Traditionally, recording artists have signed with record labels. One of the most basic principles of US copyright law is the idea that someone who creates an original work should own the copyright to that work—unless he created that work as an employee. For sound recordings, anyone involved in the process of creation—the songwriter, the vocalists, the band members, the sound engineer, the producer—is a potential joint copyright owner. Complex issues surrounding ownership are usually settled through contracts. If an artist is signed to a major label, that artist usually transfers his copyrights to the label, in exchange for royalty payments from the sale of his music. The label produces, distributes and often promotes the artist's recording. However, if the artist in question is also a songwriter, he will usually retain his rights to the underlying songs, which allows him to earn publishing royalties from these songs.
What makes label contracts, especially major label contracts, so unfavorable for artists is their one-sided terms. While a full analysis of major label contract structure is outside of the scope of this website, we will describe a few of these terms.
Unfair Deductions
First, labels can make unfair deductions from the royalty rates that are promised to artists. These deductions include charges that recoup the costs incurred for packaging expenses as well as exceptions for new media. Such deductions often end up reducing the total amount of the royalty to half of what was promised.
Reduce Other Royalties
Second, if an artist writes his own songs, he is entitled to a mechanical royalty—a set fee for every copy of the song distributed. Most major label contracts include clauses that require artists to accept a reduced mechanical royalty rate.
One Sided Renewals
Third, labels retain the option of renewing contracts as many times as they like, but artists do not retain this same right. This often results in artists being tied to a label for a prolonged period of time, during which they continue to lose their royalties to the label.
Loss of Control
While all of the contract terms mentioned above are unfair to artists, the most significant problem with major label contracts is the fact that an artist signing a major label contract loses control over his own work. When an artist transfers his copyrights over to a label, he loses his right to license that work to any other party— even if the label refuses to promote or distribute the artist’s work. Unfortunately, labels that choose not to press and distribute records for various reasons are not rare (the problem of out-of-print sound recordings is addressed in a separate section).
In contrast to the majors, independent label contracts are generally more artist-friendly, although this is not always the case. Additionally, artists are paid smaller advances by indies than they are by majors. As a result, indie artists tend to repay their advance and recover their royalties faster than artists on major labels. Finally, many independent labels offer different types of contracts, not all of which require that an artist give up his copyrights. This ultimately allows artists to exercise more control over their work.
Aside from album sales, radio play was the most prominent traditional means of getting music heard. However, radio suffers from its own set of problems, among them payola. Adam Marcus, in his paper explaining payola, notes that the term is a contraction of the words “pay” and “Victrola,” an early RCA record player (most of the information in this section is drawn from Marcus’ paper). The term payola is used to describe the process of labels or artists paying money to DJs or other radio station employees in exchange for radio airplay. Payola unfairly promotes music regardless of its quality or merit and has the potential to shut out independent and upcoming artists from the radio.
The phenomenon of payola first came to public attention in the 1950s. In the 1960s, federal laws were passed prohibiting direct payment in exchange for radio play unless the fact of the payment was announced over the air. In the mid 1990s, the nature of payola changed, with a middleman called an “independent promoter” or “indie promoter” being paid instead of a station employee.
In 2003, an investigation by then New York State Attorney General Elliot Spitzer revealed that the major labels and four large radio networks were practicing payola on a massive scale. In the settlement that followed, the major labels paid a total of $30.1 million in fines to the New York Attorney General. In addition, the labels entered into a series of consent decrees that sought to eliminate the practice by defining the kinds of compensation that could flow from labels to radio stations.
The Attorney General forwarded the evidence he collected to the FCC so that the agency could investigate the radio stations’ involvement. In 2007, four radio networks—Clear Channel, Entercom, Citadel and CBS—entered into consent decrees with the FCC and paid $12.5 million in fines. Along with the settlement, these radio groups made agreements with the independent music community as well, outlining certain best practices. These included an understanding that radio stations would not restrict access to program directors only to those who paid for that access and that radio stations would not have exclusive relationships with single outside promotion companies.
Finally, the radio groups also agreed to dedicate 4,200 hours of programming to independent music and to feature “the recordings of local, regional and unsigned artists and artists affiliated with independent labels.” While this agreement may seem like a good first step, Marcus lays out several concerns. These include the lack of a time limit within which the 4,200 hour condition should be fulfilled. Does this mean 4,200 hours in a week, in a month or in a year? Also, the radio groups get to decide what stations will play this music and thus, could choose to meet this condition on smaller stations in smaller markets. Last but not the least, in the terms of the agreement, the terms “independent label,” “local” and “regional” are not defined. Thus, a “local artist” could also be a major label recording artist.