The Business of the Business
Let’s get down to business by deciding when to get down to business. What are indicators that an informal and casual handshake might not suffice as the band goes forward? Here are a few road signs that might point in that direction:
- You are likely to receive IRS form 1099 from one or more employers
- The act is earning over $10,000 a month
- The act is performing before more than 2,000 people per month
- The act is getting regional or national radio airplay
- The act is garnering significant press
Any of these indicators should tell you that a firm foundation for your band business is in order before the house collapses further down the road.
This chapter will guide us through the fundamentals of what constitutes an intellectual property and how these properties are conveyed and marketed to other business entities and the public. An entertainment business is bounded by the same laws of business physics that affect all business[em]things like cash flow, depreciation, tax write-offs and such. Like all small businesses, a music startup with a plan and a lot of hard work behind it can find success. The truth of the matter is that according to the Small Business Administration statically most new small businesses fail and regardless of what sector of the economy the business is in, the top three reasons for failure are the same:
- Insufficient Startup Capital
- This is where a band fund that pulls at least 10 percent off the top can come in handy. You can make a killer gig poster on your computer but you still have to have a few bucks on hand to make copies. Recording budgets can come from the same place. You don’t need a million bucks to get started as in many businesses, but you need at least enough to get a promotional and recording ball rolling.
- Inadequate Business Planning and Marketing Plans
- It all boils down to a plan. If you don’t have one, sit down with a pen and piece of paper and jot one down. Start with 90 days. What do you want to accomplish in that time? Where does the band want to be one year from now in terms of earnings and exposure? What is the plan to get there? Is that plan realistic? “We kick ass for a year and blow them all away” is not a plan but a dream. Learn to tell the difference.
- Unrealistic Accounting and Cash Flow Projections (Blue Sky)
- In business, when rosy business plans or startup pro formas are being put forward it generally will contain what is known as “blue sky.” This is overvaluing the assets or the business plan by using figures and projections that you pull out of the “blue sky.”
- A recent partnership for a local club came by for some consulting and showed me a pro forma that would make money for all the investors in a short period of time. There were weekly, monthly and quarterly sales projections that were plotted out for five years. When I asked the source of the projection data, I was told that it was the estimate of the General Partner. Who was the guy putting the deal together? The General Partner. The place went under in about 100 days and all the investors lost their shirts.
The Foundation of It All – The Copyright
The copyright is the core basis of any artistic endeavor and drives the entire entertainment industry. Most of the paperwork in the business is the assignment and licensing of copyrights; most commonly CDs, DVDs, film and videos, distribution and streaming rights between two parties. A copyright is much the same as a patent for an invention or process. It is a claim of ownership and exclusive rights to the property that is the foundation of any license or copyright enforcement claim. Here are a few frequently asked questions regarding copyrights:
How do I copyright a song?
Copyrighting a song is a pretty straight forward process. You merely state your claim of ownership in authoring/writing the piece. On a copy of a song you composed you could affix the “©” copyright symbol and it has been copyrighted – at least in your mind and notebook. Legally it’s yours. On the other hand, you may want to declare to more than just yourself that you own the piece.
In the case of an infringement case where the origin of the song is the point being argued in court, the party that can show the earliest claim of ownership will usually prevail. If someone copyrights a song in 2006 and the other party copyrighted the song in 1994 and can prove it, the earlier date is first date of the rights being claimed. Bottom line the issue with a copyright claim is not so much who as when.
Why should I register my copyright with Library of Congress?
The most common way and an absolute necessity if a song is likely to actually be bought, sold or licensed is to have the creative property claim registered with the United States Library of Congress. This registry acts as the legal timestamp of an authorship and ownership claim. The Library of Congress currently charges $45 to timestamp your claim of ownership. Before sending in your application, it is a good idea to make sure the rate hasn’t gone up by visiting www.copyright.gov for any changes in pricing. There are different forms for different copyrights but the primary tools for the music industry will be Form PA and Form SR. We will look at these two forms in some detail.
Keep in mind that copyrighting a song does not indemnify you from infringement claims. Contrary to urban legend, the Library of Congress doesn’t listen to all the music submitted. I would be surprised if they even confirmed that there actually was a song on the CD or tape. They are merely acting as the registrar/time stamp for a claim of ownership.
When you hear a song on the radio there are actually two copyrights that are usually in play. The first copyright is the copyright that is owned by the songwriter or composer. This copyright owner granted to the artist performing the song the right to perform it. The artist or their label also owns the copyright for the actual recording that is made. The song has two parts: the composer/creator and the performer. If someone else wanted to cover the song they would need the permission of the copyright owner of the song. If someone wanted to use, for example, an artist’s recording on a film soundtrack, they would need the permission of both the writer and the label or artist that owns the performance.
How long does a copyright last?
At the time of this writing, (and the major labels are now lobbying to extend copyright terms into centuries), a copyright will last the life of the composer/author plus seventy-five years. A song recorded today by a 20-year-old young gun may not see the light of public domain until sometime after 2150. I guess the short answer is, “a long time.”
