2. Recording Contracts – The Myth & Reality ~ by Mr. John McLellan Partner, Corporate & Media email: jpm@haldanes.comjpm@haldanes.com Haldanes website: www.haldanes.comwww.haldanes.com

3. 4 Dec 2002Haldanes2 “ The artiste has always paid for the mortgage and somebody else owns the house” Merck Mercuriadis CEO, Sanctuary Group

4. 4 Dec 2002Haldanes3 1. Obligations on Artiste 1.1 Exclusive Artiste Services 1.2 Term 1.3 Territory

5. 4 Dec 2002Haldanes4 1.1 “Artiste’s Services” “The sole and exclusive services of the Artiste as an audio and audio-visual recording artiste throughout the Territory during the Term ….. includ[ing] …. the preparation, rehearsal, performance, arranging, designing, choreography and recording.”

6. 4 Dec 2002Haldanes5 [Artiste shall not ] “(a)during the term of this Agreement render any musical performance including but not limited to signing and/or instrumental performance whatsoever; and (b) for the period of 8 (eight) years immediately following the expiration of the Term or any extension thereof perform any work recorded by the [Recording Company]under this Agreement; whereby such performance might be recorded in a form in any configuration which may be offered or transmitted to the public.

7. 4 Dec 2002Haldanes6 Nothing herein contained shall prevent the Artiste from performing for the purposes of radio or television provided always that recordings of such performances shall not be offered to the public otherwise than as Normal Broadcast Transmissions.”  no live recordings  “recorded” not “released”  no pay per view, VOD

8. 4 Dec 2002Haldanes7 1.2 “Term” “4 (four) years or 4 (four) months after fulfillment of the Product Requirement whichever period is the longer.”

9. 4 Dec 2002Haldanes8 “Product Requirement” “(a)5 (five) Albums of which 4 (four) will be in the Mandarin language and 1 (one) may at the agreement of the parties, be in the English, Japanese or Mandarin languages. (b) up to 7 (seven) Music Videos as required by the Company for each Album referred to in (a) above.”

10. 4 Dec 2002Haldanes9 “Album” Any Record derived entirely from Master Tapes comprising no less than 12 (twelve) Tracks which shall not include a Compilation. “Artiste [shall] ….. repeat any such performances as the Company shall require for the purpose of producing in the opinion of the Company, Master Tapes Music Videos and Records of the desired artistic, technical and commercial quality.”

11. 4 Dec 2002Haldanes10 1.3 “Territory”  “the world” or “the universe”  language

12. 4 Dec 2002Haldanes11 2. Obligations on Record Company ? ? ? ?

13. 4 Dec 2002Haldanes12 2. Obligations on Record Company 2.1 Recording obligation  Normally expressed to be within a period of time after last album 2.2 Release Commitment  “release” / “commercially release”  territories  reversion of rights territorially / ability to terminate contract

14. 4 Dec 2002Haldanes13 3. Grant of Rights 3.1“ ….. All the copyright in the product of the Artiste’s Services ….. and the sole and exclusive right to use and exploit the same in any manner the Record Company may see fit by any and all means in any media whether now known or hereafter invented or devised throughout the Universe including all renewals reversions or extensions”.  “catch all”  varying copyright terms

15. 4 Dec 2002Haldanes14 3.2 “assignment of all Performers Economic Rights ….. exclusive licence to Performers Non Economic Right and rights of action in in product of Artiste’s Services”.  performers rights

16. 4 Dec 2002Haldanes15 3.3 “Artiste [agrees] not to assert ….. moral rights”  right to be identified as the author of a work  right to object to derogatory treatment of work  right to prevent false attribution

17. 4 Dec 2002Haldanes16 3.4 Artiste’s Name “right to use the current or future name, professional name, trade name, trade mark and/or logo of the Artiste ….. for the full period of copyright in the Master Tapes Music Videos and Live Recordings for the purpose of exploiting the Company’s rights under this Agreement.”

