On April 26, 2014, Palladia and VH1 premiered “Artifact,” an award-winning documentary of Jared Leto’s band, 30 Seconds to Mars, chronicling the harsh realities of artist-label disputes in the modern music entertainment industry. The film came to life after the band’s label, Virgin/EMI, sued the band for $30 million , following the band’s attempt to leave the label due to extremely unfavorable contract terms and unpaid royalties.
Although it would be better if Leto’s story were a rare exception, the sad reality is that musicians and artists frequently find themselves victims of extremely unfavorable record label agreements — many years after any advances received by the label have long been spent. What is remarkable is that artists and musicians all generally seem to know and acknowledge that record label agreements are by and large unfair to them, but the cycle continues nonetheless. Sure, it is easy to spare pity on the willfully blind, it wouldn’t really be fair to call artists and musicians pursuing their dreams naive — more often than not, it’s just a sacrifice. It’s no different than a homeowner signing mortgage papers agreeing to pay 400% of the principal value of the home over 30 years, all to be able to live in a nice home in safe suburb in a good school district. Artists know they are being screwed, but it’s often the only way to get closer to a dream.
It’s the exploitation of that dream by major record labels to leverage extremely unfavorable financial terms that has left artists and musicians like Leto sour. Nearly all or most of the contractual issues featured in Artifact are par for the course on major label record agreements: the Label’s ownership of masters; co-publishing rights and below-statutory mechanical royalties being paid for on songs written by the artists; restrictions on the Artist’s ability to perform the songs; exertion of control over the Artist’s image, appearances, style, look, and sound; the 85 page record label agreement with the painfully incomprehensible royalties-calculation provisions; the withholding of royalties for packaging, distribution, free goods, or breakage costs that are nonexistent with digital distributions; and of course, the cross-collateralized running expense account that perpetually leaves the artist millions of dollars in debt, no matter how many records are sold.
If the picture sounds bleak, it’s because it is. So why do so many artists and musicians continue pursuing the dream of a major label agreement? The answer rests on the difference between fame and fortune. As famous pop acts like Tom Petty, TLC, Dee Snider, George Clinton, Wayne Newton, Goo Goo Dolls, Tony Braxton, MC Hammer, Marvin Gaye, or countless others can prove, it is possible to be incredibly famous, incredibly successful at selling records, and yet somehow, in financial or other legal circumstances that make bankruptcy the only viable path.
Why does this happen? It’s really all about the capital. If you play any song on the radio enough times, it will gain a following — sparking a chain reaction that will lead to digital download sales, shows, airtime, radio interviews, tours, merchandising, and the buzz that accompanies any successful music group or artist. But the sad reality of the music business — like anything else — is that it is so expensive to fund the kind of money and capital that is needed to achieve mass consumer success that only major record labels can afford to do it. Moreover, with the disastrous economic downturn that has dragged down record label profits since the digital music revolution, the real costs of the lost profits are not being suffered by record labels or their executives — they are rolling downhill to be borne by the artists, groups, and musicians themselves.
So what realistically, can artists, musicians, and groups do? Above all, they should understand what they are getting into with both eyes (and ears) open. A record label advance is obviously hard to pass up, but artists and musicians need to have a team of people they can rely on to help them understand the details of the agreements they are signing and what practical effects those terms are going to have. Asking for help from a management team or business managers that primarily work with labels can be risky, as those professionals will usually have greater allegiances to the labels they are serving. Relying on the label’s lawyer, on the other hand, can sometimes result in sheer disaster, as the label’s interests are often directly in conflict with the artist’s. Artists and groups need competent entertainment lawyers to help them identify bad terms and negotiate the best deal possible under the circumstances. Rights of first refusal on the artist’s purchase of masters, negotiating a degree of artist/group participation with respect to creative controls, adjusting the ownership of intellectual property, including trademarked band names or artist stage names, negotiating statutory mechanical royalty rates, mandatory advances, artist/group rights when band members come and go, merchandise licensing rights, cross-collateralization among multiple accounting units, and the extent of auditing rights are just a few areas in record label agreements that can make a big difference.
A bad record label deal is not like a bad haircut that just grows out on its own — it’s more like a bad marriage that results in a bad divorce, leaving artists broke and with bad credit, paying and paying for for the rest of their lives, long after the honeymoon is a distant memory. As a result, it is crucial for artists, musicians, and groups of any stage of development to make sure they are well-represented not only when first getting into a relationship with a record label, but in the weeks, months, and years thereafter.
Rabeh M.A. Soofi is the managing attorney of Axis Legal Counsel, a Los Angeles, California based law firm that represents musicians, artists, and groups and a variety of other entertainment clientele on numerous entertainment matters. Rabeh is rated as one of the Top Women Lawyers of Southern California.