Locking in the foundation of your business

It’s important to secure a solid business foundation when you’re first starting out. By having trustworthy business professionals (such as lawyers, accountants, and so on) on your side, you can address questions and potential problems at the jump. You need expert advice about how to set up your business, how to incorporate (if that’s the route you need to go), how to handle money and property, and how to keep your taxes paid. In the (unlikely, I hope) event that your business or partnerships aren’t successful, you’ll already have a plan in place to handle details such as cash and property disbursement as well as intellectual property rights.

Best friends and band members can become bitter enemies. That record deal you thought would lead you to worldwide stardom and fame can end in disaster. The idea you have on how money and items are supposed to be split up might not be the same idea that others have. The security and clarity comes from working with the right people who are on the same page as you. Good lawyers and accountants are worth their weight in gold and can help you avoid music-business problems when things go both right and wrong.

Imagine every person involved with you in your music business venture as if you were bitter enemies, and you completely detested the sight of each other. Then imagine everything that could possibly go right goes right as well as everything that could possibly go wrong goes wrong. From there, begin the lay out a plan, from the contracts and agreements to the percentages and promises, while everyone still likes each other and everyone is feeling good about the new venture.

Assessing the personalities to work and play with

Beyond the skillsets come the different personas when choosing whom you want to work with and who will work with you. Everyone has different styles of communication, and everyone has different ways that they like to work together. Just as certain artists are better off as solo artists, others are better as band members. Learning about the personalities and communication styles as well as following up with references can help you make strong, informed decisions.

You may find yourself smitten with another in the early stages of a relationship or dating, but maybe that little alarm in the back of your mind goes off. You wonder how an argument might play out, or how compromises are made when two people want two entirely different outcomes. Always listen to that little alarm.

Think about the best, worst, and middle-of-the-road scenarios in regard to your working relationships and find solutions for any problems. You can save yourself thousands in billable attorney hours if you have much of your contracts and agreements planned out before you meet with your lawyer. From who gets ownership of publishing or copyrights to what the band might owe a member, knock out those details early on.

Defining your limits of compromise

As you work to get everyone on the same page, realize early on that how that page looks to you and how it looks to someone else could be very different. Dissimilar people from diverse backgrounds usually have different beliefs. Whether in a business, romantic, or even a creative or musical relationship, compromises have to be made to make the relationship work. Still, there are areas where you may not want to compromise at all. This is where the waters can get a little rough.

As you begin any relationship, discuss your views and beliefs, as well as where you’re willing to compromise and where you won’t in order to build the right foundation with the right types of people that will work the right way for you.

The best relationships come from each person understanding the other’s point of view, even if they might not agree with it. Apply a little give and take with compromise as well as an acceptance of where another stands firm and won’t budge.

Solving problems before they arise

Nip it all in the bud before the flower grows, and you can create beautiful business bouquets. Before a note is written, before a song is recorded, before a logo is sketched, before a domain name is purchased, before a website starts getting coded, and before a dollar is spent on anything, begin addressing problems to prevent problems by putting it all down in writing among everyone involved.

This doesn’t mean going to a lawyer before you make every move or every decision; it means clarifying in writing what you expect and what others expect from you. This enables you to all get on the same page, find compromise, or realize that working together might not be the best fit. Get your problem-solving hat on before problems arise. This can prevent many unpleasant issues down the line.

Big red flags should pop up when someone says, “Just come in to the studio; we’ll deal with fees later.” Always have a simple agreement or a statement of work with an invoice; otherwise, you could end up with legal hassles later.

Think of this worst-case scenario that has happened to so many musicians, both famous and independent. A producer can take claim of writing, publishing, and recording, because they recorded and produced a track for free. The track becomes popular, and the producer can claim that they need compensation and a percentage as well as co-writing and production credit.

Handling internal and external agreements

As you lock in the understanding, get on the same page, make your compromises as you stand your ground, and clarify the expectations all around, it’s time to get a lawyer involved. Many musicians think they can’t afford a lawyer or budgeting money for contract reviews is money that could be better spent elsewhere. Well, if you think a lawyer is too expensive now, just wait to see how much a lawyer will end up costing you if you wait too long and issues rear their ugly heads.

These agreements and contracts are not only for long-term projects and the day-to-day people involved; they’re also for anyone who’s working for just a short period of time. The more clarity and understanding everyone has, the easier the outcomes will be.

