Artists no longer have to wait for a record label deal to get their music recorded or distributed. Self releasing one’s own material is now a very viable option. However, if you are self releasing there are a few business items that will need to be tended to before making the music available for streaming or purchase. Please note that this information is for USA based releases.

Determine Songwriter Ownership Percentages

Anyone who contributes lyrics or melodies is technically entitled to an ownership percentage of the song. It’s always best to work out the ownership percentages in each song before making any of the work commercially available. The best way to avoid any misunderstandings or disagreements is to fill out a simple Collaboration Agreement that spells out the authors and ownership percentage of each song in writing. See a sample Collaboration Agreement here: DOC or PDF

Register Your Work with the Copyright Office

The only real way to protect your work is to register it with the US Copyright Office. Artists have been telling each other for years all that’s required to copyright a song is to mail a copy to yourself and keep the date stamp on the envelope as proof of the date the song was written. If you don’t want anyone else to exploit or misuse your work fill out the required paperwork and pay the fees. It’s well worth the effort to protect your songs. To register Musical Compositions fill out Form PA and for Sound Recordings fill out Form SR. There is a lot of helpful information on how to fill out these forms online and even several YouTube videos on the topic. To learn more about music copyright check out our wiki on music publishing.

Obtain a Mechanical License for any Cover Songs

Any cover songs that have been recorded and will be included in the new release must be licensed. A mechanical license can usually be obtained from the Harry Fox Agency . If you plan to manufacture and distribute less than 2,500 copies, HFA now offers an online licensing option called Songfile which can simplify the licensing process. Any reputable CD manufacturer, distributor or online music retailer will require you to have these licenses before they duplicate your recording or offer it for sale.

Order a UPC Code for any CD’s or Vinyl that will be pressed

A UPC Code , commonly referred to as a bar code, uniquely identifies the manufacturer, label, artist, catalog number and format of a particular release. A UPC code must be obtained and attached to the packaging if the release will ever be sold through retailers. UPC codes can be obtained directly from the Uniform Code Council but it can be much easier to just obtain them through the manufacturer or distributor.

Have an ISRC Code Created for Each Track

ISRC or International Standard Recording Codes are unique identifiers or digital footprints for each track on a release and are used by digital retailers to track and report digital sales. ISRC codes are typically either encoded into the recording during the mastering process or on the physical products during manufacturing and can also be provided by distributors. Digital retailers will require that each track has an associated ISRC before they make the track available for purchase or streaming.

Submit the Metadata

Metadata is all the collective information associated with a particular track, release or band, summarized and available in a digital format. Metadata typically includes track titles, track lengths, ISRC codes, album art, genre, band bio’s and publishing information. Digital retailers, MP3 players, computer based media players, radio (online, satellite & terrestrial) and mobile phones all use metadata to provide their users with information about the songs and artists that are playing. It’s very important that the metadata information for any new release be readily available. Not having the track titles of your CD show up when it’s being ripped to a computer certainly gives an amateurish impression. Be sure to register the metadata information with the three primary companies that manage metadata databases for the industry: Gracenote, All Music Guide and Muze. All three companies have different procedures for accepting metadata from directly from artists. Check out each of their websites for details.

Register with SoundExchange

SoundExchange collects and distributes digital performance royalties from satellite, cable and online radio stations on behalf of recording artists and sound recording copyright holders in the United States (the artist typically controls the sound recording copyright when they are self releasing so they will need to register for both ownership parts). Each time a song is played on stations from XM, Sirius, Pandora, Last.fm and the like SoundExchange collects royalties and pays out directly to the recording artists and sound recording copyright holder. Satellite, cable and internet radio continue to grow at a rapid pace and these royalties are an important way artists can actually get paid for their work.

Sign up with a Performing Rights Organization

Performing Rights Organizations collect royalties from terrestrial radio stations, restaurants, bars, TV / cable networks, retailers, online services or any other establishment that plays / streams licensed music heard by the general public. These PRO Royalties are collected by the major performing rights companies ASCAP, BMI or SESAC and paid out to the songwriter or their publishing company. If you are a songwriter be sure to sign up with one of these three organizations. Please note that PRO royalties are paid out on “estimates” instead of actual plays and it’s fairly common for artists without regular airplay to not receive PRO royalties.

Tim Westergren founded Pandora in January 2000 and also now serves as its Chief Strategy Officer. Tim is an award-winning composer, an accomplished musician and a record producer with 20 years of experience in the music industry.

By all accounts, George Martin, the legendary producer/engineer/arranger for the Beatles played a pivotal role in shaping the Fab Four’s sound in the recording studio. Over the years, he has come to represent more broadly the potentially vital contribution that can be made by someone who’s not writing the music or playing an instrument in the band. In some cases, this individual can be more important than any one band member.  A great producer can single handedly change the fortunes of an artist.

