rights for the accounting period, which amount shall equal the applicable consideration for such rights at the time such applicable consideration is properly recognized as an expense under GAAP.

Gratify, a digital retailer, wants to license the catalog of Galaxy Domination Music Group.  After some back and forth, Gratify and Galaxy reach this deal:

$2 million advance, 2% of Gratify’s common stock on an as if converted basis, and a 10% discount on royalties.

The shares are issued as private stock held by Galaxy, with a valuation set by Gratify’s board at 10 cents per share.

Question 1:  The company records the contract with Galaxy as the consideration for the shares.  Would the shares be recognized as an expense under GAAP?

Question 2:  The company records the future discount in the contract as consideration for the shares.  What would the amount of the discount be?  Would the shares be recognized as an expense under GAAP?

Things go well for Gratify and the company goes public and its underwriters price the stock at $20.

Question 1:  If Galaxy liquidates its entire position as a selling stockholder in the IPO, would the proceeds from the sale be recognized as an expense to Galaxy under GAAP?

Question 2: If Galaxy holds its position for several months and then liquidates its position through a sale of registered stock in the public market for a profit, would the proceeds from the sale be recognized as an expense to Galaxy under GAAP?  Is there a different answer if Galaxy sells its shares for less than $20?  Is there a different answer if Galaxy sells its shares for less than 10 cents (the issue price)?