Tyler Cowen of the Volokh Conspiracy links to the same article I linked to Friday – the one showing that over 99% of the money left over after all expenses and other parties have been paid, goes to the label, and less than 1% of the money goes to the band – and argues that this shows how important copyright is:
Plus $750,000 gets soaked up in pure profit for the record label.
Say what? In the example given, it’s very unlikely the artists will ever see any copyright income. Why? Because they don’t own the copyright to their works – the record label does. Under “work for hire” laws, the label, not the artist, is the legal creator and copyright owner. And decades from now – when the artists might want to make a little pin money rerecording their old songs – they might not be able to, because the copyright owner will still be the record label.
Regarding an industry I’m more familiar with – comics – I can think of several instances in which copyright hurt the interests of creators. Steve Gerber, for instance, ended up being unable to publish works featuring his best creation – Howard the Duck – for years and years, because Howard’s copyright was owned by Marvel Comics. Had Howard the Duck not been copyrighted, Steve Gerber could have done his own version of the comic book – one that would certainly have been a better, more entertaining comic book than Marvel’s version. It seems to me that consumers would have benefited, too.
My point is not to be anti-copyright – I actually agree with Tyler Cowan, who (if I’m reading him correctly) approves of the general idea of copyright law but disagrees with how they’re currently implemented. My point, rather, is that when two negotiating parties are enormously unequal, then copyright (and all the protections copyright entails) will inevitably wind up in the hands of the stronger party – and that party is usually not the artist.
Meanwhile, at Crescat Sententia, Will Baude responds to me about the “deal memo” bands often sign. Just to review things, here’s how Steven Albini describes the “deal memo”:
Will doesn’t believe this could be true, unless there’s a secret cartel:
I didn’t realize that you had so much ready money at hand, Will. Since you do, however, may I suggest that you start your own comic book publishing label as well? I’ve got some stuff I can submit to you.
As for a “secret cartel,” it’s no secret – it’s just capitalism at work. There are a very limited number of labels who can provide access to a national audience (radio play, nationwide distribution of CDs, etc). There is a virtually unlimited number of young bands full of members who are sick of flipping burgers for a living and who are starving for a chance to reach a nationwide audience. Simple supply and demand would suggest that bands will be willing to accept very lousy terms indeed.
Add to that the realities of the situation. On one side, there’s a very wealthy record label, run by smart, business-knowledgeable executives, with its own legal team and decades of experience writing contracts. On the other side is a band of folks desperate not to blow their only chance at making a living creating music instead of flipping burgers, none of whom know anything about contract law, none of whom have any real business experience.
No, they’re asking for access to the nationwide networks that puts songs on the radio and CDs on the store shelves. And they have a better grasp of the reality than you do, Will: they realize that if they don’t take that access on the record labels’ terms, then they won’t get access at all.
Why would the label agree to a different contract, Will? The label isn’t losing anything by waiting. There are a hundred other bands willing to sign the label’s preferred contract, after all. And it’s not like the band insisting on “a different contract” can go sign with the competition – the band gave up that right when they signed the deal memo.
With all due respect, Will, this passage suggests to me – more than anything I’ve read lately – the enormous chasm separating libertarians from reality. There is no such thing as a “symmetric deal memo,” and never will be. A symmetric deal memo would not only forbid the band from working with any other labels until a contract is signed, it would forbid the label from working with any other bands until a contract is signed.
And yes, if that was the case, then certainly signing such a memo would be to the band’s advantage. But that’s not the case and never will be – no record label will ever offer a “symmetric” deal memo. There’s no reason for a record label to agree to terms that bad – only artists are expected to do that.
You ask “why can’t the band use its stand-off bargaining power just as well as the label can in this sort of time-limited standoff equilibrium?” The answer to your question is, the band has no “stand-off bargaining power.” It doesn’t matter to the label if they sign the band or not, because there are a thousand more bands waiting in line.
That’s what so many libertarians seem incapable of understanding – in the real world, contracts are negotiated from very unequal positions, in which the party with the power sets the terms.
Will also brings up an argument about the minimum wage. He’s wrong, of course, but that’s a matter for another post.
