The Legal Brief

If you are fortunate enough to be offered a recording agreement, many times the record label will first offer you a “deal memo,” “term sheet,” or “letter of intent” to sign prior to providing a full-blown “long form” agreement. This is done for any number of reasons. The record company may be afraid that you will be offered an exclusive recording agreement by a different (or even an affiliated) label that you will be tempted to sign before a full agreement can be negotiated, drafted and executed. The process of discussing the terms of a short (sometimes as little as 1 or 2 pages) and cryptic document also brings up issues or “deal breakers” before the recording company spends too much in the way of legal fees, or their employees’ time. If an artist agrees to sign a short form agreement while the attorneys hash out the points of a long form agreement, then the label personnel can begin arranging the details for the production of the first album.
There are drawbacks for you as an artist if you sign a short form agreement first, rather than negotiating all of the points of a long form agreement. For example, you are committed to the label as an exclusive recording artist for the term as stated in the short form agreement. It does not matter if the details of the long form agreement are ever finalized, you may not legally record for any other record company so long as the short form agreement is in effect. There is the problem of trying to agree how the requirements of the short form agreement are supposed to be implemented. You may also find that the deal points as contained in the short form agreement are nowhere to be found in the long form agreement – but it is up to you or your attorney to find the omissions. That is not an easy task in a document that can easily be 60 or more pages in length. Finally, you will probably be paying an attorney to negotiate two recording agreements instead of one, albeit the short form should take less time than the long form agreement.
There are potential drawbacks for the record label when short form agreements are used as well, however. The terms of the short form are abbreviated, which makes interpretation difficult in some situations. For example, the short form may state that 100% of the statutory mechanical royalty rate is to be paid to a writer-artist, but does not state that the rate is “frozen” (the rate increases every other January 1), or that the rate is the “short song” rate without regard to playing time, rather than the “long song” rate if the song, as recorded, is longer than 5 minutes in length. If the writer-artist and the label are at an impasse regarding the terms of the long form agreement and an album is released, the short form will control. If the label’s attorney or staff drafted the agreement, the terms will generally be construed against the company unless a provision of the contract states that the contract will be construed against neither party for the benefit of the other (if that provision appears, I usually try to have it removed if possible – it is the record company’s contract after all).
Care should be taken, therefore, to make sure that the terms of the short form, such as they are, reflect the intent and understanding of the artist as much as possible. If there is some doubt about whether a term will be interpreted in the artist’s favor, then the artist’s attorney should insist that the term be clarified. I believe that it is better to forego the short form and proceed to a long form agreement if at all possible. While the process of negotiating an exclusive recording agreement can take months, it is better to have an agreement you understand and can live with rather than maintain a running debate with the record company as to what the intent of the parties were when the short form document was drafted. While this can and does happen with long form agreements as well, the long form agreement is meant to address as many requirements and desires of the parties as possible. If disagreements between the label and artist remain problematic, the result could be the refusal of the company to release the album and/or that the artist will be dropped from the roster when the option period notice is due. If you want to remain an exclusive artist with the company, pick your battles carefully.
Next time we will continue to discuss recording agreements.
© 2003 Gregory E. Seneff, Sr.
With regard to any of the information found here, if you have questions regarding your particular situation, you should consult an attorney or other licensed professional.
“Music Business and Law: What Artists and Writers Must Know”
How music artists and writers should approach their business: forming legal entities (band, corporations, LLCs), copyright law, trademark law, band name protection, music business contracts (publishing, administration, recording, booking agent, management, co-writing, etc.), interviews with established artists and writers, how to plan finances (with Dave Ramsey). Includes illustrated booklet.
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