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Starting the Band - Music Law
 
Copyright © 2004 Zegarelli Law Group. All rights reserved.
Written by Gregg R. Zegarelli, Esq.

 


Starting a band or group to author or to perform musical compositions is simple to do, but filled with many potential problems for the unwary.  There are many known examples of excellent writers being prevented from collecting huge amounts of revenue for their superb works.  Simple mistakes, big consequences.

This document will familiarize you with some of the issues, but it is important to understand that music law and starting a band is really a combination of multiple disciplines.  For example, corporate law, intellectual property law and commercial law, as well as accounting and industry specific procedures.

Hint.  Our experience is that many band members think of music and don't think of the business aspects of the industry.  Our suggestion: think music first, think business a close second.  Just don't forget about the business of music, never let it out of your sight.  If you engage Zegarelli Law Group, we assure you that we won't let you forget about the business of music.

1.  Remember that the association of your band members, and the rights between or among each other, is something controlled by the law.

So many times, band members think that by "keeping it simple" they somehow avoid all of the complexities of the law.  Usually, the very opposite is true.

In fact, the law is there whether you like it or not.  And, unless you specifically "override" all of the default legal complexities, you can get sideswiped with claims and issues you never expected.

Therefore, don't fight it.  Get into the groove with it, and establish a solid legal foundation for the band.  We here to help you, and points of interest follow in this document.

2.  The band is in a venture.  Usually, it in a business venture for the purpose of expressing an artistic message.  Hopefully (and maybe incidentally to you), the band will successfully commercialize that expression; that is, make money.  

Everyone in the industry that you need to become successful thinks of your music as a business.  Be contrarian, if you must, but music is business.

Having said that, unless you know otherwise, the band has probably defaulted to a partnership.  Whether a partnership is the best form of commercial entity depends.

See our publications, including Choice of Entities and  Corporate Structure for information on types of business entities.  A partnership is only one of many forms of business entities. 

The reason why the band is probably a partnership, if you didn't do anything at all, is because that is the default type of business form for people who co-venture for a commercial purpose.  However, a partnership, and each of the partners, has unlimited liability for the mistakes of its members.  If one of the band members signs an expensive contract, with or without authorization from the other band members, ALL of the members may be personally liable to pay the debt. 

For this reason, you may want to consider having the band form a corporation or limited liability company.  Both of these entities can generally work just like a partnership for operational purposes, but can afford the member limited personal liability for debts of the band.

Remember that you need to consider standard business issues, such as acquiring and protecting the name of the band, protecting the songs, acquiring local permits, etc.

 3.  The Association Agreement.

The association agreement is the agreement that governs the relationship between or among the band members. 

Don't think that avoiding this agreement is necessarily a good thing, or that it keeps your band operating on a simple basis. 

The purpose of written agreements is avoid misunderstandings.  You can trust someone and still have a misunderstanding.  Written agreements are not necessarily about trust.  Never, ever, do business with someone you do not trust.  The best written agreement in the world will not help remove the headaches you will get in dealing with someone you cannot trust.  Written agreements are meant to clarify areas of misunderstanding and to resolve the many issues that lay persons do not ordinarily consider. 

There is an entire statute, with a lot of very legal terms and conditions, that apply to the extent that there is no other agreement between the members.  Do you know what all of those statutory default terms are?  Most attorneys don't either.  It's too much to remember. 

A music attorney will walk you through the issues and ask you what you want to happen in certain circumstances.  Much better than having the statutory terms apply that you have no idea how they work!

This agreement could be a band partnership agreement, if the band is a partnership.  Or, it could be a shareholder agreement, if the band is a corporation.  Or, it could be an operating agreement, if the band is a limited liability company.  Basically, irrespective of the name of the agreement, it's the same agreement but named for your type of business entity.

Remember, you are a business entity, whether you like it or not.  We can assure you that, at the end of the day, your view of the world will compete with the view of the standard court judge, and the judge's view will prevail.  So, if nothing else, concede this point: your band should be run like any other business.

The band agreement will deal with important issues, such as:

  • use of name and logo
  • when a band member come into the band or leaves
  • songwriting credits
  • dividing royalties, such as by sharing, pro-rata formula or credits for effort
  • establishing a publishing company (to obtain a publisher royalty share)
  • decision-making
  • purchasing and contribution of equipment
  • accounting issues, and
  • what happens if the band breaks up.

4.  Getting assistance with attorneys and managers.

There are different managers for different issues to be managed.  For example, a personal manager can assist with career development.  A business manager handles finances and investments.  A road manager travels with the band and provides day to day assistance.

Sometimes, for a startup band, the personal manager can perform all manager functions.

