Recording Artist' Coalition: A Voice for Artists' Rights
Contact Merchandise Suggested Reading FAQ Press Events Industry Practices Artists Issues
Internet Rights Work for Hire Accounting Practices 7-Year Statute Recording Contracts Payola
Recording Conracts

Contractual Issues

For years, recording artists and their representatives have recognized and vilified the antiquated, but universally used, standard recording agreement. Some surmise that the standard recording agreement, with all of its anti-artist provisions, arguably constitutes a restraint of trade under the laws of the United States. There is some degree of support for this point of view.

Courts in the United Kingdom have at times ruled that certain standard music industry contracts constitute a restraint of trade under the laws of the United Kingdom, and perhaps even under the laws and regulations of the European Community, if the court determines that the contract in question is oppressive and against the public interest. In those instances, UK courts have rescinded or terminated contracts and even awarded recording artists with significant damages. Based on this precedent in the UK, this Committee should examine the standard recording agreement as is used in the record industry today in the United States to determine whether there is any basis to conclude that this type of standard agreement also violates US law. The following are examples of certain controversial provisions Congress may find troublesome:

1. A key issue in many of the United Kingdom restraint of trade cases is the inordinately long term of the standard contract. Most major label agreements require a commitment for six to eight albums, with a term that could conceivably last well over ten years. The United Kingdom and the State of California have tried to address this problem either through court intervention or through the legislature. (No action has been taken elsewhere in the United States.) Courts in the United Kingdom have ruled that as a matter of UK law an excessively long term recording agreement, as well as other types of similar agreements in the music industry, constitutes a restraint of trade. The State of California responded by enacting Labor Code 2855, which prohibits, under certain circumstances, entertainment industry personal service contracts longer than seven years. RAC believes a legislative solution is desirable, and therefore Congress should seriously consider enacting a seven-year federal law similar to the law in California. While the California law is not perfect, Congress should consider it as a guide. Free agency in the music industry will help established artists, new artists, and independent artists. Free agency in the movie industry has been a fantastic success, increasing the economic viability of both studios and actors. In the music business, both the record labels and the recording artists will benefit from a free agency system that places a premium on success and gives artists a new degree of control over their careers. This is why a federal seven-year rule would be good public policy. It guarantees competition and innovation in the music industry.

2. The majority of recording artists will never achieve financial success or independence while the very onerous recoupment policy remains a staple of the standard record agreement. As Chairman Hatch has stated in the past, this is the only industry in which, after you pay off the mortgage, the bank still owns the house. This standard recoupment policy is also a very compelling reason why Congress and the Courts should recognize that a recording artist is not an employee or independent contractor of the record company. Congress should undertake a very close examination of this policy.

3. When a band signs a record contract with a major label there is almost always a "leaving member" clause. This type of clause mandates that a recording label has the right to retain the services of a leaving member of a band as a solo artist.

4. The work for hire provision of the standard record agreement offers another compelling example of a provision that raises anti-competitive concerns as it denies the creator of the work the right, otherwise granted to all other copyright creators in similar circumstances, to exercise termination rights. Essentially, the work for hire provision tries to contractually deny the recording artist their termination right, even though the Copyright Law clearly does not include sound recordings as a qualifying category for work for hire status.

5. Recording artists who also write their own music often must waive the full, statutory mechanical royalty rate as a precondition to signing a record contract (the "controlled compositions" clause).

6. In almost all record contracts, the standard royalty is drastically reduced for all sorts of inappropriate and arbitrary reasons. For example, a recording artist will receive a reduced royalty if a record is sold in a foreign territory, if the record is sold in a PX or a military base, if the record is released in a "new format or technology," and if the record is sold through a record club. The major labels cross-license their catalogs to record clubs, such as Columbia House and BMG Direct. The labels take enormous advances that they do not share with recording artists and pay artists based upon a 50% royalty rate. RAC is also concerned that this long-contended practice is extending to the online marketplace. With Mp3.com, for example, each of the major labels took $20 million advances on blanket licenses – advances they have not offered to share with artists. A certain amount of records will be distributed as "free goods" when in many instances the recording agreement provides that the record company may include these records in special merchandising programs. In these instances, the record company would still get paid for these records while the artist would not. Some contracts actually charge a packaging deduction against the recording artist for sales of records via the Internet. In other words, the record company does not create any packaging, but nevertheless charges the recording artist for the non-existent packaging. Sometimes these packaging charges amount to 25% of the standard list price of a record. RAC member Tom Waits sums up the situation very nicely with this prophetic line in his song "Step Right Up": when it comes to recording contracts, "the big print giveth, and the small print taketh away." All in all, the practices of the record industry relating to calculation of royalties warrant serious attention.