Finally, I should point out that Will and I agree on one thing – Napster and similar programs should not be outlawed. They have a perfectly legitimate, legal use – exchanging free music and other files that are either uncopyrighted, or that are intended for free distribution by the copyright owner. The fact that Napster has illegal uses shouldn’t make the existence of Napster illegal. After all, trucks can be used to smuggle – but no one argues that we should therefore outlaw the trucking industry..
My understanding is that a small proportion of a record label’s bands generate the vast majority of its profits, and given the unpredictable public taste, a talent scout can’t predict which bands will be the next big money-makers and which will bomb.
Given these facts, it makes sense for a label to lock every halfway-promising band into the most extortionate contract possible. Otherwise, once a band became popular and started raking in money, it would take more of the profits for itself, while the label would still be stuck covering everyone else’s losses.
I just read another reply to Tyler Cowen’s post, arguing that we’d be better off without the big record labels.
i am firmly in favor of copyright and intellectual property laws; i believe that when applied judiciously, they can afford many benefits to artists (or their third-party copyright holders).
the problem, in my opinion, is that the major record labels don’t operate in good faith. they are committed first and foremost to the bottom line (as well they should be — these are publicly-held companies, after all). artists’ rights are at best a secondary concern.
Will wrote:
Now it’s possible that there’s some secret cartel among record labels to keep deal terms shitty. If so, then why I graduate from law school (or at least when I finish first-year contracts) I’ll start my own record label, and I’ll offer big royalties to the bands and non-shitty contracts and steal everybody away from the evil labels. If things are as bad as Ampersand says this shouldn’t be too hard.
Will, you have my blessings! but i think you will be in for a rude awakening. also, please remember that it’s not Ampersand who is describing the situation; it’s Steve Albini, one of the most prolific producers in the record business. i have no problem taking Albini at his word (even if i didn’t have independent knowledge of the music industry).
but as Amp points out, you don’t need to believe in any kind of secret cartel; the rules of capitalism and basic greed ensure that the labels will always offer bands the most selfish deals possible; it has made them millions — no, billions — of dollars over the last 50 years, and there is no incentive to change. it’s just good business. (that said, i believe that there is indeed collusion in the record industry; some of it above the table, and some of it decidedly more secretive.)
Amp wrote:
[…] the band has no “stand-off bargaining power.” It doesn’t matter to the label if they sign the band or not, because there are a thousand more bands waiting in line.
yes, exactly. you have to understand that the labels place as much (if not more) value on their own marketing muscle as they do on the artists’ talent. it is not overstating the case to say that the labels sign bands based primarily on how well they think they can be marketed. from a major label’s standpoint, most unsigned artists are interchangeable pieces. with that mindset in place, there is absolutely no financial incentive to offer generous contracts to unproven bands.
i think Will has a naive view of the position from which most unsigned bands are negotiating. when you are driving yourself to gigs, eating fast food three times a day, and selling your own CDs out of the corner of a dingy club, an offer sheet from a major label can seem like a windfall. the advance payments included in most contracts will nicely distract hungry young artists from the inequities buried in legalese. if you decide to be a “principled” artist and only sign a contract that affords you absolute artistic control and contractual freedom, you will be turning down every offer that floats your way from the major labels. this is a business based on potential, and frankly the major labels don’t trust the bands with managing their own potential. the moment you sign a deal with a major label, you are spending their dollars, and they feel that is their right to control your destiny. “you’d be nothing without us” should be the major labels’ motto, for this attitude permeates the business.
The most important thing to remember about a copyright is that IT’S YOURS UNTIL YOU SIGN IT AWAY, period. For instance, Robin still owns the copyright to the artwork he did on the CrossGen comic for which he has yet to be paid, as he never signed any paperwork transferring the copyright.
thanks elayne.
i don’t doubt that many desperate artists sign desperate terms to get themselves out of desperate poverty. i’m just questioning whether A: this is unfair, and B: if so, why some other music company doesn’t offer them a slightly more fair deal to steal them away.
