guitarist-on-stage
1 April 2014Mark Fischer

Why do bad deals happen to good artists?

Reading about horrendous deals involving renowned artists in their early days, it is tempting to wonder whether those mistakes were just that. In other words, with the benefit of hindsight (or better management) the bad deals could have been avoided. Or perhaps, those ‘mistakes’, as awful as they look out of context, were almost necessary to get an entertainment career to the next level, because they might have led to propitious connections and great professional developments.

Hearing such tales, it is wise to focus on how such unfavourable contracts happen. Factors may include:

•  Artists have little or no leverage in the early stages of their careers. Such mistakes could be the price of success (a kind of rite of passage) or just unnecessary, even stupid, slip-ups.

•  Companies and people get bad advice, for a variety of reasons.

•  The circumstances of an emerging career are complicated and may not be fully known or understood at a particular point in time.

•  It isn’t possible to predict the future with certainty. Better opportunities just around the corner aren’t always visible.

•  A changing digital media environment means that the received wisdom of how the media have worked for decades might no longer be true.

•  It’s great to be lucky and not just talented.

Stories of lopsided deals abound in the entertainment business, going back to Bruce Springsteen accepting a pittance for royalties when he, as legend has it, signed a contract on the hood of a car in the parking lot of a bar. They go back further, to John Lennon and Paul McCartney handing over music publishing rights to their songs.

In due course Springsteen and the two Beatles found themselves embroiled in long, bitter and, of course, costly legal battles to regain what they believed was rightfully theirs. While the deals they made are well-known—maybe infamous is a better word—they were hatched in much more stable times, long before Facebook, Spotify, YouTube, and a host of other digital outlets and devices.

With the media landscape shifting so quickly and dramatically, how can both sides in an artistic deal hope to protect themselves? As Lennon and McCartney, along with Springsteen, have shown, those on the creative side have a great deal to lose. While there is no surefire way to ensure anyone gets a great deal, there are several things that can be done to put them on the path to a satisfying agreement.

The challenge begins with something a simple as defining terms. There was a time when defining the word ‘television’ was simple. It was over-the-air broadcast with limited distribution and, therefore, rather easy to grasp. But today, does it include watching a show on an iPhone, tablet or laptop? What about Hulu or YouTube or Netflix, or any number of video-on-demand options? So many companies that own rights want to enter into short-term deals because the ways in which new media will become old media, only to replaced by newer media, seem almost endless.

Does defining terms matter? Of course it does. Defining what certain rights mean will have an impact from a payment perspective, which may mean building tiers of usage into a distribution agreement.

The Beatles didn’t worry about digital data when they signed their first deals, but businesses and their lawyers—and most rights holders—now understand the potential value of data. One of the beauties of the Internet is the ability to quantify and qualify the audience, to be able to collect demographics and contact information. These rights need to be part of so many negotiations, and while everyone wants to own the data, data are only valuable if the owner has the ability to use, and intention of using, the data.

For example, if a website is aimed at women aged 25 to 44, but the data show mostly men are coming to the site, something needs to change. There can be tremendous value, but only if the owner understands how to use it.

On a larger scale, intelligent use of data can lead to the effective implementation of variable pricing, which has tremendous possibilities in the entertainment space. For example, some sports teams at universities have stepped into this area by pricing tickets for football games based on the opponent.

"The balance between protecting revenue and allowing the fan base to express its devotion is a delicate one and something that needs to be carefully considered."

Michael Rothstein of espn.com’s Wolverine Nation blog reported in July 2013 that the University of Michigan would experiment with variable pricing, with end zone tickets for a game against the University of Akron going for $65, and similar tickets to see Notre Dame going for nearly three times as much. This provides a great opportunity in movies, music and other entertainment verticals, and must be considered during negotiations. In 2014, the Boston Red Sox will charge more for some games, including those against the New York Yankees.

All of this, of course, revolves around fans, and that is a rather complicated relationship. Back when The Beatles were topping the charts, it was relatively easy to maintain control of the band’s music and images. But as distribution channels have become diversified and the worldwide public can control usage of content, that dynamic has changed.

The Star Trek and Harry Potter franchises spurred a flurry of fan fiction, producing more material than Gene Roddenberry and J.K. Rowling could have ever imagined. This can lead to the sale of unauthorised merchandise, which puts the rights holder in a position to determine where to draw the line. The balance between protecting revenue and allowing the fan base to express its devotion is a delicate one and something that needs to be carefully considered.

There are at least three things the owner of rights wants: financial compensation, control and attribution. Defining what those three things mean will take thoughtful consideration and, as the landscape continues to shift, so will the guidelines, but for now there are three important considerations.

•  How do you deal with the multiple distribution channels, including the vast array available online, both domestically and internationally? While it’s impossible to define all channels—more seem to be popping up every day—there needs to be clarity on what is known.

•  Don’t get so worried about making a perfect deal that you fail to make a good deal. There’s no way to know what major shift lies ahead, so make the best decision based on the current situation.

•  Look for shorter-term deals that allow the flexibility to adapt to new distribution channels or other significant changes.

While everyone tries to learn from mistakes, there will inevitably be stories similar to those involving Springsteen and The Beatles. But by defining terms clearly and acknowledging the dynamic nature of the industry, rights holders are less likely to be singing the blues.

Mark Fischer is a partner at Duane Morris LLP. He can be contacted at: mafischer@duanemorris.com

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