Getting it down on paper

You decided what you’re willing to compromise on and where you’re standing firm, and maybe you clarified who owns and gets what. Now it’s time to take those last steps to identify how specific situations should be handled. The following sections look at a few possibilities that you and your attorney should anticipate.

Last step before going to the lawyer

Before starting the clock with a lawyer, talk to members of other bands — maybe even hire a music business advisor — to review the documentation and see what might be missing. Looking at agreements online as well as asking to see the contracts other bands, studios, producers, and graphic designers use or have used in the past can help you zero in on the most information possible to present to a lawyer.

The more you can have done, agreed upon, and prepared on paper, the easier you make it for your lawyer, and the less it costs to prepare all the needed documents.

Lawyering up

Make the most out of the time you can before going to the lawyer. Hiring a lawyer where you sit around a table and try to hash out basic elements is a waste of time and money. You don’t need to discuss the publishing percentages in a lawyer’s office. This should be done before you get in there.

With all those ducks in a row, now its time to bring in the lawyer and get all these agreements formatted, signed, and executed. The foundation of this type of organization makes things much easier for you and also makes you look much more professional. From an investor standpoint, since you removed a great deal of risk and potential problems very early on, you appear much more like a safe investment.

Understanding music copyright basics

Copyrights can be tricky and the definitions even trickier. It’s true that the minute music and lyrics have been written down, recorded, or stored, a copyright is created. The poor man’s copyright, as it was commonly called, is where people mail a copy of the work to themselves, the postmark serving as proof of origin. But just like writing something down, you’re not providing all that much proof of when a song was written or copyrighted.

The first copyrights allowed exclusive control for only 14 years; that was it. Now, when you copyright a work, you own it for the rest of your life and then it can be transferred to another, whether it be an heir or someone in your will. That individual will own it for 70 more years.

When you apply for a copyright, there are two basic forms you use (both of which can be found at http://copyright.gov/forms) — the Performing Arts or Form PA, and the Sound Recordings or Form SR. Doing your due diligence and filling out both can be the most prudent way to go because when registering a new song, you want to protect the copyright in the composition separately from the copyright for the sound recording.

You use the Performing Arts (Form PA) to copyright and protect the composition, lyrics, or anything that’s been written. The government description is “Use Form PA for registration of published or unpublished works of the performing arts. This class includes works prepared for the purpose of being “performed” directly before an audience or indirectly “by means of any device or process.” Works of the performing arts include: (1) musical works, including any accompanying words; (2) dramatic works, including any accompanying music; (3) pantomimes and choreographic works; and (4) motion pictures and other audiovisual works.”

You can find Form PA at http://copyright.gov/forms/formpa.pdf.

The other form, (Form SR) is for the copyright on the actual recording of your copyrighted song (or your recording of another’s copyrighted song). The U.S government states to use Form SR “ … for registration of published or unpublished sound recordings. Form SR should be used when the copyright claim is limited to the sound recording itself, and it may also be used where the same copyright claimant is seeking simultaneous registration of the underlying musical, dramatic, or literary work embodied in the phonorecord.”

You can find Form SR at http://copyright.gov/forms/formsr.pdf.

File Form PA before the sound recording to protect the composition first.

With your works copyrighted, you can now publish them with either your own publishing company or with an established music publisher and begin to make money on those songs. If someone uses your music without permission and you have the copyrights in place, you can remedy the situation under the premise of copyright infringement. And here’s another good reason to keep your attorney’s number handy.

Understanding music publishing basics

A music publisher helps organize and prepare your music with all the different types of agreements, such as song split agreements (who gets paid what on the writing side), producer rights agreements (what share if any the producer receives), and copyrights and registrations with performing rights organizations such as ASCAP, BMI, and SESAC (see www.ascap.com, www.bmi.com, and www.sesac.com, respectively, for more information on these organizations and what they do).

Music publishers are then responsible for pitching and placing the music by researching options, tracking trends with music, and connecting with music supervisors, film, and TV producers, video game creators, advertising executives, and even other artist managers and reps to find placement for your music.

Then they are responsible for securing the licenses that allow for songs to be used as well as tracking copyright infringement if someone’s using your music illegally. Finally, and what artists find most important about music publishers, is the tracking, collecting, and distributing of the profits from songs being placed in movies or TV, music played live, and other licensing options discussed later in the chapter.

