MI Practices Notes 2 Role Of Managers

ROLE OF MANAGERS   Confer with, counsel, advice, guide, and assist artist in all matters related to entertainment industry  Musician  Songwriter  Actor - television and film  Live concert performances  Literary  Personal appearances  Endorsement and sponsorships, etc Entertainment industry can be negotiated to narrow the definition to just music industry activities  Advise major business decisions… to enter into record deal or music publishing agreement, which record label, which music publisher, etc  Advise on selecting lawyer, business manager, agent  Negotiate material terms of agreements for the artist  Assist on marketing efforts  Manage important business relationships  Etc COMMISSION           Standard commission: 15% to 20% GROSS REVENUE VS. ADJUSTED GROSS OR NET REVENUE  OPTIONS 15% in the beginning, but increased to 17.5% then 20% upon achieving certain revenue goals 20% and decreasing over time to 17.5% and then 20% upon achieving certain goals  CUSTOMARY DEDUCTIONS Recording costs (recording fund paid to artist should not be commissioned) Monies paid to producers (if separate from recording costs) Tour support (an advance pay by record label) to put money in artist pocket to help with expenses The cost of sound and lights of concert tour The costs of opening act and other costs of concert tour Commissions paid to agent who booked concerts TERM  CUSTOMARY  3 - 5 years  2 years w/ 1 year option  3 year w/ two 1 year options     VARIATIONS  3 - 5 years, but artist can terminate if x dollars not generated within first two years  3 to 5 years, but artist can terminate if manager does not secure record deal with major label  within first 12 to 18 months EARNINGS AFTER THE TERM  Contracts entered into during the term  Contracts entered into during the term but for limited period of time after the term  Contracts entered into during the term but commissions reduced post term SUNSET CLAUSES  Reduces commissions over period of the next 2-5 years per term  Example  During term 20% o 1st year post term 10% o 2nd year post term 7.5% o 3rd year post term 5% KEYMAN  Keyperson primarily involved  Termination rights  Death/disabled vs. not actively involved BOOKING AGENTS VS MANAGERS     Confusing the personal manager with a booking agent is the biggest factor contributing to the ambiguity related to the personal managers role In california and new york an employment agency license is required before one can engage in the business of seeking or procuring employment for others There are civil and (in new york, criminal) penalties Managers may be required to forfeit commissions TALENT AGENCIES      CAA William Morris Endeavor United Talent Agency ICM Partners ETC. COMMISSION AND TERM  COMMISSION  10% PERIOD   Regulated by unions, AFofM, SAG-AFTRA and statute TERM  GENERALLY 1-3 years  Established artists often do not actually enter into agreements with the agencies… handshake CLASS 4: 3 MAJOR RECORD COMPANY GROUPS    SONY MUSIC ENTERTAINMENT  Columbia  Epic  RCA  Arista UNIVERSAL MUSIC  Republic  Interscope/Geffen/A&M  Island  Capitol  EMI  Def Jam WARNER MUSIC  Atlantic  Warner records  Elektra  Reprise  Sire 3 MAJOR DISTRIBUTORS (OWNED BY MAJOR RECORD COMPANIES)    SONY MUSIC ENTERTAINMENT  The Orchard  RED UNIVERSAL MUSIC  Ingrooves  Caroline WARNER MUSIC  ADA KEY DEPARTMENTS: RECORD COMPANY             MARKETING SALES A&R A&R ADMIN PROMOTION PRODUCT MANAGER LEGAL AND BUSINESS AFFAIRS FINANCE AND ACCOUNTING INTERNATIONAL  COORDINATES GLOBAL RELEASES AROUND THE WORLD  MANAGES INTERCOMPANY ROYALTY OBLIGATIONS  ESTABLISHES AND ADMINISTERS POLICIES FOR FOREIGN TERRITORIES PRODUCTION FILM AND TV CATALOG MARKETING   PAST: PHYSICAL SALES  CONSUMERS TO RETAIL  PUBLICITY / AD CAMPAIGNS  VIDEOS / ARTWORK PRESENT: PRIMARILY DIGITAL SALES  CONSUMERS TO DSPs  SOCIAL MEDIA MARKETING  VIDEOS / WEBSITE DESIGN ETC SALES   PAST: PHYSICL SALES  SELL AND SHIP RECORDS TO STORE  PRODUCT DISPLAYS  "PICK, PACK AND SHIP" PRESENT: PRIMARILY DIGITAL SALES  DELIVER DIGITAL FILES TO DSPs  ENCODE METADATA  NAME OF SONG, ARTIST, WHO TO PAY, ETC A&R DEPARTMENT   FIND ARTISTS SIGN ARTISTS  MAKE RECORDS A&R ADMIN    PAY ADVANCES AND RECORDING FUNDS MANAGE RECORDING PROCESS TRACK OPTIONS RADIO PROMOTION:    GET RADIO TO PLAY MUSIC BUILDS ARTIST VULNERABILITY STILL MATTERS… JUST NOT AS MUCH FINANCE AND ACCOUNTING     REVIEW PROFITABILITY OF DEALS MANAGE DEPARTMENT ANNUAL BUDGETS HANDLE ROYALTY ACCOUNTING MANAGE ROYALTY AUDITS DO YOU NEED A RECORD DEAL??   