The large entertainment companies I’ve dealt with have tried very hard to decieve me. Period. I happen to know how screwed over people get and I’m good at not buying into stuff wihtout reading, so I do okay, but others don’t. A major movie director, Jeremiah Chechick wanted to make a movie of my comic strip “Bruno” and said they were a very artistic-friendly place and didn’t want lawyers involved if at all necessary to save us all money. I said “sure” and meanwhile i was working furiously to find a decent affordable hollywood lawyer. And yes, when it came, their terms were to pay me a flat fee (not very big) giving them all rights to everything including the several years of the strip I had already drawn. They told me I could still keep drawing it if I wished. Translation: I could draw stuff so they could own it in order that i could to satisfy some inner-artistic desire.
It took me 6 months to make the contract barely okay, allowing me to recieve some percentage plus retain rights to the drawn strip itself. But the whole thing was a total struggle because I was a nobody and so had no leverage. Anyhow, just to conclude the story, after a year and a half they dropped the project.
And now Disney has approached me for a new comic strip I’ve created in order to make a full-length feture. And so they send me a preliminary contract which has the sole purpose (so they told me) of making sure I don’t sue them unfairly if they make a similar movie to my idea. Now, frankly, i think there’s SOME fairness in this because they get tons of submissions and tons of lawsuits. Largely because if you submit a story about aliens, and they do a movie about aliens, that does not mean they ripped you off. They may have, I’m sure there are some fair lawsuits, but I can see them wanting to put down some terms.
Anyhow, the point is that this one-page short contract also had this as a paragraph:
“In the event Disney elects to use the Pitch, all right, title, and interest to such Pitch shall be assigned to Disney, for which rights Disney will pay me an amount to be determined in Disney’s good faith discretion.”
In other words, if they like it, they can buy it for $100 bucks. Hell, It’snot currently syndicated so it could be argued to be worth no more than that. Period. “If we like it, we can buy it for what we think it’s worth”
Sigh.
I mentioned this to the Disney contact, who responded “Obiviously, if we want to purchase the property we will negociate a deal.
Let me know if you’re not comfortable.”
Which is a response which would persuade some people, but it also states “that this Agreement states the entire understanding between Disney and myself.” So anything the rep tells me is irrelevant.
Anyhow, I hate this industry for that reason. I see why they do this and do not fault them for it, nor the rep who’s just doing their job well (well, okay, i do fault them, but I am not surprised, just sad). But the thing is to know that this is true. If you’re gonn’a go in the industry, know the industry. Go in with armor. There are no buddies in contract-negotiation, and a ton of people have no clue.
As the fellow I used to work with in a mail room told me about his dreams of becoming a rap star “they don’t want their artists poor and looking like hell, they wouldn’t screw them over. It’d be bad p.r.”.
I didn’t laugh. He was too sincere. but I did plead with him, that if he ever made it, to sign nothing without a lawyer.
Anyhow, some real-life experience if it helps.
-cbaldwin
i don’t doubt that many desperate artists sign desperate terms to get themselves out of desperate poverty. i’m just questioning whether A: this is unfair, and B: if so, why some other music company doesn’t offer them a slightly more fair deal to steal them away.
Will, i believe your heart is in the right place, but you’re using the same disingenuous reasoning the labels do. i’ll try to address your two questions.
but first, let me clarify my point about “hungry young artists” above. i have known many people in unsigned bands over the years, and none of them were anywhere close to poverty. they had apartments, ate every day, and pretty much all of them had day jobs. not high-paying jobs, mind you, but a paycheck. so let’s not go overboard and frame this as an issue of saving artists from desperate poverty — that makes the big labels seem like humanitarians, which they most assuredly are not.
now, as Elayne pointed out above, the central issue really is the transfer of rights. we all agree that artists sign over their rights willingly and legally. the labels only have as much power as the artist gives them. knowing this, the major labels have adopted a very hard line: give us total creative control, or you don’t get a deal. this is the reality for unsigned bands: if you want creative control, sign with an independent label and accept that you will probably never be rich/famous/popular. if you want to be rich/famous/popular, sign with a major label and accept that you will probably have very little creative control.
i’m going to tackle your questions in reverse order:
B: why don’t other music companies offer slightly more fair deals to steal bands away?
because, quite simply, a deal memo is a legally binding document. bands don’t have the option to change their minds and jump ship to another label.
fine, you might say. why not just entertain verbal offers from labels without signing anything? well, the truth is that offers from major labels are relatively few and far between. if and when one does come your way, you have a tough decision to make: do i grab what might be my only shot at “big label” bucks, or do i turn it down in the hopes of something better?
fine, you might say. let’s assume you’re principled and confidant enough to turn down your first verbal offer from a major label (which, of course, is non-binding). and let’s assume further that you’re lucky enough to get another offer. better signing terms, if they do come at all, are likely to be in the form of trivial things like bigger advance payments (which are really loans, anyway). concessions like that are easy and comparatively cheap for the labels to throw in. labels have no interest in undercutting each other on the issue of creative control.