I want to suggest that every band consider hiring their own Fifth Beatle – only this additional band member’s instrument is online marketing. Their role is to figure out ways to amplify the awareness of the band, leverage every possible tool at their disposal to build a fan base, and to position the band properly to take advantage of the digital market. With the amazing number of low cost tools now available, one person with the motivation and requisite skills can accomplish a ton. And this person could well be a 19-year old college sophomore who loves the band and happens to be an online promotion genius. Give him/her equal share, and treat them with the same respect and deference that you do your fellow bandmates. They get a vote on the set list, they’re at the band meetings… and they get royalty checks along with everyone else.  The band can continue to focus on what they do best – composing, performing, recording – while the marketer takes care of squeezing every ounce of opportunity out of the music product.

As a former working musician, I can say without a doubt that musicians have chronically undervalued ‘external’ contributors - sound guys, bookers, agents, attorneys, you name it.  It’s a natural propensity of artists who often lack an understanding of the workings of the ecosystem around them. I would say that a good percentage of bands fall apart because they fail to grasp this – they’re either sloppy in choosing people or ignore these roles altogether.

Never before has it been more important for artists to get this monkey off their back – because never before has there been more to gain by getting that part of a career right.

The digital age has brought with it unprecedented access and opportunity for working musicians, but it also comes with great complexity.  Self-producing, distributing and promoting a record is now a real option for anyone with a PC, but if you aren’t smart about marketing and promotions you’ll just be another tree falling the forest.  It’s kind of like having lousy sound at a show.  You can play your best set, but if nobody’s paying attention to what’s coming out of the speakers, it won’t matter. 

As the label/band model evolves, musicians are going to have to start thinking more expansively about who is ‘in’ the band. Advances and outsourcing are going to give way to equity and cooperatives as aspiring bands grow their teams.

Consider this simple example: Soundexchange, which administers the performance royalties coming in from online radio, already a multi-million dollar annual revenue stream, keeps 50% of the money it receives because it has no mailing address for the artists. That’s one phone call that the Fifth Beatle will make sure is made. 

Spencer Richardson co-founded FanBridge in 2006 to help musicians and labels of all sizes and backgrounds to unlock the true potential of their fans. Prior to starting FanBridge Spencer worked with a New York based management consulting firm, primarily working with Microsoft and IBM to develop corporate strategies.

We all know the experience, whether it’s the time you were sitting by the open window on that stormy Sunday and spent hours writing that song about your ex (who you just had a feeling was also watching the rain), or that other time when you finally quit (or got fired) from that part-time job with the jerk manager, and just spent the entire evening focused on finishing a song you started a couple months back, before work took over your life.

These are the moments that transform your life and add depth to your music. These are the moments that your fans can connect with, and are willing to give their time and money to hear. These are the moments that define your message to the world.

This said, your music alone is just one way that you can get your message to the world heard. It’s just one way to keep people interested in what you have to share. The problem for most musicians though is keeping their fans interested in their music outside of live shows and CD release events. This is when taking the time to manage and communicate with your fans proves to be just as valuable (if not sometimes more valuable) to building your music career then the time you spend writing and playing your music.

Communication Rule #1:

“If you take the time to communicate with your fans, they will take the time to listen.”

Are all your fans listening, or just some?

This question has two parts. The first part is to figure out what your fans actually care about knowing when it comes time to communicate with them. The better job you do in creating messages that include content fans really want to know about, the higher the chance they are going to want to open and read your messages. In the next section below we have included a mini-checklist that you should always keep in mind when communicating with your fans.

The second part to answering this question is to figure out if you messages are actually getting to all your fans in the first place. Your fans could be more dedicated to you than U2 fans are to Bono, but if your emails aren’t getting past SPAM filters and are not getting sent through reliable servers (the tech hardware that send out emails) then you might as well write your message on a piece of paper and throw it directly into the trash bin.

So, it becomes vital that when you send your messages you send them through a company that can ensure the highest levels of deliverability (which is something that many indie-bands forget, but none of the major labels overlook).  

Think about it like this, you can get 40% more fans to go to shows or buy your music just by switching to a company that can get you 40% higher deliverability. You don’t have to get a single new fan, and yet just by being smart about regularly communicating with your fans using the right email list management company you can make much more money!

Communication Rule #2:

“Success in the music biz is not about who you know, it’s about who you work with.”

What do fans want to know?

