Pain and Gain in Artist Contracts

The contractual and working relationships between artists and record companies are currently undergoing a high-profile scrutiny as lawsuits over contractual disputes continue to eat up time and money in the music business.

In signing an artist, a record company is faced with the dilemma of devising a mutually beneficial contractual relationship with the artist while protecting its current and future investment in the artist against the unpredictability of human emotions.  However, a contract should be one on which the record company can rely — one that will not be held later by the courts as unduly restrictive.
The existing contractual structure is in need of an overhaul.  If an artist is given greater responsibility by his record company for the success or failure of his career, he may be less inclined to blame and sue the company if his expectations are not met.
In today’s contracts, the artist agrees to a number of limits, including exclusivity of performance for the record company and restrictions on his freedom to record what he or she wants.  In some cases, the record company also may have the right to decide what will be recorded.  In addition, the artist hands over absolute and discretionary record-release and promotion rights to the record company.  These are restrictions that cause friction with the artist.
Meanwhile, the financial risks of the record company lie in the fact that recovery of its expenditure on the artist is limited to recoupment from the artists’ royalty income.
If a record company steps out of line, it is in danger of being considered in breach of contract; if it insists upon exercising its contractual rights against the artist it can be considered to be acting in restraint of trade.  This leaves many unanswered questions about the status of existing contracts.  Are all recording contracts inherently illegal, being potentially in restraint of trade?  If so, caveat record company.
Are the protective and restrictive terms of a record company’s contract in excess of what it needs legally for the reasonable protection of its legitimate interests?  In most contracts, the minimum recording commitments, the time “windows” in which a recording may be made, and the definition of what constitutes a “contract year” all can extend what the artist thought would be a five-year deal into one that spans up to 10 years for the same number of recordings.  While a maximum number of recordings to be made per contract year makes commercial sense to the record company, out of its context, and on a personal basis, it is inherently restrictive to a prolific and successful singer/songwriter.
The singer/songwriter is dependent for a living on the recordings being made, released, promoted, and sold.  The record company has, in that sense, an inordinate power and control over the artist’s career through limitations and discretions in its favor contained in the recording contract.
There are a number of areas in which restraint of trade claims could be made by artists against record companies.  One such claim just waiting to be made by an artist would involve a record company’s refusal to release unused tracks that are in excess of the requirements of the contract.  Another claim could result from a record company deleting from its catalog recordings that are fading in sales, effectively burying them.  Yet a third could be a claim by the artist for the mechanical copyright of those recordings for which he has paid back the record company through royalty recoupment.
A recording contract also seldom guarantees a release outside its originating territory, and never for a licensed territory, even though the artist may have an exclusive worldwide deal.  This produces a fundamental conflict between the interests of the record company and of the artist.
Is the only safe way forward for the parties jointly to present the contract to a court of competent jurisdiction, to have it examined and declared valid and enforceable?  As that is not practical, another approach would be to have a form of joint venture between the record company and the artist, particularly if he or she is a proven and popular performer, to share the financial risk in his recordings in return for a higher share of profit.  There is commercial value to be gained by the record company through innovation in its contractual approach and more freedom for the artist.  However, as there is no gain without pain, the artist would have to accept that, within such a joint-venture structure, the days of bonanza recoupable-only advance payments would be over.