John P. Strohm is a transactional entertainment and intellectual property attorney with the firm Johnston Barton Proctor & Rose LLP. John’s practice focuses on the representation of musicians, songwriters and independent
record labels. Prior to becoming an attorney, John was a professional
musician and producer for over a decade. He performed and recorded as a
member of several notable alternative pop/rock acts, including The
Lemonheads and Blake Babies. John is on Twitter @JohnPStrohm.
A great deal of what I do as a music business attorney involves negotiation. Negotiation
is such a common component of my work that I rarely reflect on the
process of negotiation, or even pause to think to myself “hey, I’m
negotiating right now!” Nevertheless, although I’ve achieved a certain day-to-day comfort level, I know I have plenty left to learn. In this article I’ll share some observations regarding the process of negotiating music deals that I hope will prove helpful. As a disclaimer, I don’t purport to be the world’s foremost expert or to have superior knowledge to my music lawyer colleagues. I’m simply presenting a few things I’ve noticed in navigating these particular wooly swamps.
I took a class in negotiation in law school, which was pretty much pure bullshit. I
had high hopes for the class, because I knew my desired practice as a
transactional (i.e. deal) lawyer in the music industry would require
sharp negotiation skills. I learned a lot of terminology to describe things that I understand intuitively. I learned a bit about game theory and certain abstract, philosophical underpinnings. But when I actually began negotiating deal terms for clients, I’d forgotten all of the terminology and most of the concepts. For all practical purposes I knew next to nothing. I did what we all must eventually do: I jumped in head first.
Now that I’ve negotiated countless music industry agreements, I’ve learned that no two negotiations are exactly the same. It’s never easy to accurately predict how things will go – each negotiation requires preparation. I handle some negotiations that seem practically effortless, and some that may lead to post-traumatic stress symptoms. If I took the class again, I’d probably relate better to the arcane terminology as it relates to my experiences. But
my point is you don’t really need all that terminology and philosophy:
you just need to pay attention and keep a few basic things in mind.
I’m
writing from the perspective of a lawyer negotiating on behalf of
client, but you can apply these principles and ideas just as well if
you are an artist’s manager or if you are negotiating on your own
behalf. In addition to being a music lawyer, I’m a working musician. Sometimes
I negotiate deals on my own behalf, though to be honest I probably do a
better job negotiating on behalf of someone else. The old
saying goes (something like) “any lawyer who represents himself has a
fool for a client” – yeah, I suppose there’s some truth to that, but I
digress.
The key, if you’re negotiating on behalf of yourself, is to treat the situation as if you’re negotiating on behalf of a client. That
is to say, mentally separate your business interests from any
self-esteem issues or fears of confrontation/failure that dog most of
the musicians I know (myself included). When I state in this article that I have a duty to my client,
I really mean my ethical obligation as an attorney; but that could just
as easily mean that you owe it to yourself to get the best deal you can. As
a practical matter, however, I strongly suggest that if you are asked
to sign a contract that transfers rights or includes ongoing
obligations, you should hire an industry lawyer to review the document.
I’ve
learned that being a good negotiator in any sort of deal requires a
thorough understanding of your client’s goals and sensitivities, and of
the risks and your client’s risk tolerance. It also
requires and deep understanding of certain specific factors, including
the actual people or parties involved (both directly and indirectly),
the relationship of the adverse parties, the unique set of facts and
the culture of the business in general. It also takes a
strong stomach and a willingness to be confrontational when necessary
(or to respond effectively to confrontation).
As
far as the people involved, I mean the attorneys or others who take the
lead in the negotiation as well as those who stand to benefit or could
be harmed from the result, whether they are directly or indirectly
invested in the actual subject matter of the deal. If I’m
negotiating on behalf of a client, then the client is clearly directly
affected; however, others may also have a dog in the fight. I try to take a broad view and consider who will be affected by or take an interest in the outcome.
If
I’m negotiating a record deal for a recording artist client, the
artist’s personal manager is clearly affected even though the manager
is not my client. If the artist is a writer with a
publishing deal, then the publisher is affected as well (for example,
by the mechanical royalty rate I negotiate). It’s crucial
to understand how each party is affected and how it will affect your
client, keeping in mind that your duty to pursue your client’s
interests should remain paramount. For example, if my
main point of contact to a client is his manager and the manager is
pushing me to close a deal, I’d better communicate directly with my
client and make sure the client is comfortable with the terms. The
manager benefits short term in the form of a commission, but I
shouldn’t let that sort of pressure distract me from protecting my true
purpose. The manager may be gone in a month, but the artist could be stuck in a shitty deal for many years.
The
relationship of the “adverse” (meaning opposing) parties and the facts
are interrelated and relate to the respective leverage (aka bargaining
power) of the parties. It’s absolutely crucial to understand who has the leverage in any given negotiation. The way I’ve come to define leverage is the existence (or apparent existence) of viable alternatives to closing the deal. Sticking
with the record deal example, if an artist has five or six record
labels frothing at the mouth for his services, he has great leverage
with respect to each potential deal. The source of his leverage is his ability to walk away from one deal to sign another deal that’s already on the table. An
artist in this sort of situation will have a greater opportunity to
negotiate favorable terms, and the artist’s representative can afford
to take a more aggressive position without fearing consequences such as
losing the opportunity. On the other hand, if there is
only one label in the picture, then the artist will likely not be as
successful and will likely not be as well-served with an aggressive
approach.