T    The answer to this is pretty much exactly what you might think. Fans already like your music, so there’s no need to try and sell them on it. Here’s a basic checklist that we have created for what all musicians should be communicating to their fans about once per month throughout the year:
 

• Tour schedule/info (even if you’re not on tour, info about future tours) 

• Any other event info related to your music (or other good bands) 

• Latest music release schedule/info/links 

• Places to buy your music 

•  Photos from the road, the studio etc. 

• Any stories from the road or studio (or anywhere else) 

• Any other topics that you are interested in (remember, just like friends, fans will typically have the same general interests as you)

Communication Rule #3:

“Aside from just knowing where to get your music, fans want to know where you got your music.”

To learn more about effectively using email and mobile marketing to communicate with your fans visit FanBridge.com.

PETER SPELLMAN is Director of Career Development at Berklee College of Music, Boston and author of several business-building books for musicians. Find him at mbsolutions.com

In 1997 when 80s prog-rock band Marillion scheduled a European tour to support its new album, keyboardist Mark Kelly posted an Internet message stating that the band would not tour the United States due to a lack of record company support. Fans of the band worldwide joined forces to raise over $60,000 to underwrite it, and the band undertook its largest North American tour since 1991. Since then, Marillion has been able to tour and record several more times all based on direct fan support. As a result, such passionate, wholesale support has allowed Marillion to step outside of the conventional music industry and find their own path.

The thing that made the difference in the Marillion story was the Internet. The saga represents one of the first modern examples of 'crowdfunding' via the Net, and illustrates the bottom-up strategy where the fan/customer is the new driver of music markets.

Several music services have now emerged that are taking this idea into new territories.

In this article I'll try to shed some light on a few of them. But don't think things end here. These offerings are fluid and dynamic, and will probably look quite different in just a few months than they do today.

Crowdfunding is related to Crowdsourcing. Crowdsourcing is taking a job traditionally performed by a designated agent (usually an employee; or, say, a record label) and outsourcing it to an undefined, generally large group of people in the form of an open call.

Crowdfunding grows out of crowdsourcing and occurs for any variety of purposes, from disaster relief to citizen journalism, and from political campaigns to artists seeking support from fans.

Crowdfunding can replace the need for specialized grant applications or other more formal and traditional fundraising techniques with that of a more casual, yet powerful, approach based on crowd participation.

The Internet, of course, takes the crowdfunding dynamic to a whole new level, providing new streamlined approaches to quickly imitate the co-op model for low-level and/or sudden needs (ie. disaster relief, travel expenses, legal fees and so on.). It is for this reason that the term can be used to encompass the act of informally generating and distributing funds, usually online, by groups of people for specific social, personal, entertainment or other purposes - a la the Marillion story.

For the music space, I like to call it "arts patronage for the masses."

This approach is used widely among music industry artists to bypass music publishing companies and "go direct" to their fans who are now seen as much as investors as listeners. Several music services have arisen based on the crowdfunding idea.

Let's briefly look at three: ArtistShare, Sell-a-Band and Slice-the-Pie.


1. THE MICROFUNDING OPTION: ARTISTSHARE
(artistshare.com)

Since 2002, ArtistShare has been enabling fans to finance artist projects in exchange for access to the artist's creative work. It was founded in by Brian Camelio, a professional musician/computer programmer, in response to the threat of digital piracy and the futility of digital rights management for music.

ArtistShare uses micropayments to allow the general public to directly finance, and in some cases gain access to extra material from an artist. The artist determines the tiers of fan involvement and attaches a cost to each tier. With a dozen or more projects by various ArtistShare artists underway at any given time, music fans, patrons of the arts, and creative process junkies have an unprecedented window on the act of creation.

Participating artists raise funding for their recording projects through their fan base by offering special interactivity options, like the opportunity to download scores-in-process or watch a recording session. For example, an ArtistShare "Participant Offer" is similar to buying tickets to a live show, but in this case, fans are purchasing incrementally-priced packages offering a window into the artist's work-in-progress, pre-release privileges and in some cases credit on the final packaging or web page.

One form of customer conversation the artist uses at ArtistShare is radio. Web-based audio files run from a music player let's the artist share their thoughts on the ongoing project and provide other content unavailable to the public.

Now in its sixth year, ArtistShare artists have won three Grammy awards and 9 nominations. In 2004, Maria Schneider became the first artist to win a Grammy with an album distributed exclusively over the Internet. Distributed through ArtistShare she received four nominations for her album 'Concert in the Garden' and won Best Large Jazz Ensemble Album. Schneider's 2007 album, Sky Blue, is also up for a Grammy this year.

Other artists aboard the ArtistShare bandwagon include Trey Anastasio, Danilo Perez, Jim Hall and Kate Schutt.