18. 4 Dec 2002Haldanes17 “the Artiste shall [not], without Company’s prior written consent, promote, advertise, endorse or otherwise use the Artiste’s name professional name, likeness or logo in connection with the sale, distribution, advertisement of any products, entitles, or medium involved in, or capable of reproducing or transmitting sound, now or hereafter known, including, without limitation, blank tapes …..

19. 4 Dec 2002Haldanes18 telephony and/or any and all transmissions via the Internet or any other computer assisted network or medium, whether or not a temporary or permanent copy is made during the transmission and all sound file formats, MS Audio, Real Audio, MPEG and wave and downloadable as well as streaming performances whether for financial remuneration, promotional consideration or otherwise.”

20. 4 Dec 2002Haldanes19 “the Artiste shall not without the written permission of the Company change their professional names in whole or in part of any nature of any person and shall not be obscene, blasphemous or defamatory of any person.”

21. 4 Dec 2002Haldanes20 3.5 Legal Action “[Record Company] shall have the sole and exclusive right to initiate and maintain any and all actions or proceedings which the [Record Company] in its sole discretion deems necessary in order to establish, maintain or preserve any of the Company’s rights [and] ….. to join the Artiste as a plaintiff or defendant in any such action and

22. 4 Dec 2002Haldanes21 the Artiste shall [waive] any right, title or interest in any money recovered by the Company in respect of such actions or proceedings. The Artiste agrees to fully co- operate with the Company in any such actions or proceedings, at the expense of the [Record Company].

23. 4 Dec 2002Haldanes22  in name of artist  controlled by Record Company  proceeds  costs / indemnity

24. 4 Dec 2002Haldanes23 3.6 “On line” right  register site with URL’s bearing Artiste’s name  control the site  linking rights

25. 4 Dec 2002Haldanes24 3.7 Management Rights “Exclusive rights to manage all aspects of artiste’s career in the Entertainment Industry”  fiduciary duty  co terminus with recording contract  “double dipping”

26. 4 Dec 2002Haldanes25 3.8 “Controlled Compositions”  must sign “publishing rights” to sister record company  compositions co-owned?  position in US / Canada - statutory rate fixed - can be varied by contract - ¾ statutory rate - only on 10 tracks

27. 4 Dec 2002Haldanes26 4. Advances and Royalties 4.1 Not advances in medical science but $ $ $ Advances on royalties payable to artiste in consideration for grant of rights and artiste services

28. 4 Dec 2002Haldanes27 Advances can be expressed to be - “non-refundable” - “cross-collateralisation” - “recoupable” - fixed or escalating

29. 4 Dec 2002Haldanes28 4.2 Royalties (i) What are they?  % of sales on exploitation of master recordings (ii) What are they paid on?  “Records”

30. 4 Dec 2002Haldanes29 “Records” Recordings whether embodying sound alone or sound coupled with visual images derived from the Master Tapes, Live Recordings and Music Videos and/or other performances of the Artiste recorded under the terms of this Agreement distributed in any configuration whatever whether now or hereafter known including, without limitation, a gramophone record, magnetic tape, compact disc, mini-disc, video compact disc (“VCD”), digital versatile disc (“DVD”), any computer assisted media (CD- ROM, CD-I and similar disc systems) and any other contrivance or appliance for bearing or used for emitting sounds and/or visual images and Direct Transmissions.

31. 4 Dec 2002Haldanes30 “Direct Transmission” Electronic or radio transmissions including, without limitation, telephone, satellite, cable, direct transmissions, downloading and streaming or any similar or successor form of transmission or through the Internet or any computer assisted network or medium which is similar to or is a successor to the Internet, digital jukeboxes, pay-per- play TV and radio broadcasts, radio-on-demand, television-on-demand, music-on-demand or any precedent interactive networked an/or on-line delivery of audio and audio-visual recordings or any radio or TV broadcast over subscription channels and any other such methods now or hereafter known.