A: is this unfair?
i suppose it’s “fair” in a strictly legal sense, inasmuch as there is no coercion or extortion involved, and the documents being signed are all above-the-board. but it’s highly inequitable, and more than a little exploitative.
look, i do feel that the artists need to bear responsibility for the situations they end up in. i think the major labels are generally despicable, but my heart doesn’t really bleed for the artists. they are taking a gamble when they sign a major label deal, and i believe (as you probably do, Will) that they need to accept the consequences. but that doesn’t make the arrangement right.
christopher, sorry to hear that you’ve been dicked around with by the big boys. i wish i could say it surprised me. the types of contracts you described are par for the course when it comes to the corporate entertainment world.
i’m glad you were savvy enough to save yourself. good luck on future projects…
It can’t have hurt the Rolling Stones’ success that several of them (Jagger, I’m fairly sure) were graduates of the London School of Economics.
Will, in this case I think Amp and CF have better described the economics at work in the industry. There’s no incentive for another music company to offer Example Band a better deal, because the supply of bands is very elastic; if Example Band holds out, it is significantly cheaper for the label simply to move on to Next Band, rather than pay Example Band better. Also, Example Band, at that point in its career, is essentially worth almost nothing, because as Seth Gordon points out, statistically, most bands do not succeed.
Amp, I think the libertarian point of view is a bit more subtle and frankly more brutal than you describe. I would hope that an economically educated libertarian would recognize that there are situations of unequal bargaining power in the commercial world. The truly cold-hearted libertarian, however, would not necessarily oppose unequal bargaining simply because it is unequal; rather, he or she would ask whether society as a whole should care enough about this particular inequality to intervene in the industry.
I’m probably too squishy to count as much of a libertarian, but I tend to agree with you on your substantive proposals. There are a lot of ways in which the law is already more predisposed to set limits on contracts for personal services that it would not impose in other contexts, and the suggestions that you set forth sound like reasonable measures aimed at the common good of increasing the supply of music available to the public.
Hey CF, thanks for the kindness, but I hope I didn’t come across as a pity party. I’ve done well (although financially, my lawyer has done better) I guess I was just trying to point out not only the reality of it through experience, but also that I think a large reason that people sign bad contracts is not because they’re desperate, but the music and movie industry have a reputation for creating millionaires. People believe that. And people think that signing on will bring them that. And I don’t think the artists can be entirely to blame, legalities of contracts aren’t often taught in high-school let alone art college, and entertainment industries put a hell of a lot of money into good PR.
But also, just a thought, Is it possible that the huge reason that the music industry objects the internet is that it may create a viable alternative for artists and therefore equalize contract negotiation? I know in comics there are many online who have little-to-no desire to be syndicated because they’ve found they can make a living online. Can this be extended to music? I mean, doing a daily comic strip without syndication before the WWW was just plain silly. Get $10 bucks a week from your local newspaper if you were lucky. A few exceptions, but none that did terribly well that i know of.
Well, probably not. The Clear Chanel still owns us.
Anyhow, just thoughts,
-christopher
you write: labels have no interest in undercutting each other on the issue of creative control.
Well, who on earth not? They want to steal bands from the competition, don’t they? Collusive arrangements rarely hold together for precisely this reason, and so far as I know nobody’s found any serious evidence that the music companies engage in this sort of collusion. Other sorts of collusion, sure, but not this sort.
Which means that, yes, bands often only get one offer from a major label and they often have to sell their soul to get it. But that– it seems to me– is because most bands suck. Terribly. And so a label takes a risk when it invests a lot of money in producing a band, so it tries to make back as much money as it can get away with on the bands that are good.
In other words, to the degree a band is any good, it’s usually able to get a better deal (and get away with not signing deal memos, or whatever). And to the degree that a band is an unknown, well, the record company takes a big gamble so it likes to cover its ass.