BTW, Founder Camelio has a patent pending on the entire concept of artists monetizing the behind-the-scenes/creative process. Hey, wasn't Mozart doing this too Brian? Geez.


2. THE RISK-FREE RECORD LABEL: SELLABAND
(sellaband.com)

Started in late 2006 by a music-loving business major and two ex-Sony/BMG Europe execs, Sellaband allows fans (dubbed "Believers") to invest $10 each until the goal of $50,000 is reached. The band then gets to record an album with professional producers and studios. The 5000 believers fund the album recording and both parties earn money when it is released. At this moment, there are 6355 artists on SAB people have funded the recording of six albums. To date, over 6,000 bands have uploaded tracks to Sellaband, and $1.3 million has been invested in them, according to Pim Betist, one of the site's co-founders. 11 acts have hit the $50,000 threshold and created an album through Sellaband.

Sellaband artists are far-flung: So far Dutch nu-metallers Nemesea and Hawaiian singer-songwriter Cubworld reached the $50k mark, with four other artists about to enter the studio - Second Person from the UK, Clemence from France, Lily from the US and Maitreya from New Zealand. Not bad for being a little over a year and half old.

SAB CDs which have reached the necessary threshold are sold through partnerships with Amazon, and Amazon, the Orchard and Heinekin Netherlands will be sponsors of SAB's first concert tour in 2008. Amazon will also help more bands hit the magic $50,000 -- any band that reaches $30,000 will get an automatic $1,000 investment from Amazon to help them along.

Most users of the service have been pretty happy with the results. But it does seem that the bands who have gotten to the $50,000 goal did not just sit back and hope for fans. Right from the start they went out and found believers themselves. They tapped people who came to see them play live, people they met at parties and fans that had added them on their Myspace or Facebook pages. It it likely that all of the bands in the top 500 will have followed a similar plan.

The model is more than fair to the artist and believers (investors). Here's how it breaks down:

- Worldwide CD album profits - 50% to the artist, 50% shared between the believers.
- Ad revenue from the whole site - 1/3 to Sellaband, 1/3 to the artists who have recorded an album, and 1/3 to the believers of a recorded artist.
- After 12 months the artist gets complete ownership to the masters (thus if they want to sign with a label they can take their songs with them) and Sellaband only sells the songs for an additional 12 months.
- Each believer gets a limited edition CD for every part they invest.

By deferring the cost and talent of scouting to a crowd of music lovers, SellaBand puts powerful marketing and production tools into the hands of those with a personal interest in the music.


3. THE MUSIC STOCK MARKET: SLICE THE PIE
(slicethepie.com)

Similar in philosophy to Sellaband.com though more complex, Slice The Pie creates a marketplace for the trading, promoting, financing, and finding of new bands.

SlicethePie twists the standard online music store model by paying users for their musical acumen.  It has set itself up as a kind of financial intermediary. Users are paid a small amount for each review they write, based on how accurately each review reflects the community's taste.  In addition, users can invest in bands they think are going to make it, sharing in profits from album sales on the site.

Once registered, you can shuffle through the site's songs by clicking the Play Next Track link in the player, or browse by Genre.  When you hear a song that "has legs," as the saying goes, another link lets you add it to your watch list.  Then, if you want to invest in the band later, you'll be able to do so at a discount (details below).

According to SlicethePie, this "turns every music fan into a record label." The "Scout Room" allows people to review artist tracks. Scouts don't know the identity of the artist they're reviewing and rating. Reviews are multiplied, averaged out and the 20 best artists go on to the "Showcase". Since Scouts act as A&R, they earn about .10/review, and can earn up to .50/review (with each listen taking about 3 minutes). If an arist is "bought out" by a record label (which has already happened at Slicethepie with the band, Gillkicker), the Scouts and others involved will benefit from this transaction.

After three weeks, the winner of the Showcase is guaranteed about $30k. The people who invest get a free copy of the completed CD, backstage access, and some co-creation opportunities to become more deeply involved in the artist's work (though this is not required by the artist).

It's definitely a cool alternative to the regular route of impressing (and then being beholden to) a few head guys at a label. The great thing about all of these tools and online services is that it puts the power much more squarely in the hands of the artists and the fans. It becomes much more of a meritocracy.

Coming soon to Slicethepie: Facebook and other social networking applications (The Scout 'Community' setting up "fantasy leagues"; Trading Leagues (also a virtual trading league with cash prizes).

