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Industry Insider: The New Predators PDF Print E-mail
Thursday, 29 May 2008 18:00
johnm.jpgBy John McGlasson - GJD Contributor
With the death of retail physical CD sales, labels have been left to find new avenues for getting their music to the people and collecting the revenues. As I've written about in the past, virtually anyone can now get their music up on iTunes and the rest of the DSPs via CD Baby and other indie distributors, but there's a new breed of predator out there that's preying upon small labels and artists, and if you're not careful, you could sign a contract that'll destroy your ability to control where your music is sold, what it's used to represent and/or market, and/or even sign away the rights to your current, and even future releases.

Once a label like mine has even moderate success with a band or artist, the phone starts ringing. I’ve learned to listen very carefully to people who claim to have interest in our catalog, because there are almost always hidden messages in everything they say and do.

I was recently approached by a man who’s founded a very well-funded company that I won’t dare name in this article purely out of fear of being sued. I’m going to reveal every detail of the agreement he sent me, without naming him or his company, to show our readers just how evil these people can be, and how they quite literally make a living screwing musicians and labels out of their ownership rights, and give them free reign to do whatever they choose with your work.

Much of it appears to be like a pyramid scheme, in that owners get piled upon owners of rights to various titles, and the value of the catalog these predators build is in the ability to sell the catalog to others like him, who are simply trying to acquire the largest mass of media content they can, in the hopes that the pennies they receive will add up to a lot someday as it trickles and filters through the various owners and rightsholders, the last in line being the artist. They treat tracks like garbage stocks. If they can go around sucking up small labels’ catalogs, they’re bound to have a winner at some point. It’s the equivilant of buying up small companies to build a corporation’s value on paper. If you give a guy like this the right to sell the rights to your music in other non-exclusive contracts across the globe, you could feasibly have hundreds of companies in line to collect on the sale of your music. While “total saturation” is a good thing, in that you want your music on every available outlet for the consumer, you don’t want a long chain of people getting paid for it before you do.

Non-exclusive is a term used a lot lately, a comforting term that doesn’t necessarily mean what you think it means. It gives the impression that the person you’re signing with can’t prevent you from selling your music to other entities besides his, but it may mean that it’s non-exclusive in that he’ll be selling your music to other people, and he has total control over it. It’s all in how it’s worded in the contract. This guy spent a lot of time on the phone with me assuring me that this is a Non-Exclusive agreement, before ever sending me the agreement. Once I got it and read it carefully, a few things jumped out at me.

The contract details follow, with my comments on each point, note that the Label is also referred to as “Provider” throughout the contract; (For legal reasons, I’m not going to reproduce the contract word-for-word)

Paragraph 1; The contract is referred to as a “Master distribution Agreement” or “MDA”, and Part 1 covers the usual label copyright ownership issues, as far as the label having the exclusive right to allow the new party to use the music on a “NON-EXCLUSIVE” basis, but later in the paragraph, it reads that the label is giving the new party “ABSOLUTE DISTRIBUTION” of said content, and that no other outside party, INCLUDING THE ARTIST, can interfere with that, a dangerous deviation from the point of the paragraph, and the contract. Within a few words, he goes from “Non-Exclusive” to “Absolute Distribution Without Interference”.

Paragraph 2; States that the Label guarantees that there are no liens against the material to be distributed, and that the Label has Exclusive rights to distribute the material, very standard.

Paragraph 3; Covers the term “Content”, and is worded as follows, directly from the contract;

“The term "Content", as used in this Agreement, shall be deemed to mean all transcriptions, duplications, encodings, recordings (video or audio) or any other method, now known or to be later utilized.”

While this refers on it’s face to new technology as-yet-realized by the marketplace, what this actually says is that the new party will have automatic rights to anything you produce in the future involving content already submitted for distribution, meaning that if you decide later to produce a live DVD with the songs from your new album you’re distributing with the new party, you have no choice but to distribute it with the new party, though this agreement was put forth as “Non-Exclusive”.

Paragraph 4; Here’s where they dive in head-first, they must figure that if you’re still reading it, a lot must’ve gone over your head anyway, so they hold nothing back. This is directly from the contract, with the name removed;
“Provider hereby assigns, transfers and grants to ---------------------, absolutely for the term of this Agreement, the entire right to distribute in the United States and the world without any limitation not specifically set forth hereinafter in and to the Content and all copies thereof and in and to the performances embodied thereon including but not limited to:
(a)    The non-exclusive distribution of the Content and all the performances embodied thereon, and all or any parts thereof, edited, excerpted, altered or changed in any manner or by any means whatsoever for the term of this Agreement.
(b)    The non-exclusive, perpetual right in the United States and the world to distribute, advertise and otherwise use the Content or to refrain there from, upon such terms and conditions as we may decide.
(c)    The non-exclusive right in the United States and the world to use and publish and to permit others to use and publish the names, likenesses and photograph of all persons who performed in the Content, in connection with its’ distribution on the Internet.
(d)    The non-exclusive right to distribute copies of the Content in markets outside the U.S.”

Section C is downright scary, as it allows the new party to “Use and Publish”, and to “Permit Others To Use and Publish”, which will tie in later, and d) may well allow the new party to press CDs and DVDs for sale outside the U.S., and may also allow them a cut of your show CD sales and even performance revenues! It all depends how bad they want to screw you in twisting how this is worded in court.

