Are you a songwriter or recording artist feeling intimidated by the complicated legal language in a licensing agreement? Or do you run a label or publisher and have copied some vague and lengthy contracts from the Internet? Fear not, fellow music enthusiast! In this guide, we’ll navigate the murky waters of legal jargon. Also, we’ll break down music contracts in a way that’s easy to understand. This example deal is based on a UK or US contract. Those deals are more complex than Dutch ones. But, with our help you’ll be able to grasp the nitty-gritty of the agreements you’re signing in no time. So, sit back, relax, and let’s dive into the world of licensing contracts!
The value of definitions in agreements
As a music business entrepreneur, it’s crucial to have a complete understanding of the legal terms and concepts of your deals. These contracts, including licensing agreements, can be convoluted and challenging to understand for people without a legal background, so having a lawyer to explain each clause is essential. A lawyer can see whether a defined wording is deviating from the law or market practise. As we understand, you want to do some research yourself first, so we’ll help you on the way.
Definitions are used so you don’t need to write out full sentences or names all the time. For example, if your name is Victoire Cheval Blanc III, it’s easier to just call you “Writer” or “Artist” in the contract, in stead of spelling out your full name. It’s also easier for the publisher or label, as they can use the contract templatewise. Futhermore, it could serve some anonimity goals, if the contract is somehow publisher in a court case and the clerks forget their black tape.
Definitions can also be useful if you want the outline of the deal on the first page of your contract. So, if you define “Royalties” as 50% of Net Income and “Net Income” is defined as the gross income generated at source in relation to the Works / Tracks, after deduction of the Costs and less any taxes, then you know what you are looking at.
You can also understand that it might be good to define which Music Rights are being licensed or what the Term is, instead of hustling with numbers and full sentences throughout the licensing agreement, makes the chance for mistakes even bigger. Who hasn’t seen a clause that says: “The Term of this Agreement will be 3 (five) years”?
Simply put, this section explains how to interpret certain words and phrases used throughout the licensing agreement. For instance, when the agreement uses a singular word, it also includes the plural form, and when it uses gender-specific language, it includes all genders. As you know, there’s a difference between a business day and a week day. This could mean a world of difference if you talk about a missed termination notice deadline…
So, what does all of this mean for you as a songwriter? Essentially, it’s important to carefully review and understand the language used in the agreement, as well as its binding nature. It’s also important to understand that the agreement is binding on everyone involved. So if you sign it, you’ll need to follow its terms.
Duration of the licensing agreement
This section outlines the duration of the licensing agreement and how either party can terminate it. As such, a Publisher will for example have the exclusive right to manage 100% of the Songwriter’s copyright interest in the songs they choose, all over the world for a certain period of time. In other words, the Publisher will be the gatekeeper of your musical works and copyright (for as far as not yet transferred) and dictate where it can be used.
The duration of the agreement starts on the „Effective Date“ and will continue until one of the parties gives written notice to end the agreement. Once the Notice Period has passed, the agreement ends. Sometimes, the contract will be renewed if you don’t terminate with in accordance with the notice period. So, please write these deadlines and terms in your agenda. Missing a notice period could lead to a longer deal, while you actually wanted out of it.
Even after the Term has passed, the Publisher will continue to collect and manage any money generated from the Works during the Term for nine months – this is called a “Collection Period“. After the Collection Period, any money generated by the Works will be paid directly to the Writer without any deductions, unless the Publisher is forced to handle administrative issues due to the Songwriter’s failure to deregister the Publisher with any collection society after the end of the Term. In such cases, the Publisher will charge its usual fees for handling the matter.
Please keep in mind that you usually will grant the Publisher rights that extend the term of your cooperation! The Term of the Agreement just sees to the Works or Tracks that you make within that time. Read closely, ;-).
Licensing music rights
This is one of the most important parts of your deal. It clarifies what falls under it and what not. Usually, the music exploiting party will want all rights, but there are good reasons to only sign over a few. Also, please keep in mind that if you are a member of a collective rights organization, you will have transferred certain rights to such organization and you technically can’t transfer those rights twice. So, there needs to be language in the agreement that accounts to that.
As an example, these things could be managed in the contract. If the Publisher or its Partners do not receive a certain proportion of public performance fees, the royalties payable to the Writer will be reduced accordingly. Additionally, the Publisher has the right to manage and exploit the works, sell, publish, dramatize, use, and license any and all uses of the works, execute licenses and agreements, and use the Writer’s name and likeness in connection with the works’ promotion. However, the Publisher must obtain the Writer’s prior written consent for certain uses of the works, and the company must register the works with all relevant PROs and associations in the territory and make reasonable efforts to collect all money earned from the works during the term of the agreement.