The common thread in all three services is that they're helping to finance artists by getting music fans to contribute. Sellaband is essentially an online record label that takes initial publishing rights with some other traditional restraints on the copyright during the first year. Fans (aka, 'Believers') take all the risk so it's a risk-free record label. But the downside it that the financial returns are potentially about ten times less than on Slicethepie. Sellaband is essentially an "advertising" model rather than a strict "revenue" model. Also, on Sellaband you get to see the bands and the bands' names which instills some emotional connection, whereas Slicethepie enforces a sort of neutrality at least on the way in.

Other crowdfunding services include CASHmusic.org (co-founded by former Throwing Muses frontwoman, Kristen Hersh), Fundable.com, and look for more at the "grand central station" of crowdfunding - Crowdfunding.com

Conclusion: Today's consumers are no longer passive recipients of brand messages. They've become active participants in co-creating the brands (and bands) they love. One more reason why you need to build community around your own product and service experience at your site. It's a worthwhile investment toward building customers, er, believers, who will be there for life.

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.

             I get a lot of calls from bands I’ve never heard of, and there’s a recurring conversation I’ve been having ever since I started practicing entertainment law.  It generally goes something like this:

Band dude: “I got your number [from a friend, from an industry resource, off the bathroom wall, etc.], and I want to talk to you about hiring you to be my lawyer.”

Me: “Great.  Why do you feel that you need a lawyer?” 

B.D.: “Because we’re getting our team together.” 

Me: “Well, that’s fantastic; but what exactly do you need a lawyer for?  Do you have a contract to negotiate/a dispute to resolve/ product to shop?” 

B.D.: “Right now we’re just getting my team together because big things are about to happen.  We have 30,000 MySpace friends, a tight set, and a great image.  We’re doing you a big favor, because I can feel it – we’re going to be huuuuuge.” 

            One of the most difficult aspects of working with musicians is managing expectations, which is especially true of young bands.  Pretty much every band believes they are going to be huge, which raises all sorts of issues – not the least of which is artists’ tendency to perceive any business opportunity as a potential “big break.”                 

  But what do they mean by the “team,” and when should a band or solo artist worry about assembling a team?  This article provides a quick introduction of the members of the typical business team (which should be distinguished from the creative team, e.g. producers, choreographers, lighting directors, makeup artists, etc.), along with some guidance regarding when these advisors may become necessary or desirable.   

              Attorney:  Please feel free to take this with a grain of salt: an attorney is often the first professional an artist will require to assist him with his career.  In my opinion, an artist should consult with a competent (i.e. knowledgeable about the music business) attorney whenever he is asked to sign a document with respect to his career or even to enter into a verbal agreement (which may be binding).  I’ve often been retained to get an artist out of a lousy agreement that the artist signed without the benefit of an attorney’s review.  You should regard signing any legal document with respect to your career without consulting an attorney as very risky.

              Other than reviewing legal documents and in the absence of a lawsuit or potential lawsuit, when does an artist need an attorney on his team?  First off, attorneys are by no means uniquely qualified to shop product to labels and publishers.  Historically, attorneys have played a big part in shopping deals for artists; however, their role has diminished in recent years.  These days labels are primarily interested in artists who have already done a great deal of work in terms of self-development; as such, even a fantastic demo tape will beg the question, What has the artist done to establish a career? 

  Rarely do labels actually sign artists who don’t have a sales history, a significant touring footprint, and/or a significant online presence.  If an attorney does shop an artist, generally the attorney will require a contingent fee, i.e. the artist must pay the attorney a percentage of their advance money, sometimes in addition to a percentage of gross income and/or hourly billing for certain services.  In short, it is generally far less expensive to find your own deal or have your manager (who gets paid a percentage regardless) shop for you.  If you bring an attorney a deal that’s already on the table, then you should be able to pay the attorney by the hour, rather than a percentage of the deal.  But beware: if you accept an informal offer of business terms (even delivered via email or MySpace), you might lose the opportunity to have your attorney negotiate the terms later. 

  In short, any successful artist must retain an attorney or attorneys to deal with the myriad legal issues that arise with regard to their many contractual relationships.  Less successful or newer artists generally only need an attorney when their business dealings expose them to risk, such as when they are faced with legally binding agreements, or for business planning purposes.  Such artists should generally retain attorneys as needed by the hour, as opposed to retaining attorneys who require payment of a percentage of the artist’s gross income. 

  Most music attorneys charge between $200 and $400 per hour, though some charge upwards of $500.00 per hour.  Keep in mind that many music attorneys are willing to negotiate flat fees or fee caps to work with a limited budget – though don’t be offended if an attorney requires a percentage of the projected fees as a retainer.    

  Personal Manager:  The personal manager is the artist’s principal advisor and agent with regard to both day-to-day and long-term matters relating to the artist’s career.  The personal manager (often referred to simply as the “manager”) generally acts as a conduit and communicator between the artist, the other team members, the record company and publisher, and all other parties involved in the artist’s career (including the creative team and parties providing specific services, such as publicists and licensing agents). 