Do I have to write notated music to copyright a song?
No. Library of Congress now accepts CDs and cassettes. See the instructions on copyright forms below. The form with full instructions is also on the CD.
Is there an alternative to paying so much for a copyright?
For the starting songwriter, especially the prolific, copyrighting every single song through the Library of Congress can be an expensive proposition. Luckily, there is a perfectly legal way around spending $45 every time you come up with a good hook. Copyright a number of songs under one title. “Songscapes of John Songwriter, Vol 1” will time-stamp the entire collection and one of the component songs can be later culled from the herd and copyrighted again.
Another commonly used method is the “poor man’s copyright” using the U.S. Postal Service. Send a CD of the music, along with a lyric sheet to yourself via registered mail. Do not open the package. The package has the time stamp from the post office and could be entered into evidence in court later if necessary. I find this the least desirable method of protection as it offers you the least. We’ll start with a more in-depth look at the two most common and important copyright forms, Form PA and Form SR.
Let’s take a quick look at Form PA, the best legal foundation for a copyright claim. All the forms mentioned in this chapter and throughout the book are on the accompanying CD with detailed instructions. See Appendix C for a complete listing of the forms.
This is the form you will use to copyright a single song or collection of songs with the Library of Congress. Again, the form is on the CD and we will just look a few of the more important parts.
Section 1 has one component that deserves comment. Remember a page or two back where we discussed copyrighting a collection of songs as one? When culling out a song for a previous, separate, stand-alone copyright, enter the originating title of the first copyright.
Example:“I Love My Baby”
Originally copyrighted as part of “Songscapes of John Songwriter, Vol 1”
LOC # ABCD-1234, May 2008
Section 2 is very important. Use your full legal name rather than a stage or entertainment name. Since it can take up to one year to have the copyright form returned to you, use the most permanent address you can come up with in a 21st Century migrating society. When I was young, I used my parent’s address because mine would change frequently. I now have a post office box as a permanent business address. In legal terms regarding the song, this is the owner and address of the copyright. It is assignable only by this person.
The rest of Form PA is pretty straight forward. If you wrote both the lyrics and music, tick both boxes. Enter a publisher name only if the song has been officially assigned to a publisher. For legal intents and purposes a song is generally viewed as published only after the public has access to it.
The certificate mailing address is where they will send the document. Again, use a permanent address.
Be sure to sign the application and mail it to Library of Congress with a check or money order. I prefer a check as I get to see when I enter the queue at Library of Congress when the check clears. Be patient; it will be months before the document returns.
When you receive the form back from the Library of Congress, it will have a stamp on it in the upper right corner that will be the official and legal description of the song as an intellectual property. If you are assigning the rights to this song at a later time, you can use this legal description in the license agreement.
Now that we have the song covered, let’s take a look at copyrighting the recording of that song using Form SR. Form SR is much the same as Form PA, but a bit more complex and with more variables.
Section 1 is much the same as Form PA and you can see that a space has been created in this form for inclusion of a derivative work or previous copyright.
Section 2 leaves room for more authors (something woefully missing in Form PA) and wants to know more about them.
Sometimes the estate of a copyright owner will become the copyright claimant after the passing of the writer. Unless you are the executor or trustee of the writer’s estate, leave this space blank.
That sums up our look at the basics of copyrights and the two most common and important copyright forms. The CD contains a number of other copyright forms for a number of scenarios such as a reassignment of copyright or an extension of the copyright period. Please keep in mind that the Library of Congress forms are up to date as of the time of this writing, but you may go online at copyright.com and download the latest forms. Now let’s examine some other basic legal concepts that can have important implications regarding your future as an artist.
Other Fundamental and Important Concepts
Assigning vs. Licensing
Now that you own the rights to a given song or recording through the copyright procedure, let’s take a look at how we would exploit these new legal entities when walking into a deal.
It boils down to two concepts: assigning and licensing. Simply put, assigning rights to your music is handing over the copyrights to that recording or song. Once assigned, it is completely out of your control. You are no longer the owner of that property. Your new partner will pay you a percentage or per unit royalty for what sells, but they will make all the decisions regarding exploiting the property, accounting for the property, and re-assigning or licensing those rights to other third parties. You are completely out of the administrative loop. This is most commonly found in publishing agreements over song rights and recording deals over record rights. The publisher is the copyright holder and is in a revenue sharing partnership with you. The publisher doesn’t just take the money; they are responsible for all exploitation of the piece and the enforcement of its copyright. Many artists from unknowns to megastars have publishers handle this part of their career because unless the writer is a prolific author of hit material, it is easier to have a publisher handle all the administrative and marketing tasks.
A similar situation arises when an artist is signed to a label. When the CD is released, the product is owned completely by the record label, not the artist or the writers. All aspects of exploiting the recording are the label’s responsibility and consequently they make all the calls.
The alternative to assigning the rights is to license them. This will give the licensee the rights to use, not own, the intellectual property for a given period of time for a specific amount; again, usually royalty based.
