Term Paper on "Entertainment Law"

Term Paper 15 pages (3913 words) Sources: 1+

[EXCERPT] . . . .

Entertainment law is a diverse field of law that integrates contracts and intellectual property law (Iandorio, 2004). Every book, movie script, theatrical performance, sound recording, television show, etc. thus becomes intertwined with these legal issues.

The "business" aspect of the entertainment business doesn't always come easy to the creative minds that are entertainers (Iandorio, 2004). Many artists discover that they were somehow deprived of certain rights, income, control, or access. This happened recently to the now-defunct band the Verve, for example, who watched 100% of their royalties from the million-selling single "Bittersweet Symphony" turned over to the Rolling Stones. Instead of the Verve, Keith Richards and Mick Jagger were nominated for a Grammy that year, when the Verve's "Bittersweet" hit was revealed to violate a Stones licensing arrangement.

Crippling legal problems are not exclusively the province of up and coming acts, however (Iandorio, 2004). During the late George Harrison's lifetime, he had to defend a notorious copyright infringement suit when it was claimed he "subconsciously misappropriated" the melody from a 1950s tune. Recently, a California jury awarded $5.4 million against Michael Bolton and Sony, his record company -- the largest damages award ever made in connection with a music plagiarism case. The news archives are filled with these stories of entertainers whose managers have made a lot of money while the entertainers are left with bills. For this reason, entertainment lawyers are an important part of the entertainment industry.

With the merging of technologies between the entertainment and computer industries, legal specialties have merged, as well (Kaufman, 1996). Lawyers who want to practice in areas involving new technology increasingly need to know various aspects of entertainment law, copyright and intellectual property law, computer law and communications law.

Ultimately, much of what makes up entertainment law consists of negotiations and deal making, rather than case law.

Consider the following example. Hustlers, Inc. v. Thomasson, 307 F.Supp.2d 1375 (N. D.Ga. 2004): Court, inter alia, charged that a music publisher known as Hustlers, Inc. breached its publishing agreement with singer-song writer Hughie Thomasson by withholding Thomasson's royalties, which entitled Thomasson to withdraw his contract with Hustlers, Inc. (Silverman, 2005). Both parties in this dispute claimed that the other party had violated their publishing agreements. Thomasson argued that Hustlers, Inc. breached the publishing agreement by not forwarding royalties owed to him under the terms of their contract. On the other hand, Hustlers, Inc. argued that Thomasson breached his publishing agreement between them by redirecting royalty payments to another publishing company. In addition, Hustlers, Inc. charged that it purposely withheld royalties only to recover damages that it suffered as a result of Thomasson's own alleged and prior breach of his agreement with Hustlers, Inc. However, the court noted that while Hustlers, Inc. may be entitled to equitable recoupment, that does not alter the fact that failure to pay royalties is a breach of the publishing agreement which authorized Thomasson to withdraw or terminate the agreement.

This paper explores the legal and business issues affecting musicians, with a focus on royalties. This paper aims to provide a guide for those representing artists and publishers.

Royalties

Royalties are collected depending on the nature and source of the revenues made. There are four potential types of royalties in the music recording and music publishing industry (Silverman, 2005):

1. Mechanical Royalties: Domestic mechanical royalties are collected by domestic record companies for records sold. Foreign mechanical royalties are collected from foreign Performance Rights Organization ("PRO") by sub-publishers for records sold in their region.

2. Performance Royalties: Domestic performance royalties are collected by one of the three main Performance Rights Organization: (1) ASCAP; (2) BMI; and (3) SESAC. These PRO's issue blanket licenses to music users for publicly performing their songs in the operation of their businesses and broadcasts. To ensure prompt and timely payment of performance income from a PRO, each songwriter and music publisher must first join as a member and properly register their songs and current locations. Performers royalties are separate from royalties due for songwriters and composers, although also collected and distributed by organizations. The record companies pay performers royalties to the artist or band that performed the songs released by the company and the percentage figure is stated in the recording contract. If the songwriter is also the performer of the tracks, they will receive the percentage of performance royalties in addition to writing royalties. These royalties are often negotiable but often 10% - 15%.