  The personal manager generally commissions a percentage of the artist’s gross earnings – which can range from 10% on the very low end to 20% or more on the high end.  Established managers usually don’t get interested in artists until the artist has consistently shown the ability to earn income.  Management contracts often have rather long exclusive terms (generally measured in album cycles rather than years), and contracts generally entitle the manager to at least some income even after the term has expired. 

  When it makes sense for an artist to enter into an agreement with a personal manager should be analyzed on a case-by-case basis.  It’s almost never a good idea for an artist to enter into a long-term agreement with a less established personal manager without first determining whether the manager will be a good “fit” with the artist.  Many younger managers will work on a handshake basis for a period of time to allow the artist (and manager) to make an educated decision as to whether there is such a fit.  Most protections in management agreements benefit the manager, though there are usually some protections for the artist as well.  If a manager is not consistently generating enough of an increase in income to cover their commission, then they are probably not doing a good job (that is to say they are costing you money).

  Unlike lawyers, agents and (generally) business managers, personal managers are not required to be licensed.  As such, be aware that you should do plenty of research with respect to a prospective manager.  Researching a lawyer is far easier – you can simply call the state bar to confirm that the lawyer is in good standing.  With a manager, you should take the time to follow up with references.  If the manager won’t give you references, that should be regarded as a bad sign.

  Business Manager:  The business manager’s role is generally limited to managing an artist’s finances: including receiving income, paying bills, preparing tax returns, and general investment/financial planning.  If a business manager is not a CPA, you should probably regard that as a red flag. 

Business managers generally charge a fee in the amount of 5% of an artist’s gross income for their services.  An artist generally doesn’t need a business manager until he earns substantial income (i.e. six figures annually), and similarly good entertainment business managers generally aren’t interested in clients who are not earning substantial income.  Most services provided by business managers, such as tax preparation, can be obtained by accountants who will bill at an hourly rate.

Often personal management agreements require even newer artists to retain a business manager.  Such a requirement clearly benefits the personal manager, who wants to ensure payment of his commissions; however, it’s not always in the artist’s interest to give up an additional 5% of gross income to the business manager primarily for the manager’s benefit.  Assuming the artist has good money management skills and habits and delegates some important financial duties to an accountant, a music business manager sometimes constitutes an unnecessary expense, even for moderately successful artists.

Agent:  The role of the agent varies from one entertainment industry (e.g. film, literary publishing, television) to another (e.g. music).  Nevertheless, in every entertainment industry agents are subject to strict licensure requirements by statute in certain states such as New York and California.  The role of agents in the music industry is generally limited to booking live engagements, for which agents are generally paid 10% of the gross income generated by such engagements. 

           Unless your state does not have licensure laws and bookings will be limited to your state, it is important to confirm that a booking agent or agency is licensed in the relevant states.  Another important matter to keep in mind is that personal managers are prohibited from booking engagements in states with licensure requirements.  If managers violate state licensure laws and is sued by the artist, a possible remedy is that the management contract (regardless of the term) is void.

              It’s a buyer’s market for booking agents, because there are relatively few agents that have sufficient contacts and experience (and interest) to book less established acts.  As with other potential team members, agents rarely become interested in artists until the artist is able to generate significant income from live performances.  Most artists must book their own engagements until they establish a significant touring base, at which time agents are likely to pursue the artist.

              If your band becomes financially successful, it will probably become clear which of these advisors you need and when.  Keep an eye out for conflicts of interest among your advisors – especially lawyers and managers.  It’s probably a good idea to seek a lawyer referral from someone other than your manager, since the first order of business with your manager may be negotiating the terms of a management agreement.  Attorneys are bound by ethical rules that prohibit representing clients when such conflicts exist, but that doesn’t mean that all attorneys abide by the rules. 

              In sum, take your time and ask a lot of questions when forging professional relationships.  Although there is a documented history of dishonest or incompetent music industry professionals, I have met many solid, honest and respectable lawyers, managers, business managers and agents.  Make sure that you end up with good people that make sense for your unique needs and circumstances.

Alyson Miller is a CPA who provides specialized accounting and tax services solely to music and entertainment clients.

Taxes are usually the last thing on the agenda of the touring musician but as tax season approaches it’s a good time for you to get organized. There are a number of tax deductions that are unique to musicians and therefore handled incorrectly on the tax return or forgotten all together. Before we discuss what can potentially lower your taxes, let’s talk about income.