All you need to know about music royalties
Another example: In this section of the licensing contract, the Publisher is required to give a percentage of the money earned from the songs to the Songwriters, while keeping the rest for themselves. The two types of income discussed are mechanical and performance royalties. Mechanical royalties are payments made for the use of songs in things such as CDs or digital downloads. For mechanical income, the Songwriters will receive 80% of the money earned from the song. Performance royalties are payments for the use of songs on radio or TV broadcasts. The number could be different in your deal of course.
The percentage of money given to the Writers for performance royalties depends on whether the Publisher collects both the Writer’s share and the Publisher’s share or just the Publisher’s share. If they collect both, the Writers receive 80% of the combined share, while if they only collect the Publisher’s share, the Writers receive 60% of that share instead. Once the Songwriters receive their royalties from the Publisher, they are responsible for dividing the money among themselves if there are multiple writers for a song. It’s important for songwriters to understand this section so they can ensure they receive fair payment for their hard work. It’s a negotiations game for sure.
Syncs: the magic combo
The music synchronization or sync part of the licensing contract explains how the Writer will be compensated for the use of their music in visual media. So, a sync is basically a combination of copyright, recorded music and visuals. The writer grants the Publisher and its Partners the right to enter into non-exclusive synchronization licenses for the works and any master sound recordings they control.
The Publisher must obtain the Writer’s written approval before entering into any synchronization license agreements. If the Writer doesn’t respond within three days, or if they fail to provide reasonable grounds for refusing approval, the approval will be deemed granted automatically. If the Publisher procures the synchronization use, the Writer will receive 50% of the publishing license fee and 85% of the master sound recording use license fee (if applicable), with the remaining percentage of income going to the Publisher. However, if the synchronization use is non-Publisher procured, the Writer will receive 85% of both the publishing license fee and master sound recording use license fee.
It’s important to note that the percentage of income the Writer receives depends on whether the Publisher procures the synchronization use or not. Nonetheless, the Writer still maintains control over how their music is used, as they must approve any proposed synchronization licenses and their commercial terms. Please keep in mind that you need both permission from the master side as from the publishing side for a succesful sync. We can help you with that.
Financial transparancy in the music biz
Now let’s take a look at the Section about Accounting. Firstly, the contract states that the Publisher will provide the Writer with a quarterly statement of royalties owed. This means that every three months, the Writer will receive a report of how much money they have earned in royalties from their songs. However, royalties will only be paid if they exceed £50 and the Publisher has received cleared funds.
Next, royalties will be calculated in the same currency as the Publisher’s licensees and may be subject to transfer or comparable taxes. The Publisher is responsible for keeping accurate records of how the Writer’s works are being used and must provide reasonable assistance in recovering any withheld amounts.
The Writer has the right to hire a chartered accountant to inspect the Publisher’s records once a year, in which case the cost will be borne by the Writer. If an underpayment is discovered, the Publisher must pay the full amount owed, and if the underpayment exceeds 10% of the total owed and is more than £5,000, the Publisher must reimburse the Songwriter up to £1,000 for reasonable third-party costs incurred during the inspection. This point is up for discussion, as the research will cost you dearly and as a writer or artist you want all your costs covered if the publisher or label makes a mistake. The other way around, as a publisher or label, you want to limit your risk.
Basically, this section covers how royalties will be calculated and paid, the Publisher’s obligation to keep accurate records, and the Songwriter’s right to inspect those records and address any underpayment issues. Keep in mind that the exploiting party needs to be transparant about the exploitation and needs to send out actual, relevant and complete oversights of what came in and what went out.
Super powers (of attorney)
Here the contract covers the right to prosecute claims and defend works. In simple terms, this section provides the Publisher’s exclusive right (not obligation!) to take legal action to protect the copyright or other rights related to the works.
If the Publisher takes legal action and recovers any money as a result of a judgment or settlement, that money will be divided between the Publisher and the Writer in the same proportion as described in section 4 of the contract, with third-party expenses deducted from the total.
The Writer may hire their own counsel, but the Publisher’s rights under the contract must not be interfered with. If the Publisher incurs any costs or expenses defending the works, the Writer is responsible for paying them according to the indemnity provisions in Section 9, which can be recouped by the Publisher from any sums owed to the Writer under the contract.
Super promises: watch out!
In this clause the Writer makes important promises to the Publisher about the songs being licensed. These promises ensure that the Publisher is protected from legal issues and that the Writer is the rightful owner of the songs.
The Writer promises that:
1. They can legally license their songs to the Publisher and haven’t given similar rights to anyone else.
2. The songs don’t contain any material that could cause legal issues for the Publisher or anyone else involved in the licensing process.
