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What about the workers?

2007-04-30 13:52
Today we're going to take a very basic look at some of the fantastic clauses that major labels stick into their standard contracts. These mainly apply to the US branches of the labels, but hey, that's ok, because the music industry doesn't exist outside the US anyway, right?

We should probably point out that many of these and other clauses may not apply to South African law. Still, we thought it would be interesting to take a look at these, especially since labels are quick to sue private citizens for “stealing from the artist” whenever they download or share music files. Labels, after all, are trying to look out for the artists, right?

Here are some very basic explanations for how they're doing that with their standard contract clauses:

Let's assume you've signed the contract, and agreed to a nice-sounding advance. Of which you'll likely see maybe 10% in cash – to share with your bandmates.

Transference of Ownership

Basically, anything you record under contract belongs to the label, not to you. They are the owners of your master copies, and can use them however they see fit, exclusively for the term of the contract, and non-exclusively thereafter. And by (term of the contract”, as we'll see in a moment, they mean, however long they want.)

In most cases this will extend to merchandise and/or creatives (logos, etc) as well. If you have CDs sitting in the label's warehouse, you can't get them and sell them. You can't sell the recording for use in a movie or TV ad. And more than likely another part of the contract will prevent you from recording a different version of it. So there.

Length of Term

Let's assume that the album sold well and you paid off the advance (unlikely), so all costs have been recouped (unlikely again). So after three years, on the last day of the contract that's been “protecting” you, you receive a telegram from the label saying they're extending the contract for three more years. You don't have have a choice. This is their option. Guess what? They STILL own your record. Thank you very much.

Key Man Clause
Let's say you signed your contract with Mr. William Wallace of ABC Records. But some time later Mr. Wallace decided to leave and go to Bubblegum Records instead. Did you remember to include your condition that should the guy you trust leave the company you can go with him? What if the label got sold, liquidated or merged? Didn't think of it? Welcome to Screwville.

Delivery / Acceptance Clauses

Make sure you know exactly what they mean when they say "delivery". They could mean your recording masters, sure. But they could also obligate you to supply clearances, licences, recording accreditations, etc, etc, etc. And if you don't, you may have broken the contract, yeah.

Cross-Collateralisation So the record you recorded for ABC records was a so-so album and "made a loss". Your second album was a huge hit! And the accounting shows you covered all the expenses and made some money for yourself too (unlikely). Guess what? That first album you owe money on? Yeah, they'll take it from you second album's profit, thanks. Even if you changed labels.

But how do labels REALLY look after you? With a nice thing called the Controlled Composition Clause. It's complicated, but see if you can keep up, now! DESPITE the law, The Controlled Composition Clause allows labels to limit the amount of royalties they pay for an album's performance and distribution (mechanical royalties).

So, effectively looking at standard contracts in effect:
- Law says artists gets 7c mechanical royalty per track, but contract will only pay artist 75% (5c) of that royalty (so principal artist needs to subsidise that 2c).
- Contract will only pay for 10 songs per album, so principal artist will need to subsidise the excess on that, should there be more than ten tracks.
- If the album contains covers (different royalty rate) or more expensive producers (mechanicals-wise), the artist will subsidise.
- Royalty payments from the label are only applicable to 85% of the records sold. 15% is regarded as “free goods”, whatever that means (it was once generally assumed to be promo goods, but is no longer defined as such).
- Most artists won't have a say on who their producers are. They are appointed by the labels, who do not negotiate reduced mechanical rates with their producers. Get your wallet out.

In layman's terms, provide this practical example:
1, Artist is entitled to 7.5c per song in mechanical royalties.
2. The artist has agreed to be responsible for any costs of mechanicals over 56c per album (75% of legal royalty times 10 songs).
3. Artist has no say over what is recorded.
4. She records 15 songs written by the record label's “affiliated publisher” who charges the full statutory rate of 7.5c per song, or $1.13 for the album.
5. The Artist now OWES the record label 57c per record.
6. In five years, when the statutory rate increases to 9.1c per song, but the artist's rate stays the same, the artist will OWE 85c per album! Each record sold puts her deeper in the hole, and farther away from ever recouping.

- Anton Marshall
In the spirit of scoring one for the workers, here's a story all musicians looking for that major label contract should read.
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