It’s a common misconception that if you don’t receive a 1099-MISC for something then you don’t have to report it.  Income or compensation that you receive for anything - shows, session work, teaching, bartending or whatever it may be - must be reported, including cash, regardless of whether or not you get a 1099.   If you’re in a band with several members, beware that club owners and promoters hate issuing individual 1099’s to each band member, so often times the band “leader” will receive the 1099 and report the entire amount on their Schedule C.  The “leader” then has to issue 1099’s to each member of the band or any other person paid (sound, lighting, guest musicians) so that it can be taken as a deduction on the Schedule C.  Don’t stick yourself with all of the income and forget the deduction.   

Here’s a list of the most important items that can potentially lower your taxes. 

Travel

Travel expenses are allowable deductions on you tax return.  So, if you have a show in a location that is far enough away from home such that it is impossible or inconvenient to return home, you can deduct it.  Deductible items include hotels, airfare, phone calls home, rehearsal hall rental, and anything else related to the performance.  If stops are made along that way to other cities (for example to visit friends) then that portion of the trip and the related expenses are not deductible.  Always keep receipts for every expense along with tour schedules and any other documentation that you may have.

Meals  

Meals associated with overnight travel are also deductible at 50% of the expense.  Other meal expenses incurred that are associated with the “business” of being a musician, say meeting a potential band mate for lunch to discuss the possibility of becoming a member of the band or meeting with your accountant, could also be 50% deductible.  The discussion must primarily be about business. If keeping receipts is not something you’re very good at, consider using the IRS allowable deduction that varies by city.  The IRS requires the who, what, where and why for these expenses.  One suggestion is to keep business cards as part of your documentation.

Equipment

The purchase of equipment (generally anything with a cost of $500 or more) is depreciated over 5 years.  What this means is that you can take one-fifth of the cost of the item each year for 5 years unless you dispose of the item.  The IRS also allows you to take the full cost of the equipment in 1 year if you choose.  This is called the Section 179 Deduction.  The cost of cables, strings, and other small items less than $500 can be taken as a deduction in the year that it is purchased.

Vehicle Expenses

 There two ways to calculate the deduction for your vehicle.  The IRS allows you to use which ever one gives you the biggest deduction.  One method is to keep a log of your travel in a calendar, notebook, or some type of log book and use the standard mileage deduction (48.5 cents per mile in 2007).  Record the mileage to and from shows, trips to purchase supplies or any other business related activity.  The other method is to keep actual receipts for gas, repairs and maintenance, insurance, property taxes, and depreciation of the vehicle as the deduction.  Generally vehicles such as buses yield a bigger deduction when the actual expenses are used.

Home Office or Studio

If you have a room in your home that is exclusively used for your business whether it be for paying band expenses, rehearsing, or it’s set up as a studio, you might be able to take it as a deduction.  Exclusive use is the key.  It cannot be used for any other purpose but for your business.  The corner of your living room with a desk does not qualify.  If you can justify a space used exclusively for your business, you can take a percentage of the square footage for the business portion.  The percentage is then applied to your rent, mortgage interest, utilities, etc.   

Other

There are other deductions that when taken in moderation are allowed such as CDs, concert tickets, and music publications.  Ordinarily, taxpayers cannot take these as deductions but as a musician you must keep up with the industry.  Most of the time these are classified on the tax return as research.  Wardrobe can also be deducted if it is exclusively used on stage. 

This not meant to be a comprehensive list of deductions.  The tax code changes all the time. Check the IRS tax code (www.irs.gov) or with a tax professional before you do anything.  

One last important thing………

If you use an accountant or tax professional, it’s best to use someone who has other clients in the music industry.  Unfortunately, there aren’t many of us around so interview your accountant and make sure they are at least interested in what you are talking about and willing to understand your “business” of being a musician. When choosing an accountant, one size does not fit all. It’s like choosing a doctor. If you had a pain in your head you wouldn’t go to a podiatrist.

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.

The first recording agreement I had the pleasure of signing as a recording artist was a typical, label-friendly, multi-option contract. The anemic royalty, based on the “suggested retail price,” was further depleted by container deductions, deductions for so-called “free goods,” and paid on only 90% of net sales to account for records damaged in shipping (as they often were in the dark ages of shellac discs).  In essence, it was a scam, though a scam that had evolved and had become accepted as industry standard.  I had no idea how lousy the financial terms were for my band at the time. When I finally learned enough about the business to understand the deal terms, I felt duped and angry at our attorney for failing to adequately explain the contract to my band.

I felt much better about the terms of my next deal: a handshake agreement with a startup indie to split all profits from any releases 50/50. We didn’t address territory, ownership of the masters, mechanical royalties, what constitutes the label’s “costs,” or even exclusivity between artist and label. Not surprisingly, we eventually had to fill in some of these terms under somewhat less amicable circumstances.