An agreement with manager(s) can itself be complex.  You need to make sure that you are not being taken advantage of by the person to whom you are entrusting your future.  Remember, trust is not part of the formula; this is business--you are avoiding misunderstanding.

An attorney can assist with all of the agreements, copyrighting songs, trademarking names and logos, as well as assist with shopping a demo.  Of course, attorneys can assist with venue agreements and assisting you to ensure that you are staying safe in unchartered territory.

Attorneys charge different fees for different services.  For example, traditional legal services are often on an hourly rate, but shopping a demo may be on a percent of deal.  In special circumstances, attorneys can structure tailored engagements. 

Without intending to make it even more complex, when you select an attorney for the band, remember that you might need to have a separate attorney to review the deal for yourself, personally.  Although individual members obtain separate legal counsel is probably the less usual case, it is important that band members know of this opportunity.

5.  Professional groups and associations.

There are many associations to help you, but none of them replace the benefit of legal counsel.  In fact, there are many stories of music attorneys who are recommended by the music labels for the musicians they want to sign.  Although these attorneys know the deals, you need to be very careful about conflicts of interest, since the labels are the source of income for these attorneys.

Here are some of the industry groups and associations:

  • American Federation of Musicians (AFM).  The AFM is a union for musicians, with almost 500 offices throughout the US and Canada.  Most major labels require bands to join the AFM, which guarantees compensation minimums for union contract shows.  It also provides group insurance plans.  It can also help handle certain work permit issues.  The fee is about $150 plus a percent of union performance contracts.  http://www.afm.org/public/home/index.php
  • If you're traveling out of the country, you may want to us an ATA Carnet, which is like a passport for your equipment.  www.uscib.org
  • Booking agents arrange tours and negotiates payments for a percent of the performances.  In some states they must be licensed.
  • Performance rights organizations can assist with monitoring the performance of your songs, and the collection and payment of royalties.

6.  The Copyright.

In addition to our publication, Copyright Law, you should know the following:

  • You do not need to register the copyright to own a copyright.  However, you should register the copyright within three months after first publication to secure the best legal rights.
  • You do not need to use the copyright notice under current law, but you should use the notice for a number of reasons explained in the link above.
  • A copyright is a "legal right to copy."  Copywriting is "writing copy."  Keep this distinction in mind.  As a music professional, you need to know that you don't "copywrite" the music with the government, you "copyright" the music.

Once a work is created, the authors own the copyright.  If someone wants to use the work, they must own it or license it.  A copyright is an "intellectual" property, as distinguished from "physical" property, but it sometimes works similarly. 

By way of analogy, owning a copyright is like owning a building.  If someone wants to live in the building, the person must own the building, or the person lease some or all of the space in the building from the owner.

It is similar with a copyright.  If someone wants to use the work, the person must own the copyright, or must license certain rights.  In the analogy, a license and lease mean basically the same thing: there is no trespass or infringement for using the copyright or building of another.

Owners of commercial buildings don't want to keep selling them, but often just want to collect rents from temporary uses, leases.  Similarly, owners of copyrights, don't necessarily want to sell them, but want to collect royalties (like rent) for temporary uses, licenses.

If you own a building, you can rent the entire building, or just one floor.  Similarly, if you own a copyright, you can license some or all of your "copy" legal "rights."  See more information at Copyright Law.

A music attorney, like a real estate attorney, knows how to divide the rights and to license, or lease, only so much as is intended for that deal.  For example, the real estate attorney can draft a lease for one floor for two months, or two floors for three years.  A copyright attorney can draft a synchronization license for one movie showing, for a season and/or including DVD and merchandising rights. 

Joint Authorship and the Collaboration.  It can get tricky when many band members co-author a song, some write words, some music, a mandolin player adds a small, but important, riff.  Generally, the traditional rule is that the creators of the words, melody and chords are the songwriters.  This is because the neat riffs were not necessarily part of the sheet music and were not considered essential to the song structure.  However, with recent styles making riffs an essential creative part of the song, the creator of a riff can be considered a songwriter.  Remember, all of this can be part of the band agreement, including giving songwriter credit to someone that did not really make a significant contribution to the song.  Again, it is important to pay attention to the business of music.

7.  Understanding getting paid for the song.

Song owners get paid when others buy their work or cover (perform another band's song) a copyrighted song.

Usually, if you want to use another person's copyrighted song for any purpose, you need to obtain a license from the copyright owner.  However, there is a special license when coving a previously released song for a recording.  Since you are not the first person to perform the work, you don't need permission for the license; congress established a uniform price for the license, you need to pay the statutory royalty rate of about 7 cents a copy in 2004.

Often songwriters sell their works to publishing companies.  The publishing companies then commercially exploit the work, i.e., get the song played and paid.