Now, as several people have suggested I *do* think P2P (legal P2P) will change the balance of power in favor of the artists, and I think that’s a very very good thing. But I think *that’s* the kind of remedy we should be looking for here, not the contractual restrictions that Amp seeks.
Also, if anybody wants to talk to me about FCC and media regulation and clear channel, that’s another fruitful ground for reform. Picking on the record companies’ contractual practices ain’t.
Amp, there is another source of copyright income than the pittance of royalties the labels give performers: The songwriter also gets a stream of royalties for “mechanical rights” from ASCAP or BMI for every CD sold, which is (as far as I know) *not* tolled by the label when the songwriter also happens to be the performer. It amounts to about a nickel per song, or a dollar for every CD. There’s still more from “performance rights”, if the song gets played much on the radio.
I think that may have been what Tyler meant by “without copyright income, the artists would be deeply in debt.”
But performers who do *not* write their own songs don’t get to take advantage of this, of course, so it’s not really a particularly valid point.
“They want to steal bands from the competition, don’t they?”
No, they don’t. I have a friend who is a studio musician, and he says it is extremely rare for a bidding war for a new bad to start out, simply because there are more misses than hits. Its in the best interest of the individual labels not to give better terms to lesser known bands, because that leads to a proccess that dimishes their control over ownership, where there is a ton of money to be made if an artist hits it big. There isn’t collusion, per se, just lables acting in their own best interest and exerting unequal bargaining power.
The lables are more than covering their, it seems, by the way. They end up making money even on bands that don’t sell terribly weel is the impression I get. It would be interesting to see non-industry stats on that.
All of this is of extreme interest to me, because my husband is a musician who just released his own CD; he was able to do so because the recording and mixing equipment is so much cheaper than it once was. He has a website, and promotes himself through gigs and getting indie reviews.
For not much money, independent CD duplicators can help you get on Amazon, get you bar codes, etc., and with some local performances, you can get your stuff into smaller stores, to start. But even B&N carries some local artists nowadays, labels not required.
20 years ago, a label would be his only chance to make a living, but that has started to change. He may always need some sort of day job, or he may be able to turn this into a full-time thing, but he’s determined not to sign his creative rights away to people who want to have far too much power over what he can do with his own material.
We have several friends who were signed, then dropped, by majors, and see absolutely no advantage to going that route. If a small indie picks him up, great, but he can keep putting out his music on his own forever if need be. How many other talented people are deciding to do the same? More and more, putting out your music is no tougher (or easier) than starting your own small business…all you need is enough happy consumers to get some word of mouth going.
If we can break the Clear Channel/ Ticketmaster monopolies on radio and performing, things will get even better. But if not, there a million small clubs and hundreds of internet radio stations to go to. For artists like him, P2P isn’t theft, it’s another marketing tool to get people to come to gigs, or contact him on collaborations, film scores, or ads.
And in the meantime, if the “established” musical pablum that the industry keeps force feeding us continues to lose sales, well maybe the business model will change. Personally, I wouldn’t care if all the labels sank into the ocean.
you write: labels have no interest in undercutting each other on the issue of creative control. Well, who on earth not? They want to steal bands from the competition, don’t they?
no, they really do not. as silly as it might sound, there is a unique economics at work in the major-label music world.
as you yourself noted, “most bands suck.” (i’ll be slightly more charitable and simply say that most bands have mediocre talent.) and, as you rightly point out, “a label takes a risk when it invests a lot of money in producing a band, so it tries to make back as much money as it can get away with on the bands that are good.”
exactly. and where do you think the money they make back comes from? given that a label needs to maximize its profits from a relatively tiny stable of successful artists, there is really only one well to draw from: creative control (specifically, royalties). and the only way to get your hooks into that control is to get the artist to sign over their rights way back when you first sign them… when they are still unknown. there is no crystal ball that allows A&R reps to predict album sales, so they take the same hard-ass stance with every new artist they sign to ensure that when one bands makes it big, their ass is indeed covered.
think about the implications of your question: if labels were to start raiding their competitors’ “discovered” bands by offering better terms on creative control, the result would be that all future bands would demand the same thing or better. it would not take long before the pool of available royalties dried up. in effect, you are describing a system where “good” bands (the ones who generate the most profit) are asked to sacrifice less of their creative control, in turn creating less profit for the labels.