A publisher is also responsible for negotiating the rates and deals as well as collecting the money and enforcing your copyright. Most publishers take 50 percent of the money that they bring in as their fee. If you sign with a music publisher, legally you assign your copyrights in exchange for one half of the profits made from these licensing deals.

Do your due diligence with music publishers. If you sign a deal with someone who isn’t at the top of the publishing game or is a bit shady, he has control of those copyrights for as long as you signed the agreement. This means that if you find an opportunity for one of those songs, you still have to pay the music publisher even though he didn’t do any of the work. If the interest comes from publishing company other than the company you have that song with, they have to get a sub-publishing deal through your original publisher, which may interfere with a deal because everyone will be making less.

You do have the option to form your own music publishing company, as well as the option to assign certain songs to music publishers but not your entire body of work. Think about what options work best for you, and consider starting your own music publishing company, regardless if you’re actively looking for licensing opportunities or not. If an opportunity comes your way, you can work out a deal for that song, through your own publishing company, and make the most off of the song. If you’re an American, information about starting your own publishing company can be found online at www.ascap.com, www.bmi.com, or www.sesac.com. If you’re another nationality, do a Google search for starting a music publishing company in (country) to get the right links to get started.

Some record labels and investors may add to their contracts that they receive all publishing revenues until they’ve recouped their investment as well as made the interest they want. Others take a percentage of publishing revenues. Keep this in mind as you move forward and look at agreements, potential record deals, and investments early on.

The advantage of using an established publishing company or music publisher is that their contacts could allow for many opportunities. Now, however, with the ability to get music out there easier (via the Internet), it can be beneficial to have your own music publishing company in addition to working with a more established publisher.

Figuring out licensing options

Whether you go the route of an established music publishing company or you start your own, you want to get as many licenses for your music to create profit. Licensing your music means just that — you or the music publisher allow someone to use a product that you own (your licensed music) but you don’t transfer the ownership. The deals created from licensing your music, ironically enough, is called publishing.

There are seven key types of rights and licensing options you can have for your music. The following sections take a look at each.

Graphic, web, recording, product, and investment stakes

Getting something for free early on can seem like a great thing; however, you could end up paying down the line, and it can cost you ten-fold or even more. Remember the old adage: There’s no such thing as a free lunch.

From getting free graphics to help with creating a website, there can be costs associated with that branding down the line. For example, a graphic designer can claim that because she did your logo on speculation, she should get a piece of everything that logo goes on from stickers to t-shirts to albums and other products. As another example, your website designer may claim the website he built should allow him a percentage of profits for an extended period of time. Others who might offer something for free early on but want some sort of payment later include studios, producers, musicians playing on your songs, and even investors who come on board early on.

Security and control of your career can be lost due to the freebies or lack of clarity early on. not fully understanding what a business partner or contractor expects down the line can leave you with the smallest piece of the profit pie, if you even see any profit at all. There are stories of groups that made millions of dollars in a year and ended up barely making enough to cover their business and personal expenses.

A good rule of thumb is that free is never free; make it very clear what you will give for work performed and that all parties understand your terms. To learn more about contracts, see the “Handling internal and external agreements” section earlier in this chapter. Get it all in writing and you will get yourself in the safest place to keep everyone on the same page.

Deciding on self-publishing versus finding a publishing company

Most publishing deals that you get into with a music publisher or music publishing company require 50 percent of the royalties. As unfair as that might seem, this is an industry standard. By maintaining your own publishing company, you get to keep 100 percent of the publishing. The trade-off, however, is that you have to handle and execute the job of a music publisher.

An effective music publisher is constantly researching and finding opportunities for placements, as well as tracking where your music is being used and how collection and payment is made for you. With this in mind, it can be a good idea to work with a music publisher.

However, you don’t have to assign your whole catalogue to a single publisher. If they ask for that, move on and look for another publisher. Just as the music industry has changed, all the jobs inside the industry have changed as well. Where publishers early on would ask for long terms and exclusivity as well a larger body of work, these days you can find music publishers who will negotiate numbers of songs and time frames.