Here are some basic definitions:

  • Mechanical royalties.  There is a royalty on the mechanical act of pressing a song by the record company.  The rate is federally established at 8.5 cents a copy in 2004.
  • Music publisher.  The company that owns the copyright and commercially exploits the work.  This can be your company and/or an international publisher, like Sony.
  • Music publishing agreement.  A music publisher obtains rights to the song from the songwriter pursuant to the music publishing agreement.  The songwriter portion typically ranges from 60%-75% of song income.
  • Performance royalties.  Every time a song is played, e.g., on the radio, in live concert, in a business establishment, television or website.
  • Performance rights organization.  An organization that monitors performances.  ASCAP, BMI and SESAC are the principal organizations.
  • Sync(hronization) Licenses.  A song earns money if it is used in a movie or television commercial.  Copyright law provides for a special payment when the song is synchronized with a moving image.  There are not fixed fees, but the music publisher usually negotiates a fee and signs a document called a "sync license."

There are different ways to get paid for the same song.  Take, for example, take a holiday song still protected by copyright.  All the latest popular artists want to sing it on their holiday album, and it's usually in holiday movies.  Okay.  The song is played on the radio: performance royalties for each play, usually a few cents per play.  It's played in television soap operas: royalties for each play, usually a few dollars per play.  Each CD from each popular artist's version of the classic: mechanical royalties of several cents per CD.  It's played in movies with a sync license of sometimes $25,000, with additional mechanical royalties for the soundtrack.  If the movie is played on television, yes, more performance royalties.  If the song is used in a commercial, more performance royalties.  If sheet music is sold, more royalties.

A.  Performance Royalties.  BMI and ASCAP, for example, survey different performance mediums for achieve statistics regarding songplay.  Generally, these are fictional averages.  If a holiday song is played a certain number of times during the survey, it is statistically assumed that it is played similarly at other non-surveyed period.  Of course, this is a fiction that strongly favors "hits."  Based upon these numbers, performing enterprises, e.g., radio stations, must pay royalties to the performance rights organizations.  The performance rights organizations then split the payment between the publisher and the songwriter.  (The publisher and/or songwriter may be more than one person/company.)

B. Mechanical royalties.  The federal rate is currently about 8 cents per copy manufactured, but many record companies negotiate a "three-quarter" rate for sold copies.  This would be accepted or not depending upon the artist bargaining power.  Usually these are paid to the music publisher.

8.  Music publishers.

Some music publishers own the copyright, and others merely administer the business issues regarding a copyright.  But, the purpose of both is to handle the exploitation of the songs, irrespective of whether the publisher actually owns the copyright.

The traditional rule for music publishing payments is that it is split half between the music publisher and half to the song writer.  This is because it's the way it was done, e.g., pre-Beatles, where the music publishers worked with the songwriters as a team, and the performer was not necessarily part of that team.  The music publisher owned the show and gave the songwriter a specific cut.  It's different now, but that's the history.

Now, bands tend to write and perform their own music, and the music publishers are not really worth half of the proceeds.  However, the music publisher still gets half of the action.  Thus, if the band establishes its own publishing company, often called an "internal publisher," then the unrelated publisher like Sony, the "external publisher," will spit the publisher cut; therefore the external publisher generally gets one-half of the 50% publisher cut, i.e., 25% of the proceeds, leaving 75% for the band.  In other words, the band gets the remaining 25% publisher cut plus the standard 50% songwriter cut.  One great artist of foreign nationality wrote in his book that, because he did not know he could establish his own publishing company, he voluntarily gave up 25% of his proceeds, a lot of money.  (By the way, distribution is a different issue than publishing...)

The reason to go with an external publisher is because of money and market power: they can give advances, and they have marketing and publicity power.

9.  Duplication.

The exclusive right to reproduce is owned by the copyright owner.  However, by law, a publisher of a copyrighted work, must permit you to cover their song, provided that the song has already been recorded and released in a sound recording.  The first recording and release of a song on a sound recording has special significance and must be specifically bargained-for and licensed.  You must notify the publisher, and then you must pay mechanical royalties.  A compulsory license only applies to sound recording; it does not apply to movies, etc.

That is, before the first release in a sound recording (not in movies, for example), is still held as special because it establishes the "personality" and reputation of the work.  After that, its a cover.

Remember that the compulsory license only gets you the license to duplicate.  You still need to pay the mechanical royalty.

10.  Important Questions.

Make sure you ask yourself the following questions:

Did you form the type of entity you intend?
Did you trademark your band name?
Do you have a band agreement?
Did you register song copyrights?
Did you form a publishing company?
Do you have releases for talent and artwork used on the media and distribution materials?
Is all artwork cleared for permissions?
Do you have releases for session artists?

 
 

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