3. They haven’t given any other party exclusive rights to the songs being licensed, and the Publisher can use and administer the songs as they see fit.
4. The songs are not defamatory or obscene.
These promises are crucial for the licensing agreement, as they protect both parties from any legal issues and ensure that the songs are not harmful or offensive.
You can image that some warranties should be vice versa.
Warranties should not be taken lightly, as they account the risk of default to you, also if you can’t do anything about it. Don’t sign ’em if you can’t live up to them.
The punishment for breaking super promises
In this section, the Writer essentially agrees to protect the Publisher and its partners from any losses or damages resulting from claims made by third parties or from any acts that violate the promises made in this agreement. The Writer will be responsible for reimbursing the Publisher for any costs incurred as a result. However, this indemnity only applies if a court determines the costs are valid or if the Writer agrees to a settlement in writing. If there is a dispute regarding any alleged breach of the promises made by the Writer, the Publisher may hold back payment until the dispute is resolved. In simpler terms, the Writer is responsible for protecting the Publisher, and if someone sues the Publisher because of something the Writer did or didn’t do, the Writer must pay for it.
This could also be vice versa. But you will need to negotiate about it.
Message in a (registered) bottle
This section of a licensing contract is important for communication and decision-making between the Publisher and the Writer. The contract requires that any notices be in writing, either via email or registered mail. Notices will be considered received after two working days. In addition, statements and payments from the Publisher can be sent electronically to the Songwriter’s bank account for convenience. When the Publisher requires the Writer’s approval for any decisions, such as using their music in a commercial or movie, the approval can be given via email. However, the Writer cannot unreasonably withhold, condition, or delay their approval. If the Writer is part of a group, only one member needs to give approval, and it’s binding on the entire group.
To be honest, I think registered mail is a bit outdated. There are many electronical measures and ways that sort the same effect.
It’s all in the fine prints
Section 11 explains that everything written in the contract is the complete and only agreement between the parties involved. This means that any previous agreements or arrangements are now null and void. The terms of the agreement cannot be changed or modified unless both parties sign a new document. Or; the Writer agrees to new terms by email or through their Publisher’s online account, as directed by the Publisher. It’s important to understand that any changes to the agreement must be agreed upon by both parties in writing or through a Publisher-approved method.
So, double check you deal, as it will put previous chats, DM’s and drunken texts out of order. If you talk about a at source or as received differnce in royalties, this could be a disappointment and cause for discussion later on.
Pick a turf
Section 12 explains what happens in case a disagreement arises between the parties involved. The contract states that any disagreement will be resolved according to the laws of the country agreed upon by the Parties. If there is a dispute, it will be dealt with in a court located in the same country. To prevent away matches, try to keep ‘your’ court exclusively competent. If this is a hard negotiation, choose both courts.
Please keep in mind that it’s best to get legal advice from a lawyer that is admitted to the Bar Association of the country or state of which laws are applicable to your deal.
Non-categorial specifics of the licensing agreement
The last section is all about the little details that tie up the contract. You will find a lot of various clauses here, that don’t fit in in the rest of the deal. Could be anything really. Our example deal starts by saying that the Publisher and the Writer are not partners or creating a partnership. This could be different in a fund or Joint Venture deal. Then, if one part of the contract is found to be invalid, the rest of it still stands.
It’s also important to mention that if there are multiple people in the Writer’s group, they all must follow the contract’s terms together. If anyone new joins the group, they must agree to the same terms. If someone leaves the group, they must inform the Publisher right away.
The Writer can’t transfer the contract to someone else without the Publisher’s approval, but the Publisher can sell or transfer the contract to another company. Moreover, any payments made to the Writer don’t include VAT, but the Publisher will pay that separately as long as they receive a proper invoice. Finally, when the contract ends, all the rights to the songs go back to the Writer. Also, no one else (“Third Parties”) is allowed to use this contract to enforce any of its terms.
Some final words about this licensing agreement
In conclusion, understanding the ins and outs of licensing agreements is crucial for any songwriter looking to make it in the music industry. By breaking down the legal jargon and explaining the most important sections, we hope that this guide has given you the confidence to negotiate your own deals with record labels (publishers). And if you ever find yourself unsure about any part of an agreement, don’t hesitate to seek the advice of a legal professional who can guide you through the process. With this knowledge in hand, you’re ready to take the music world by storm! So, stay tuned for more insights into the wonderful world of music law!
Do you want to learn more about a licensing agreement?
Check out these other articles and use your in-browser or other translator to get the knowledge you need.
If you want the legal side of your business to be in good hands, contact us directly.
This article was written by Laura and Sander from Backstage Legal.