i think one mistake you are making is in assuming that the big label reps see “good” and “bad” bands (in terms of talent), when in fact all they see are “well-marketable” and “poorly-marketable” bands. the degree to which a band is successful is dependent on the label’s marketing efforts as much (or more) as it is on the band’s inherent “talent.” this is a vital point; if you can’t accept this proposition, then i think you are not fully understanding the economics at work. there is no motivation to try and “steal” bands away from other labels. (which, i will note once again, is illegal anyway.) the ROI is just too small. (and frankly, the major labels often don’t trust each other as judges of talent, so it’s not like they’re cursing themselves every time a new band gets signed by someone else.) this is an industry built primarily on promotion and marketing, not artistic merit.
unless and until bands show solidarity and refuse, en masse, to sign deals that compromise artistic control, there is no incentive, moral or economic, for the labels to change their practices. the “price the market will bear” for signing unknown bands does not currently include creative control.
In other words, to the degree a band is any good, it’s usually able to get a better deal (and get away with not signing deal memos, or whatever). And to the degree that a band is an unknown, well, the record company takes a big gamble so it likes to cover its ass.
this isn’t entirely accurate. the only artists that have any kind of negotiating leverage are already-proven, already-signed acts. (for example, when Madonna’s original multi-album deal was about to expire a few years back, she was the subject of an intense bidding war. unknown bands simply don’t spark bidding wars. Kevin makes this point quite well in his post above. i don’t think you can argue with the evidence.) when it comes to the deals we’re talking about, *all* the bands are unknown, and lack leverage.
Now, as several people have suggested I *do* think P2P (legal P2P) will change the balance of power in favor of the artists, and I think that’s a very very good thing. But I think *that’s* the kind of remedy we should be looking for here, not the contractual restrictions that Amp seeks.
i agree with you here, Will, that whatever changes may come to the corporate music world will be despite the major labels, not because of them. P2P was/is definitely a wake-up call both to labels and artists. in my opinion, it will not be too long before bands find a way to set up a truly effective distribution network that will rival the big boys. (and while i don’t think Amp’s recommendations will be adopted by the corporate media giants without a fight, it is a good starting point for discussion.)
in my opinion, it will not be too long before bands find a way to set up a truly effective distribution network that will rival the big boys.
Maybe the already-successful artists should be the ones to do this, in a collaborative way. They could pool some investment money, or heck, even just donate some, to fund such a network. The Recording Artists Coalition might be just the right group to do it. The technology exists; they just need to create the online community where people could gather to check out new artists who are promoting themselves. Each artist/group could choose whatever type of license they want for their music, a la Creative Commons.
Is anything like this already happening?
Very important discussion going on here.
The libertarians and their “freedom of contract:” it was not so long ago that these arguments were successfully made before the U. S. Supreme Court with respect to 10 year-old children working in coal mines. Contracts are worthless without government enforcement. The people collectively have a say about what contracts they are willing to enforce.
My hope is that technology will force decentralization of the kind that emjaybee talks about along with a fairer distribution of revenues from a culture that already spends a lot on entertainment. Part of that process must include something like bloggers who serve as the filters/promoters in place of the radio stations whose functions are becoming less and less important. It may depend on whether the blogosphere develops into a medium dominated by a few or a more dispersed pattern of readership and influence.
Maybe the already-successful artists should be the ones to do this, in a collaborative way. They could pool some investment money, or heck, even just donate some, to fund such a network.
i think it would be great if established artists decided to join the fight and do something like that. i don’t know how likely it is, but it would be a nice show of solidarity.
(there are of course, several big-time artists who are quite vocal about the inequities of the music world: Courtney Love, Prince, Metallica — oops! scratch that last one.)
i think the real watershed moment will be when label-independent distribution comes into its own. i truly believe that within a few years, once customers (teenagers and college kids especially) have gotten used to buying their music over a digital connection, all it will take is for bands to create their own iTunes-style network. (easier said than done, but not by much…)
I’ve come to the conclusion that the essence of power is being able to renege. In any conflict of interest, the loser will be the one who has more to lose.
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