Having your own publishing company can become a full-time job as you work to find placements, track where music is being used, and follow the changes with all the streaming and digital insanity. More about self-publishing was covered earlier in this chapter in the section “Understanding music publishing basics.”

Soliciting to a record label versus going independent

One of the most frequently asked questions is whether to solicit to a record label or go independent. Many people see these as two different options, when in a sense they’re similar in what needs to be done for either direction you choose.

Some think it’s as simple as sending music to every record label you can find; then getting signed; then magically everything takes off. There’s a very dangerous misconception and delusion from a great deal of musicians who think, “Once they hear it, I’m a shoe-in for a deal.”

Over 95 percent of people signed to a record label from the smallest independent labels to the largest and most financed labels fail.

The same exact problems can occur from the independent side of things. Many people think signing to a label allows an artist to focus on recording and on touring while the artist who wants to go independent has to handle money, booking, branding, and other costs and considerations.

Think less from the standpoint as to whether you want to go the independent route or solicit to record labels, and first think about how you will present yourself for solicitation for all your needs. Whether you choose to go after a label or do it yourself, the presentation for getting a solid consideration from a label is the same as the presentation for finding the money to get into the studio, build up the branding, and execute the marketing and promotion budgets.

The same steps need to happen whether you’re looking at the requirements needed from an independent standpoint or wanting to sign with a label. If you take the steps to stay as independent as possible with investors to support the costs you need, larger profits can come your way. This, over the bands that sign away their lives as others do all the work and then of course, see a lot less in revenues and profits in the long run.

I advise all musicians to take the independent route. In many ways it’s still like going to a major label. You have to work on building and funding your music business plan as well as execute it (see Chapter 4), but your involvement, efforts, and attention to detail allow for better profits for yourself and those funding you. This also increases your ownership and works a great deal better in your favor over signing with a label; you end up with greater control of you and your career.

Breaking down a “deal”

A great deal — and I’m talking about the majority — of record label owners and employees out there don’t know what they are doing. That deal you think you’re getting when you sign on the dotted line is a bad hand. (Playing card pun, okay?) Again, keep thinking due diligence and research. The majority of those record label owners, employees, and executives can’t help you or your career. They’re not funded correctly or with enough. They are not organized professionally or with the right team and even though they are nowhere near what they claim to be, they use templates of contracts that can take complete control of you, your career, and opportunities you won’t be allowed to have with others.

Signing an exclusive agreement that contracts you to a record label that gives the executives, employees, or owner of that label control of you, your music, publishing, and rights — where they leave it vague about exactly what they have to do for you — can legally prevent you from working with others and leave you locked up for years to come.

Look at a worst-case scenario as an example: If a record label gives you a deal to record in the studio and puts ten grand into you and your project as they take your publishing and look for a high return on investment, how will you get money for the branding, marketing, promotion, and touring? What are you able to offer those potential investors? You have tied yourself up in a record deal that isn’t a deal at all with a record label that isn’t really a label at all due to the lack of cash flow, experience, knowledge, and artist’s support, and you end up losing out.

Understanding your responsibilities to investors

In any situation when it comes to labels and investors, you lose ownership and control for a period of time. This is why you have lawyers reviewing contracts and best- and worst-case scenarios. Your attorney can clarify any confusion and allow the process of more ownership or the majority of ownership to eventually come back to you.

Anyone that gets involved financially with you is looking for a piece of the pie, whether in higher interest and no percentage, lower percentage on their return on investment and a higher percentage of ownership and profits, or a much higher stake in ownership for the long term and getting back only their initial investment. Because your investors expect something in return, the moment money comes to you, you create a business partnership complete with responsibilities and loss of some ownership.

For example, if your four-person group makes $1,000,000 in a year, but you owe 90 percent of that to investors, each member of your group is only making $25,000 piece for the year. But if you can get the bulk paid back to investors as well as some larger interest so you could maintain more of the profits, after all the costs and a little higher payback, you can make 40 percent on that million, and each of you make a very comfortable $100,000 for that year.

In any situation when it comes to labels and investors, you lose ownership and control for a period while you pay back your investors. Still, if you have clearly laid out in publishing deals, record label deals, or investor agreements how your business works from the financials to the percentages, the ownership stakes to the security, you can maintain that much more control of your career, music, and brand. That’s why creating your music business plan discussed in Chapter 4 is so essential for the success and security of you and your music.