Sometimes
it’s clear who has the leverage in a negotiation, but there’s a skill
in creating the appearance of leverage – which necessarily involves
convincing the adverse party of your client’s willingness to walk away
from the deal. In the second example above, when there’s
only one label bidding for the artist, I need to have a talk with my
client and get a real sense of whether my client is actually willing to walk away from a deal. If
my client is strongly averse to losing the opportunity and is
comfortable with the terms, then I’m probably not going to push hard
for better terms – and I certainly won’t make a power move such as
demanding the adverse party agree certain aspirational terms or my
client will walk away from the deal. If they refuse the demand, then there’s really no going back to the original offer without losing all credibility. On
the other hand, if the client is willing to take a risk, then it’s a
matter of convincing the other side that there are credible
alternatives to signing the deal (such as, perhaps, private investors
or self-release). One age-old way is to simply say “take it or leave it.” Keep in mind, as a general matter, that attempts to orchestrate a bidding war can be perceived as crass and heavy-handed.
It’s
also worth mentioning that it’s a different dynamic if two parties
frequently negotiate with one another, such as a vendor and buyer in a
retail setting. Because there’s an ongoing relationship, the parties are less likely to play hardball. They’ll have to deal with one another next week or next month – why blow the relationship for a short-term gain? This also holds true when attorneys frequently encounter one another in negotiations. I
encounter the same attorneys again and again in my own niche practice;
it would not serve my clients well in the long-term to take an
extremely adversarial, aggressive approach to each isolated negotiation. Nevertheless, I must keep in mind that I have an obligation to represent my client. So
when balancing the conflicting goals of preserving a relationship with
opposing counsel and pursuing the goals of my client in a particular
negotiation, my duty really lies with my client.
Regarding the culture of the particular industry, there are many subtle variables. When
I first started practicing law most of the work I did was in commercial
real estate and lending, working on mega-huge deals. I didn’t seek out work in those industries; I went to work for a firm that placed me in that practice. I had absolutely no background in commercial real estate, so I had to learn the very corporate culture from scratch. After
a couple of years I’d learned enough about the culture of negotiation
in that industry to be somewhat comfortable, including how to determine
who has leverage, what’s appropriate to ask for, means of
communication, and other factors. Then as my music
practice started to pick up steam, I had to learn the culture of music
industry negotiations from scratch as well. Since I’d
been heavily supervised as a new lawyer in the commercial real estate
industry, it was a shock to be totally unsupervised in my music
practice – nobody at my firm had any experience to offer. Suffice to say I made a few gaffs along the way. Like learning a new language or the rules to a complex game, there’s no way to avoid a few mistakes.
The culture of the music industry is generally very informal compared to the corporate world. It
can be informal to a fault as deals sometimes take forever and there’s
a greater tolerance for sloppy work, but it’s a nice change from the
pressure-cooker of the big money corporate deal. Negotiation
styles of music industry lawyers vary wildly, however, from extremely
laid-back and cooperative to extremely aggressive. My own
style tends to be more cooperative if I have the opportunity to set the
tone; however, I’m always prepared to respond to aggression with
aggression in kind. I’ve seen potentially good deals die
as a result of overly aggressive lawyers, so it’s disappointing when a
negotiation becomes trench warfare. My attitude is, with
respect to each negotiation (taking into account the interests and
leverage of the parties), there is always a way for both parties to
“win.” It’s usually a matter of figuring out the goals and interests of your adverse party and making smart compromises. If
you can give on a point that doesn’t really matter for your client and
get something of great value in return, then you’ve done well. That sort of cooperation isn’t possible when one party or the other forces a zero-sum game.
Industry
culture can also become a negotiation tactic in certain situations,
such as claiming certain terms are “industry standard.” Just
today an attorney tried to convince me that it’s “industry standard”
for a manager to commission 20% of an artist’s gross income. Just because people have agreed to such a term in the past does NOT mean that it is the industry standard. Certain
things really are industry standard, but generally specific business
terms do not constitute the industry standard – business points are
negotiable. It’s important not to confuse a “take it or leave it” deal offered by a party with superior leverage from industry standard. If someone tries to claim that something is industry standard, then by all means ask around. For the most part, claiming industry standard is just a lazy and overtly aggressive tactic. Our industry is changing by the day – practically everything is, at least on some level, negotiable.
One
thing that bears mentioning regarding the culture of music industry
negotiations is that they rarely occur around a table or even over a
conference call. Typically the bulk of the negotiation occurs by email and by sending marked-up documents back and forth. I
generally prefer negotiating by email, because I have more of a chance
to think through my responses and consult with my client than if I were
negotiating across a conference table. But then I’m sure
the greatest of poker players prefer to sit at the table sizing up
their opponent to playing an unseen opponent online. Nonetheless,
that sort of negotiation occurs so rarely these days that it’s hard to
develop the skills that must have once been essential to negotiating
lawyers.
In summary, the key is to really understand your clients’ (or your) goals, sensitivities, and leverage in each situation. Lawyers are necessarily competitive, but we must keep in mind that our desire to “win” can produce bad results for our clients. If
I take an aggressive approach and a client loses an opportunity as a
result of my style, it’s a bad result of poor negotiation. Conversely,
if I take a weak position and fail to get the most value out of a deal
without damaging relationships in the process, then that is a bad
result from poor negotiation as well. You’re looking for
that sweet spot in the middle, where ideally everyone can walk away
from a deal feeling good about the result, but you know that you did
everything you could to create value. As with pretty much anything in law practice and business in general, it’s mostly a matter of preparation and paying attention. And
of course it’s crucial to be ethical, both in terms of the rules of
professional responsibility and our obligations to each other as fellow
human beings.