32. 4 Dec 2002Haldanes31  “exploit[ation] other than Records”  tv  radio  film

33. 4 Dec 2002Haldanes32  “New Technology Product”  exploitation

34. 4 Dec 2002Haldanes33  Compilations

35. 4 Dec 2002Haldanes34 How are they calculated?  “Net Sales” All Records sold by the [Record Company] less:- (a)returns credits and exchanges of any nature including reserves for the same as shall be determined by the Company in its entire discretion;  “returns”  “reserves” (b)records used for demonstration, advertising or promotional purposes;

36. 4 Dec 2002Haldanes35 (c) records given away or furnished to distributors or dealers on a no charge basis;  why “free goods” are necessary and what are they? (d) sold at a close out price, namely at less than 30% (thirty percent) of the wholesale price.  “scrap”

37. 4 Dec 2002Haldanes36 “Royalty Base Price” 90% (ninety per cent) of the actual invoice price charged by the Company from time to time in that country.  essentially wholesale price PPD  90% why?  retail price?

38. 4 Dec 2002Haldanes37 Royalty Rates  4% — 30% of PPD

39. 4 Dec 2002Haldanes38 Deductions ““ Mid Price” ““ Budget Price” ““ TV Marketing”

40. 4 Dec 2002Haldanes39 Calculation -Hypothetical Scenario 1 The artiste sells 500,000 Records 2 “ Free goods ” = 20% of all Records sold 3 “ Net Sales ” : All Records Sold – “ free goods ” 4 Actual Invoice Price - $90 5 Royalty Base Price = 90% of Actual Invoice Price 6 Royalty rate: 15% 7 Advance paid by the Record Company: $10 million (non refundable but recoupable against Royalties) 8 No royalties are paid to the Artiste until all Advances paid by the Record Company have been fully recouped 9 Net figure = the amount of royalty that the Artiste “ receives ”

41. 4 Dec 2002Haldanes40 Royalties accounted to by the Record Company to the Artiste (1)Net Sales = 500,000 copies – 20% ( “ free goods ” ) = 400,000 copies (2)Royalty Base Price = Actual Invoice Price x 90% = $90 x 90% = $81 (3)Royalties = Net Sales x Royalty Base Price x Royalty Rate = $(400,000 x 81 x 15%) = $4,860,000

42. 4 Dec 2002Haldanes41 Royalties “receivable” by the Artiste = Royalties paid by the Record Company – Advance paid by the Record Company = $10,000,000 - $4,860,000 = $5,140,000

43. 4 Dec 2002Haldanes42 Gross Receipts By Record Company Gross:$45,000,000 ($500,000 x $90) Less: Royalties:$ 4,800,000 Marketing:$ 5,000,000 Recording (videos):$ 2,000,000 $33,200,000

44. 4 Dec 2002Haldanes43 4.3 “Braxton Phenomena” AssumptionLess Advance on 3 Albums=US$1,000,000 US tax @50% on gross=US$500,000 Management @15% on gross =US$150,000 Lawyers @50% on gross =US$ 50,000 TotalUS$700,000US$ 300,000

45. 4 Dec 2002Haldanes44 Royalties?  Advance =US$1m  Recoup 100% recording fund =US$1.5m (@US$500,000 x 3 Albums)  Recoup 50% of independent promotion cost =US$450,000 (@US$300,000x3x50%)  Recoup 50% of video costs =US$600,000 (@US$200,000x6x50%) US$3,550,000

46. 4 Dec 2002Haldanes45 Royalties? Assume :-  Net average royalty rate of 10% of retail price after deductions (free goods, packaging, producers, etc.)  Retail price of US$20  Need to sell 17.5 million Records before recoupment (@US$2 ÷ US$3,550,000)

47. 4 Dec 2002Haldanes46 5. Accounting Verification of royalty statements  What is it an account of ?  Who accounts?  At whose cost?  How many times?  Limitation Period?  Shortfalls  Interest

48. 4 Dec 2002Haldanes47 6. Suspension and Termination 6.1 Suspension  breach  ”the Artiste shall have been prevented from performing the Artiste’s Services by injury illness mental or physical disability or otherwise or shall in the opinion of the Company be incapable of performing the Artiste’s Services for a period of 3 (three) months after the date required whether as a result of injury illness mental or physical disability or otherwise.”

49. 4 Dec 2002Haldanes48 6.2 Termination  Record Company retains all rights  In event of termination for breach, artiste only receives royalties to date of termination.