Paragraph 5; Exactly as it reads:
“In full consideration of the due performance of all the terms and provisions to be performed by        Provider and for all the rights granted to ------------------- hereunder, we agree to pay Provider up to fifty (50%) percent of the net proceeds derived from the delivery of the Content.”

“UP TO 50% OF THE NET PROCEEDS”?!? This guy has steel balls. Legally, this reads; “…we agree to pay Provider anywhere from 0% to 50% of the net proceeds derived from the delivery of the content.” You’re giving them the right to pay you something, or pay you nothing, or anywhere in between, at their discretion.

Paragraph 6; Again covers Label copyright ownership of all submitted material, nothing but contract filler, as this was already well-covered.  

Paragraph 7; Exactly as it reads:
“The aforesaid Content is to be labeled that the Content is distributed by ---------------------.”

This means that, upon manufacturing of new materials, (CD,DVD,etc.) you must place the new parties’ logo on the artwork stating that it is distributed by the new party. How is this Non-Exclusive? And what does this have to do with a DIGITAL distribution agreement? (See Paragraph 4, and my comments). This would also apply to re-pressings of old titles, which would be quite expensive, since any change to artwork already submitted to CD manufacturers makes it a new order and not a re-pressing, raising the price considerably over the discounted price of a re-pressing.

Paragraph 8; Explains, vaguely, how payment will be made, and that all accounting will be available to Provider on parties’ website, even though Paragraph 5 ensures there will most likely never be payment to the Provider.

Paragraph 9; As it reads, with State and company names deleted:
“This Agreement shall be deemed to have been made in the State of ----------------- and shall be interpreted and governed by the laws of that state.  Should any portion of this Agreement be found to be invalid or unenforceable, it shall not affect the balance of this Agreement.”

Whomever wrote this contract placed a very clear disclaimer in there that basically states that if any or all of this contract is found to be invalid or unenforceable, they’ll still attempt to claim ownership of your materials, and make it very difficult and expensive for you to regain them. In my opinion, no court would acknowledge this section of the agreement. Once a guy like this has his hands on your material, it’s gone, caught up in a tsunami of contracts and transfers of rights, both domestic and abroad, that you’d never be able to fish through.    

Paragraph 10; Claims that the “Initial Agreement” is for one year, renewal for identical terms each year, or unless either parties submits a Letter of Termination of Contract more than 30 days from the end of the initial agreement. If your materials are already being distributed to I-Tunes and other DSP’s via another distributor, it can take months for the transfer to take place to the new distributor and payment to begin. When we left our previous distributor and signed with our current one, our titles were double-posted on several sites for months, one for each distributor, with both distributors getting paid for them. This guy knows that one year is barely enough to even get started, un-doing a deal like this could be virtually impossible as written. In Paragraph 4, you gave them “Perpetual Right” to distribute the material, removing any time stipulations, and making the length of the agreement meaningless.

Paragraph 11; This is probably the most evil part of an already Hellbound contract. As it reads:
“Provider further grant to ------------------------- the right of first refusal to distribute the follow-ups to any Content, under the same terms as set forth in this agreement, and that Provider will provide said follow-up Content within thirty (30) days after receiving notice from -----------------------------.”

This section says that the new party gets “First Refusal to Distribute…” which ties in with Paragraph 4, in that you’ve already given them the right to “Use and Publish…”, and to “Give others the right To Use and Publish…” your likeness, photograph, band logo, etc., What you’re actually doing here is giving them the power to STOP the release of a new album if you choose not to distribute it through them! Though the contract claims to be Non-Exclusive, at the beginning of Paragraph 1, you’ve agreed to “Absolute distribution without Interference.” Tie this in with Paragraph 4, add in Paragraph 3, where you give up the right to re-produce any material already submitted to the new party, and you’ve truly screwed yourself by signing this. It’s very similar to games major labels play; if a band begins to get grass-roots interest somewhere in the U.S., a major will sign the band, record the album, but never release it, holding the band under contract for years, a move simply used to prevent other labels from signing that band. It also gives the label the power to crush an artist that doesn’t want to play ball with promotional and/or touring activities and schedules the artist may not agree with. Some things are best explained by the thirst for power, it doesn’t have to make sense.

Paragraph 12; As it reads:
“If any disputes or differences whatsoever shall arise between ---------------------------- in connection with this Agreement, they shall be submitted to arbitration in the State of ------------------------ in accordance with the laws, rules and regulations of that state.”

I believe they worded this very deliberately, in that it reads; “If any disputes or differences whatsoever shall arise between (company name) in connection with the agreement…” It actually states that disputes WITHIN THE COMPANY shall be submitted for arbitration, not disputes between the signing parties of the contract. This leaves you NO RIGHT to arbitration. Also, there may be legal issues with their claim that the contract is under the laws of the state in which they do business, it may well be under the laws of the state you do business in, something you’d need to check out first. This agreement shows that the company is actually owned by a corporation in another state from the one they claim to do business in, which could further complicate matters legally. And if the company is set up as an L.L.C., or Limited Liability Corporation, you can surmise from that title that their liability to you will be considered very limited.

The bottom line is, GET AN ENTERTAINMENT ATTORNEY. Don’t get the business attorney down the street to look the agreement over for you, because he has NO IDEA what a music industry contract entails, which is why there are entertainment attorneys. When the alternative is possibly signing away ownership of your art, and destroying your ability to ever release future work, it’s worth the expense. Thanks for reading!

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