Involving a Legend Can Change Everything

I’ve been an entertainment lawyer for 27 years, and I’ve seen a lot . A lot. I’ve Seen This Before is my Friday series that gives you a peek at some of the lessons my clients have learned the hard way. Some of the details may have been changed to protect client confidentiality.

My work is really interesting, and many times I come across situations where popularity truly is a problem. Today’s post is one of those times. Our client produced a record for an artist, and at the time, it was a fairly ordinary artist/producer relationship.

They negotiated the producer's deal. They made the record. The record was released. And everybody moved on. That happened before I got involved, and the contract left a lot to be desired.

By the time the client came to me, the master had been released and the contract had been on autopilot all those years. Then something interesting happened—another artist wanted to sample the recording.

And not just any artist. This artist could fairly be described as legendary. The new album charted immediately, and was very successful.

I assume the recording contract between the label and the artist covered all the important things it needed to cover, because they did the deal and the new album was released. But I wasn’t looking at the label/artist contract. I was looking at the producer/artist contract.

How was my client supposed to get paid for this?

The Agreement Covered the Record. It Didn't Cover This.

The producer agreement wasn't necessarily a bad agreement. It addressed the deal everyone expected at the time. The producer did his job and produced a master. The artist released it. The producer received what the agreement said he was supposed to receive for exploitation of the master. But here we were, years later, and the master had acquired a different kind of exploitation. Someone wanted to take a piece of that recording and incorporate it into an entirely new recording. It happens all the time. So why didn’t the agreement account for it? Oops.

Sampling requires permission from whoever controls the master. And permission to sample a valuable master usually isn't given simply because someone asks nicely. You better believe there is money involved.

Suddenly the original master could generate a new stream of money. And the producer agreement didn’t say how my client would participate.

Nobody Was Thinking About Sampling

That's understandable. When many producer agreements are negotiated, everyone is thinking about the obvious questions. What is the producer's fee? How many royalty points does the producer receive? When do royalties start? Does the producer receive songwriting credit or publishing? What credit does the producer receive?

Those are important questions. But no one thought to ask, “what if this artist makes a big enough splash that, years from now. someone famous wants to sample this?” It probably would have sounded absurdly optimistic—until it happened.

Success Finds the Holes in Contracts

Nothing could be truer than that. I’ve seen it so many times. A contract can sit in a drawer for years without anyone discovering its weaknesses. I often tell clients that a contract is your disaster plan. As long as everything is working as it should, you don’t need it. Most people only pull out the contract when something goes wrong.

Or, in this case, very right.

Suddenly everybody pulls out the old agreement and starts reading it very carefully. That’s because it’s time to divide money, and everyone has a different idea of what is fair.

A Sample Creates Two Different Rights Questions

Sampling can be confusing because a recording contains two different copyrights. There's the musical composition — the song. And there's the sound recording — the actual recorded performance.

If someone actually takes audio from an existing master and uses it in a new recording, the rights in that master have to be addressed. The composition embodied in the sample may have to be addressed separately (and in this case, it was—that part was fine). My client's issue was on the master side.

He had helped create the recording that someone now wanted to use. The original producer agreement provided for his compensation from the direct release of the master. But it didn't tell us what happened to money generated when a third party paid for the right to sample that master.

"I Get Producer Royalties" Doesn't Necessarily Answer the Question

And, in this case, it didn’t. A royalty from the sale of the album and portion of income related to the licensing of the master are two totally different things. Royalties are based on sales. Licenses can be flat fees, royalties, or a combination of both; and sample royalties can be diluted because they are usually proportionate to the sample’s playing time vs. the total song playing time.

How does that impact my producer? Well, as it always does, it depended on the language in the agreement. How is the producer's royalty defined? Does it cover licenses? Does it cover only particular exploitations, or does it address other income received from the master? And does it specifically say anything about sampling?

In our case, we couldn't simply point to a sentence that answered the question. The parties had negotiated a producer deal. They just hadn't negotiated this producer deal, because nobody knew there would ever be a "this."

The Better Time to Answer the Question Was Years Earlier

I’ve said it before, and it bears repeating because I really can’t say it enough. Once money is on the table, negotiating gets harder. Imagine having the conversation when the original producer agreement was signed. "If anyone ever pays to sample this master, how will we divide that money?" At that point, the sample license is hypothetical. With cooler heads, it's much easier to agree on a formula.

Now imagine having the same conversation after a legendary artist has asked to sample the recording. The money isn't hypothetical anymore. Everyone is pulling out their phones and calculating what their cut will be. Every percentage represents actual dollars.

That's not the ideal time to discover that the contract is silent.

You Can't Predict Every Way a Record Will Make Money

No agreement can anticipate everything. The music business changes. Technology changes (rapidly, I might add). Revenue streams change. A recording created today may generate money ten years from now in a way nobody currently expects.

The answer isn't to make contracts infinitely long trying to predict every possible future development. The better approach is to think more broadly about the economics. If a producer is supposed to participate in the economic success of a master, the agreement should be clear about what kinds of exploitation generate that participation.

The Irony Is That This Was a Good Problem

That actually happens more than you would think. Nobody was complaining that the record failed. Failed records don’t come with the same kind of problems as successful ones do. And that’s the irony—artists assume that success will solve all their problems.

Quite the opposite. It just creates different ones. The artist here had become successful enough that an old recording had continuing value. Another extraordinarily successful artist wanted to build something new using a piece of it.

That's the kind of problem people in the music business hope to have. But success doesn't make contract problems disappear.

Sometimes success is what reveals them.

The Real Lesson

When my client produced the record, nobody knew what that recording would eventually become. That's true of almost every record. Most won't become enormously valuable. Most won't be sampled by legendary artists.

But occasionally one will.

And that's why the least interesting time to negotiate what happens if a record succeeds is often the best time to do it—before anyone knows whether it will. Because years later, when the call comes saying someone wants to sample the master, you want to pull out the agreement and find an answer.

Not another question.