When an artist or their management licenses a product, it gives the buyer the right to manufacture, market and sell products based on the artist and their image. An artist can license their logo to promote a beer or soft drink. An action figure manufacturer might want to license the rights to a successful artist. Regardless of how much money changes hands or what property is being conveyed, the important difference in licensing is that the license will expire at some time in the future. One of a successful manager’s core duties is to license the brand to as many possible outlets as possible for the best price that can be obtained.
Another upside to licensing is it can be used as an incentive to the licensee to perform. If you own the material forever, you have no immediate compulsion to recoup your money immediately; you might save that great song in the catalog for the next hot artist you sign that needs a strong repertoire rather than just throwing it out to whoever will cut it. In the case of a license, the meter is running, the clock is ticking and the licensee can only exploit and profit from the license for its term. It is a good incentive to get things done. I also view it as much easier to recapture your rights via reversion or litigation if it is a license you are trying to revoke rather than a copyright you are trying to recapture. Keep an eye out for this concept in the contract, assignments have been known to go by many names but in the case of a license there will always be a stipulation for when the license and agreement expire. If there is no such wording, you are probably looking at an assignment in disguise. Cyclical wording can also be used to mask an assignment. In one paragraph, perhaps stuck in the definitions preamble to a contract, the term can be defined as the life of the copyright – a sure red flag for an assignment. Later in the document no further mention is made of any term to the agreement; all later clauses refer to the previous and more obscure definition. “As specified herein,” “in compliance with the terms of this agreement,” or “co-terminus with the license granted herein,” can all be road signs to something sinister. Read those clauses at least twice and hunt down and understand the reference.
In every case possible, regarding every aspect of your career and image, license if you can and assign only if you must.
Record labels and publishers regard this as the “R” word. Reversion means that the rights revert to the artist or writer for whatever reason. The primary use of reversion clauses in contracts is to gain leverage in regards to the performance of the contract. A manager is granted exclusive rights to manage and market the band, but should the manager fall short of what was contractually expected, the rights can revert to the artist. Similar clauses are in almost all contracts granting rights to intellectual properties. If the buyer does not pay royalties on time or in the agreed amount, if the buyer doesn’t hit certain legally-defined benchmarks, the rights they had will revert to the artist or their management.
You can even find reversion clauses in recording deals on occasion[em]almost always from a band with negotiating strength. Especially regarding small and independent labels, a reversion clause is a necessity. Small and startup labels can go the extra distance for their artists; they sweat blood and put their hearts and souls into the enterprise, working untiringly for the music and artist. And, they typically go broke. Any deal with a small indie should include reversion rights for the artist that kick in as soon as the label’s phone gets turned off.
In most cases as a solo artist, your name is the brand for your product. Many artists come up with a stage name that might be snappier and easy to market than their given name. It might be easier to sell Johnny Slash than Jonathon Weisleschmadt, Jr. Another instance, when the given name or surname is common, it has already been used by another performer or artist. If your name is Nora Jones or Cher, you will be facing branding and recognition problems if you go forward trying to use your birth name.
I was talking to a friend of mine not long ago and she was telling me about another friend and performer, (let’s call her Lynn Morris) who was having trouble with her Internet presence because of another performer with the same name had already snagged the website name. In this case, the late comer to the game actually changed her stage name to Linda Morris. That is a pretty radical solution, but the Internet, like so much of other parts of the business, is registered on a “first come, first served” basis.
A band name also serves as a trademark. You won’t get very far, except to the nearest courtroom if you use a band name that is already taken. The odds of your band ZZ Top, prevailing against the Texas trio in court are slim to none. Many bands come up with a great name. Unfortunately it is someone else’s. We will look at other legal implications regarding branding, including a sad tale of an Austin band as we progress.
Have you ever watched a family fight over the estate of a dearly departed? Even though they are blood kin, they battle against each other ruthlessly when it comes down to Grandpa Jones’ estate. It can get nasty. The more comprehensive the will, the less controversy will come to light. The breakup of a band can be similar. Band mates and friends for years can get into heated and contentious arguments over money. When you are starting out and there is no money to argue about, it is not much of an issue, but should success find its way to your doorstep, like the family fighting over an estate, even the best of friends and band mates can become adversaries when a bit of money is the object of contention.
Taking care of business is just that. If you think the band is starting to grow legs and is moving towards public recognition and increased earnings, it is not a bad idea to get the band together and talk about the legal and monetary basis on which the band is going to go forward. Foundations are poured at the beginning of any construction project, not the end. Now is the time to start building and it is much easier early on; you can get a handle on how everyone views the business of the band. The artistic personality may have an aversion to taking care of business but you will only be more empowered and in a stronger negotiating position if you have some concept of what is being defined.
Talent can get you a hearing and maybe even a deal but only business acumen will sustain your career. Ever wonder why a lot of one-hit-wonders are living in trailer parks today and some on the beach in Malibu? Talent has nothing to do with these different results. As previously mentioned, artists get screwed in writing. Can the label really be blamed when the artist comes to the table a clueless rube and leaves broke? Is it the label’s fault that the band came into the deal unarmed and naked?