3. Synchronization Fees: Synchronization fees are collected by the song writer and music publisher that grants a synchronization license to users or broadcasters of the songs, which then create a derivative audiovisual work in the form of movies, TV programs, commercials, and more.

4. Print Music Income: Print music income is collected by the songwriter and music publisher that grants a print music license to music printers which then prints sheet music or folios.

Understanding Royalties

Understanding how record royalties are calculated is never as simple as just applying one's royalty percentage rate to the gross dollar amount derived from all album sales (minus returns) (Colfin, 2003). A variety of factors are involved when calculating an artist's royalties, only one of which is the royalty percentage rate.

Entertainment law language is found in many agreements between a royalty earning party, such as a recording artist, and a royalty paying party, such as the production company (Colfin, 2003). This type of language is also seen in agreements between producer and production company, as well as between the record label/distributor and the artist, producer and/or production company.

Subject to your compliance with your obligations hereunder and except as otherwise provided herein, ANYCO will pay to you for the rights granted herein and for the services performed hereunder, the royalties set out below, being percentages of ninety (90%) percent of the Retail Price exclusive of taxes, duties, and the packaging deductions specified below of all records (other than videograms) manufactured, sold and not returned and for which ANYCO is paid, reproducing exclusively Masters recorded hereunder (Colfin, 2003)."

Depending upon the variables in the passage above, and various factors throughout the contract, it is possible for a royalty earner with a ten percent (10%) royalty rate to have a better deal than one with a fifteen percent (15%) rate (Colfin, 2003). For example, the royalty percentage rate can be calculated on either the wholesale price or on the suggested retail list price (SRLP). A royalty rate based on SRLP is usually lower than the rate based on wholesale because of the price difference between wholesale and retail price. This type of royalty rate, prior to any deduction, is commonly referred to as "points."

Companies that pay royalties use many techniques to reduce their royalty payment obligations. In the sample passage above, the royalty rate is based upon ninety percent (90%) of the SRLP of net sales (Colfin, 2003). Typically, this percentage basis may vary from as low as eighty five percent (85%) of SRLP to as high as one hundred percent (100%), depending upon the company and the artist. These decreases in percentages of sales are based upon outdated deductions for "breakables," left over from the time when many vinyl records were broken in transit.

Other deductions from royalties include packaging expenses allowances for free goods and cash reserves held over for anticipated product returns (Colfin, 2003). Reserves against returns are not really a deduction, although many people think they are. Rather, this is an accounting concept that seriously affects the timetable of when artists can expect royalty payments. Record companies and/or their distributors typically withhold royalties to account or the probability of returns of released product. The company paying royalties will usually seek complete discretion over the amount withheld. The company or artist receiving royalties often tries to limit the amount to a percentage of all sales. The amount withheld is not a deduction because if returns are not substantial, the reserved amount should be distributed. The royalty earner should ensure that the paying company does not hold onto these funds for long periods of time and that the percentage of funds withheld is not large. In holding these reserve funds, the paying company usually keeps the accumulated interest.

The royalty rate is decreased even further through other means (Colfin, 2003). Many recording agreements are still based upon the long-playing album rate even though compact discs (CDs) dominate in the marketplace. Recordings sold as singles, cassettes, new recording formats such as Digital Audio Tape (DAT), budget product or through record clubs, usually yield a lower royalty rate. Even compact discs are frequently discounted.

According to Colfin (2003): "Royalty earners will also generally receive a reduced royalty rate for foreign sales, typically between 50%-75% of the regular rate depending upon the territory. The rate will be on the lower end for countries with smaller markets, such as those in South America of Eastern Europe. Higher rates are often available for sales in Western European as well as Canada."

For royalty earners, it is not really… READ MORE

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