Major Labels: Minor Artists
Many young aspiring musicians, with dreams of one day being successful, do not have a competent manager or legal team to help them understand the intricacies of recording contracts. So, when presented with one for the first time by a record label – perhaps being lured by the prospects of success - they sign whatever deal they have been offered. On the face of it, it is normal business – a fair transaction that could benefit both parties. But is there another view?
An inequality of bargaining power arises when one party controls or dominates the terms of a contract, leaving the ‘weaker’ party with no opportunity to renegotiate or modify the terms. The stronger party therefore insists on a ‘take it or leave it’ agreement. Although inequality of bargaining power may often create ‘unfair’ outcomes for the weaker party, such inequality is not, in itself, sufficient to render a contract legally unenforceable. In instances where there is inequality of bargaining power, for a contract to be unenforceable there must have also been some form of inequitable or unconscionable conduct on the part of one of the parties – for example, an unreasonable restraint of trade, as in A. Schroeder Music Publishing Co. Ltd. v. Macaulay [1974], or undue influence, as in O'Sullivan v. Management Agency and Music Ltd. [1985]. Though not sufficient on its own, an inequality of bargaining power in these instances would certainly make a stronger case for the weaker party seeking to be freed from the contract.
In this discussion, we will focus specifically on the concept of inequality of bargaining power in the music industry, and the unfair consequences it has for artists. It is no secret that many large record companies use their wealth, influence, and investment power to exploit artists who are vulnerable, and who are either misadvised or not advised at all about the legal ramifications of signing recording contracts. This has caused many gifted artists to sign unfavourable contracts, including those featuring long-term arrangements, the granting of exclusive rights, and exploitative royalty reductions.
Before the digital revolution in the music industry (marked by Spotify’s global success), artists were typically offered what was then the ‘standard contract’. These contracts were often long-term agreements, because they required the artist to complete a certain number of albums for the contract to be fulfilled (one album can take several years to produce and release). If deemed profitable, the duration of the agreement could be extended at the record company’s discretion – and without the permission of the artist – by way of a unilateral extension clause. In the late 1990s and early 2000s, these types of contracts were detrimental because they frequently trapped young, talented artists for a number of years. Such artists, lacking negotiating power and adequate professional advice, might later realize that they had not understood or appreciated the full extent and nature of the agreement. For some artists, these long-term relationships with their labels caused further distress: (i) where it was felt that the label subjected the artist to abusive treatment (as in Gottwald v Sebert [2016] the infamous Kesha and Dr. Luke case); (ii) where the label stifled the creativity of the artist; and (iii) where the label was neglectful and oppressive in its management of the artist’s career (as in Rita Ora v Roc Nation LLC [2015]).
Recently, however, because of the rise of streaming services, shorter-term contracts such as single, licensing, and extended play deals have become popular. Thus, issues concerning long-term agreements may be gradually diminishing. The current willingness of labels to implement shorter contracts allows greater flexibility for both newly emerging artists and labels, so both parties can test the business waters, as it were, whilst avoiding many of the detrimental consequences of long-term commitments.
At the same time, inequality of bargaining power might still rear its head when artists sign deals that assign copyrights to the label, as well as deals that contain hidden royalty reductions and disadvantageous royalty splits. First, remember that the copyright in a musical recording exists in two forms: (i) the composition copyright; and (ii) the sound recording copyright. The composition copyright concerns the protection of the actual lyrics and melodies of the song (the ‘musical works’) and is held by the songwriter. The sound recording copyright, on the other hand, protects a particular recorded performance of the song (the ‘master’). Interestingly, it is standard industry practice for the copyright in masters to be collectively assigned to the record label in advance, at the time when the artist signs the first record deal. Contentious issues may arise, however, where an artist fails to secure a reversion of copyright clause - the effect being that the artist would have just signed away the rights to all masters made with that label (both released and unreleased) for the entirety of his or her career (copyright lasts for the life of the author, plus another seventy years). This of course is bad news for the artist, for it means that he or she cannot freely exercise any of the exclusive rights in the assigned masters (for instance, rights of distribution and public performance) without the permission of the label. This state of affairs will continue even after the artist has left the label and signed with a new one, and we can see this illustrated in the infamous Taylor Swift/Scooter Braun saga – the result of a deal which Swift signed at the age of 14. The inequality of bargaining power is frequently an issue here, because it is not often that an artist can demand a reversion of copyright clause - a clause which returns the masters to the artist at a future date - unless he or she has exceptional power and status in the industry.
Next, many of us might know how to scream the lyrics of TLC’s ‘No Scrubs’ in a 90s music throwback marathon. What some might not know, however, is that the iconic R&B/hip-hop girl group was at the height of its fame when it experienced serious financial difficulties that eventually led to its filing for bankruptcy in 1995: this was not long after the group had grossed around 14 million album sales. In a highly publicised dispute with their former manager, Perri Reid, it was revealed that not only did TLC sign a management deal (with Pebbitone) that was riddled with unfair and exorbitant royalty deductions, but that they were also persuaded by Reid to sign a deal with LaFace Records which gave TLC a 7% royalty split on the total income from their records, leaving the group members with only 56 cents per album sold, to be divided among the three of them! Reid, who later filed a suit for defamation, said in respect of the royalty rate that this was ‘just the type of deal that new artists get’. Though this is true, it seems highly exploitative that artists should enter into contracts where the label and management are perpetually cashing in, while the artists are being left to hang dry, even in the face of astronomical global success. TLC, in an interview, reflected on the fact that the band members were too immature to understand the full extent of such a contractual arrangement. Again, in Rita Ora v Roc Nation, Ora’s record label was accused of subjecting her – at the age of 18 - to a financially oppressive agreement whereby the label took a large portion of the income from all her live shows, record sales, merchandise, and sponsorships. Meanwhile, in return, Ora was provided with poor marketing and investment services.
All in all, with little or no opportunity to negotiate the terms of contracts, artists today often find themselves trapped in exploitative long-term agreements, having no rights over their own masters, or receiving miniscule royalty payments, despite their great success as creative artists. To help combat the effects of an inequality of bargaining power, an artist, especially if inexperienced, should obtain professional advice, so he or she may fully understand the legal ramifications of his or her contracts, and avoid signing agreements that could prove to be deceptive, costly, and distressing for many years into the future.
By Jessica Kodilinye