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Music Industry Contracts (Part 1): 8 Key Clauses to Watch Out For

  • 27 June 2022
  • Studio Legal

Written by Sebastian Marcu, Alyce Evans and Jennifer Tutty, Principal

For anyone currently working in or aspiring to enter the music industry, landing contracts is an exciting and important part of your career. The dream is that these will catapult you forward to success, so you can continue doing what you love and sharing it with others.

However, we’ve all heard the news stories of music contracts gone wrong – flashback to T-Swift battling Scooter Braun over the rights to her master recordings.

Whether you’re a musician, recording artist, composer, producer, manager or record label, music industry contracts are integral to your career. To help you navigate contractual legal lingo, we’re here to explain the 8 key clauses to watch out for and understand in music industry contracts. Once you’ve ticked that off your list, check out Part 2 of our two-part series on music industry contracts to learn how to negotiate your contract like a pro.

What is a Music Industry Contract?

A binding agreement between you and another business in the music industry (such as a record label or publishing company), which grants the business the rights to commercialise your music career. Music industry contracts include management agreements, recording agreements, master licence agreements, collaboration agreements, publishing agreements, booking agent agreements, 360 agreements, producer agreements, band partnerships and more!

Key Clauses to Watch Out For and Understand:

Before signing a contract, take a deep breath (you did it!). It’s time to carefully read, consider and think about the contract. Understanding the clauses is crucial to ensuring that you’re entering into a fair agreement, which will benefit you and your career.

1. The Term

The term of a contract is the duration of time in which the contract will apply. What constitutes a reasonable term will vary depending on the type of contract you are dealing with. It is important to be mindful of the term (and when the term ends) so that you don’t lock yourself into an agreement for longer than is reasonable.

Common terms for different types of music agreements are:

– Booking agent agreements: 1-3 years;

– Management agreements: 3-5 years;

– Licence agreements: 5-15 years; and

– Recording agreements: as long as it takes you to make and release 2-4 albums.

2. The Territory

The Territory is the region in which the contract will apply. This might be Australia, Australia and New Zealand or the World.

When a music contract states the territory as ‘The World’, think about the other party’s expertise, reputation and network overseas. Will you be able to benefit from this, by granting them worldwide rights? If they have a solid track record of representing musicians in Australia and internationally, the answer may be yes. However, it may be of little use to give a record label or manager worldwide rights if they are unable to exercise them effectively.

3. Rights Granted

When thinking about rights granted, an important question to consider is: what are you giving and what are you receiving?

Take the time to identify exactly what it is that you are granting to the other party, be it a record label, manager, publisher or collaborator. This is where it may be useful to consult a lawyer, so that they can explain what rights you are giving and what you will receive in return.

4. Ownership

You will need to carefully consider how your work will be owned in the context of the music industry contract. Typically, the contract will refer to ‘assigning’ or ‘licensing’ your work to the other side.

Assignment 

As the initial creator of the work, you are the copyright owner. If you assign all of the rights in your work to the other party, you are giving them copyright ownership in your work forever (unless there is a reversion of rights down the track). In effect, this restricts your own ability to exercise certain rights over your work. For example, if you have assigned the right to a record label to publish and release your music, you cannot then release it yourself, without their permission, unless this is expressly agreed in the contract.

Licence

If you licence certain rights in your work, you are allowing the other side to benefit from and use the work in certain ways, but you still retain ownership of it. Licensing your work means that after the end of the contract, you will have full control and ownership of the work, which means you can seek further opportunities to commercialise the work in the future.

Which is preferable?

The most preferable option for artists is to retain ownership of their work. This can be achieved by licensing out copyright in the work rather than assigning it. However, there may be instances where an assignment of rights is reasonable, such as with more complex recording agreements where the record label makes significant contributions to your career. If considering an assignment, artists should consider requesting that the rights revert back to them after the expiration of that set period (this is particularly important in publishing agreements).

5. Exclusivity

Exclusivity is another important consideration in music contracts. You should be mindful of what rights you are granting on an exclusive basis and whether this is beneficial to you.

Exclusive rights

Granting an exclusive right means that you cannot then grant that same right to other parties during the term of the agreement. When you are granting exclusive rights to someone, you should expect more in return from them, such as better royalty rates, a larger advance or more rigorous service obligations.

Non-exclusive rights

Non-exclusive rights can be simultaneously granted to others. These might include the right to use your name, photos, biography and likeness in selling and promoting your work. The granting of non-exclusive rights is less risky than exclusive rights, but should also be carefully considered.

6. The Other Party’s Obligations

It’s important that the contract states clearly the obligations the other party has in holding up their end of the deal. For example, a manager should be obligated to act in the best interests of the artist and a record label should be obligated to release your masters within a set time frame from acceptance of the masters. If there are no positive obligations on the other side and you are looking to get out of the contract, it will be hard to show the other was ‘in breach’ if they had no obligations in the first place.

7. Distribution of Income

Music contracts usually discuss how income streams will be collected and distributed between contracting parties. Relevant questions to ask are who collects income, how often is it distributed and what rights do you have in ensuring the distribution of income is accurate? Are you comfortable with the proposed arrangements?

Regarding the third point and if the other side is collecting revenue, the contract should have an auditing clause, which gives you the right to inspect the other side’s accounting records to ensure that there are no discrepancies.

8. Breach and Termination Rights

Unfortunately, sticking with an agreement is not always preferable. Before you sign on the dotted line, take a look at how the agreement can end. It’s important to make sure you will be able to terminate the agreement if things go pear-shaped.

Always ensure there is a ‘termination for breach’ right in the contract, so if the other side breaches the contract, you can get out of it. Also, identify what you are required to do to validly terminate the contract and in what circumstances you can do so. If you’re assigning exclusive rights, assess what your termination rights are if (in the future) you decide you’d like to work with someone else. It is also important to consider what will happen after the term ends, such as post-term commissions, re-assignment of your ownership in your work and the other party’s ongoing right to receive a cut of royalties.

In Conclusion

Entering into new contractual arrangements is an exciting career step for anyone in the music industry. Make the most out of each opportunity by reading your contract carefully, understanding what it means and asking to negotiate where necessary.

Written by Sebastian Marcu, Alyce Evans and Jennifer Tutty, Principal

Further Information

If you have any legal questions relating to the music industry or would like legal advice on a music industry contract, please contact us through our online form or via email at hello@studiolegal.com.au.

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.