Hiring a record producer, at least on paper, has traditionally been the artist’s job. The artist contracts directly with the producer, agrees to pay the producer a share of the artist’s recording royalties, and sends a letter of direction to the label or distributor instructing it to pay the producer directly.
Sometimes, though, a producer contracts directly with the record label or distributor to produce an artist’s recordings. That may take the form of a staff producer deal, or the label or distributor may simply be taking an administrative task off the artist’s plate.
This choice of contracting party—artist or label—can have wide-ranging consequences and deserves attention from producers, artists, and potential catalog buyers.
Payment of Producer Royalties
The clearest benefit to a producer of contracting directly with a label is that the producer does not depend on the artist’s letter of direction to get paid. The less obvious benefit of this arrangement arises if the producer sells their royalty income in a catalog sale: the buyer can usually get direct payment from the relevant record label or distributor more quickly. If the producer’s payment right comes from an agreement with the artist, some labels require that artist’s consent before redirecting royalties to a catalog buyer. Obtaining an artist’s consent can take months, especially if the producer’s relationship with the artist is bad or even just stale. That delay frustrates both buyers waiting to receive direct payments and producers who may be forced to wait for these direct payments to begin before the buyer will release a purchase price holdback to the producer. By contrast, if the producer’s payment right comes from a contract with the label and the producer assigns that right to a catalog buyer, the label must simply pay the catalog buyer instead of the producer.
One tradeoff for the producer is that contracting directly with a label may make it harder to obtain a share of the recording artist’s SoundExchange featured artist royalties. Producers are not entitled under the U.S. Copyright Act to receive featured artist royalties from SoundExchange, so they can access this income stream only by contract. Typically, a producer contracting with an artist requires the artist to submit a letter of direction to SoundExchange instructing it to pay the producer a portion of the artist’s featured artist royalties. By contracting directly with a label or distributor, the producer gives up the opportunity to require delivery of that letter of direction. Producers and their counsel contracting directly with a label or distribution should keep this in mind and negotiate the point expressly in the relevant agreement.
Termination of Distribution Rights
The contracting party to a producer agreement also matters when an artist recaptures distribution rights in recordings from the applicable record label or distributor, either through contractual reversion or by successfully asserting statutory termination rights under the U.S. Copyright Act.
If the producer contracts directly with the recording artist and the recordings are deemed works made for hire for the artist—which is almost always the case in a producer agreement—the artist can be confident that they are recapturing the entire copyright in those recordings. The artist can then grant copyright ownership or distribution rights in the recordings to any record label, distributor, or catalog buyer, subject only to the producer’s continuing right to receive royalties from the artist, either directly or under a letter of direction.
If the producer contracts with the relevant record label or distributor, however, that label or distributor—and not the recording artist—owns the producer’s contributions to the recordings. The artist cannot terminate the label or distributor’s ownership interest in those contributions, either through contractual reversion or statutory termination. Even if the artist recaptures their own copyright in the recordings, they cannot grant an undivided one hundred percent of that copyright to another label, distributor, or catalog buyer. At a minimum, the artist must license the producer’s contributions from the existing label or distributor. This arrangement gives the existing label significant bargaining power in copyright recapture negotiations and catalog sales. For that reason, artists should always seek to contract directly with their producers.
For the producer, the effect of an artist recapturing copyrights or distribution rights is the same whether the producer contracted with the artist or the label. In either case, the recordings cannot be exploited without a grant of rights from the party that owns the producer’s contributions, and that party remains obligated to pay the producer’s royalties. The only real danger to the producer’s income stream arises if a dispute between the artist and the label or distributor leads to a hold on royalties, or if the artist moves the recordings to a distributor that is less effective at collecting or distributing revenue (or stops exploiting the recordings altogether).
For a buyer of a producer’s royalties, the risk to ongoing cash flow is greater if the producer contracted with the artist than if the producer contracted with the existing label or distributor. In the former scenario, if the artist recaptures rights in the relevant recordings, the payor of producer royalties may change, requiring a new letter of direction—and potentially another consent from the artist—and resulting in the sorts of delays in direct payment discussed above. Where a producer has contracted directly with the artist, catalog buyers should obtain backup letters of direction from the producer to the artist, to be delivered if the artist recaptures the relevant recordings. Buyers should also require the producer to assist in getting the recordings’ new distributor to implement a letter of direction paying the buyer directly. Regardless of the counterparty to the producer agreement, catalog buyers should insist that their purchase agreement include a diminution event concept allowing the buyer to recover value that lost because the artist recaptures—or attempts to recapture—rights in the recordings.
Conclusion
Signing a producer agreement can seem like a formulaic exercise and, in the run-up to a record release, the parties may focus more on the producer’s terms than on who is signing the agreement. But that choice can shape who gets paid, who controls rights, and how easily a catalog can be sold. Producers, artists, labels and distributors, and catalog buyers should treat the agreement’s structure as a key business and legal decision—not an afterthought.
Zach Blumenfeld is an associate in the firm’s Entertainment and Sports Department.