Now that I spend most of my time representing artists and labels in recording agreement negotiations, I have realized that my experience reflects the two basic types of recording agreements in the late 1980s/1990s industry. On the one hand, majors and some independents insisted upon very formal, generally label-friendly and traditionally-structured deals, and on the other hand certain independent labels offered rather informal net profit split agreements, which were often verbal agreements striving to provide the antithesis of what was widely regarded in the indie community as the outmoded major label-style deal. Both of these models have flaws, and both basic structures exist today, albeit often in slightly more evolved forms.

The challenge that enlightened indie labels, career-minded artists, and counsel for both face today is how to structure and draft a workable written agreement that retains the independent spirit and intrinsic “fairness” of the aforementioned handshake deal. This article is the first of several I will write about net profit split recording agreements; future articles will focus on certain specific issues that are briefly addressed in this introductory piece. Below I will summarize certain key terms that should be considered and addressed in any such agreement.

Ownership of Master Sound Recordings

The question of ownership of the master sound recordings is a key term in any recording agreement. The trend today with independent labels is toward record companies licensing the exclusive rights in master recordings from artists instead of owning the copyrights in the underlying masters. Nevertheless, often a first draft of the contract – even in net profit split deals – is structured so that the label owns the masters. Thus, retaining ownership becomes a key negotiation point. Typical license terms for master recordings range from five to thirty-five years.

Significantly, under United States law any transfer of ownership of sound recordings must be in writing and signed by the transferor to be effective. Thus, any verbal agreement that purports to transfer ownership of masters is void. Furthermore, any license agreement with respect to sound recordings must be in writing or is terminable at will by either party. In a recent federal case, the Butthole Surfers won on appeal in a suit against Touch and Go Records to terminate a verbal license agreement with respect to numerous valuable albums recorded by the band. As such, it is enormously important for any label to insist upon a signed contract for any recording agreement.

Controlled Compositions Clause

In recording agreements, songs that are written in whole or in part by the artist are called “controlled compositions.” Traditionally, labels pay the writers of controlled compositions a royalty – referred to as a “mechanical royalty” in exchange for the writer granting a license to the label to sell recordings of the composition.

The typical approach under net profit split recording agreements to the controlled composition clause is that the artist waives mechanical royalty payments with an acknowledgment that mechanicals are a part of the artist’s share of the net profits. This becomes problematic for the artist/writer because publishers often rely on mechanicals as a guaranteed revenue stream. Without a mechanical royalty stream, the writer/artist is less marketable to publishers. It is often favorable to the artist to establish a separate, recoupable mechanical royalty stream to address this problem.

Definitions of “costs” and “advances”

In net profit split agreements, the difference between “costs” and “advances” can be unclear and confusing. Generally, costs are broadly defined to include all expenses of the label with respect to a project except general overhead. Sometimes, however, labels pass through general overhead expenses to artists on a pro-rata basis.  Costs are recouped “off the top” from the first sale. It’s important to note that the definition of recoupable costs under a net profit agreement can be far broader than a traditional royalty model. As such, the “fairness” of the net profit split can prove somewhat illusory.

In contrast, advances are generally understood to be monies that have been advanced to the artist, which the label recoups solely from the artist’s share of royalties once the label has recouped all costs. It is in the artist’s interest to have as many expenses as possible treated as costs that are shared by artist and label.

Non-Traditional Revenue Streams

The newest model for recording agreements, the so-called 360 deal or all-in deal, can pose problems for artists. It’s no secret in the music industry that it is becoming increasingly difficult for labels to sell sound recordings.  As such, labels may justify commissioning non-traditional revenue streams in their recording agreements, such as touring, publishing and merchandise by citing the generosity of a 50/50 net profit split. Whether or not these emerging deal structures make sense in any particular situation requires a factual analysis.  Depending on the strength of the label, existing fan base of the artist, and other issues, an all-in deal may benefit the artist. Nevertheless, there are many situations in which the all-in deal primarily benefits the label.

Conclusion

As the mainstream music industry struggles to find a new paradigm in the digital age, the indie business is quickly evolving – often to the artist’s advantage.  In the coming months, I will provide more in-depth analysis regarding the points mentioned above and others in future blogs. Please keep in mind, however, that any agreement transferring or licensing copyrights in sound recordings should be in writing, prepared by an attorney with music industry experience, reviewed by competent counsel, and signed by all parties. While I very much appreciate the spirit and intentions with which net profit deals are generally approached, it is crucial to carefully consider and review (and execute a writing with respect to) the material terms of these contracts.