HISTORICALLY  Expensive to market, produce, and distribute records  Large record retailers primarily only carried product from major record labels  To sell records important to have records on radio which was expensive marketing TODAY  Brick and mortar and physical product sales diminishing  Much easier to get records distributed digitally  Radio still important, but fewer genres represented  More important to have direct relationship between artist and consumer DIY METHOD  Most artists seek major record deals  MANY DIY OPTIONS  Tunecore; distrokid; oneRPM; CDBaby, etc  DIY options charge annual fees or require share of revenue  DIY options AKA aggregators place musoc with all digital service providers  Spotify, apple, amazon, etc   Best option for unsigned artists Artist responsible for marketing efforts and costs, recording costs, etc. MASTER RECORDING OR MASTER     Physical copy - today probably a hard drive (2" tape and 1" tape in the past)  Includes the stems… all the different channels or parts: vocals, drums, guitar, bass, etc so you can remix later and change  Sometimes referred to as the multi track Mixing: setting the levels so you can hear all the separate vocals, instruments, etc. Mastering: setting the level so it sounds the same whether on record, radio, tv, etc. Special mixes: sometimes different mixes for radio, just instrumentals, etc. ROYALTY COMPUTATION  The division of proceeds between the record label and the artist  In the recent past and in many deals today, usually computed at a price paid by the dealers (wholesale)  Example, 18% ppd (PRICE PER DEALER) in the US (18% of $7.49 for an album that sold online as a download for $9.99) or (18% of $11.41 for a CD that sold for $16.98 or $17.98 at retail)  Some older deals the royalty was based on the S.R.L.P.  Today, still many PPD deals, but industry moving to receipts based basis  EXAMPLE: 18% of the receipts the label receives from the DSP EASY MATH EXAMPLE:    Record label receives $100 from the DSPs for streaming a specific master recording Artists royalty rate equals 10% of receipts Amount payable to the artist is $10 which likely is applied to unrecouped balances and does not include separate songwriter royalty, if applicable PHYSICAL SALES       Mostly CDs, some vinyl, and maybe cassettes again today Generally royalty based upon PPD Artist does not receive royalty on physical product given away from free to retailers as incentive Artist does not receive royalty on physical product given away for free to radio stations as promotional material 100% of physical product sold at record retailers is returnable (this is changing) Reserves between 10% and 25% held by labels for 2 years before liquidating (to off set returns) ADVANCES: THE BASIC CONCEPT      Prepayment of royalties Sometimes an in pocket advance for the artist on signing the record contract Always in the form of a recording fund payable to the artist to make a record Often 50% to 100% of certain marketing costs are deemed advances… payment of videos, publicity, radio promo, etc. Other advances… tour support, equipment fund, etc. RECOUPMENT:    All advances are recoupable from the artist royalty before the artist receives his or her royalty Artist will be paid prospectively following recoupment, not retroactively on records sold For example, if the artist receives an advance of $100,000 and earns $75,000 from record sales (all methods), the artist royalty account is $25,000 unrecouped at that point CROSS COLLATERALIZATION: UNCROSSED ACCOUNTS      Artist is paid $100,000 advance for the first album (LP1) Artist is paid $100,000 advance for the second album (LP2) Artist earns $10,000 in royalties for the sale of LP1 Artist earns $120,000 in royalties for the sale of LP2 If the two albums are not cross-collateralized then artists royalty account for LP 1 is $90,000 unrecouped, but the artist earned $20,000 in royalties for the sales of LP1 after the initial $100,000 was used to recoup the balance for LP2