Chapter 1: First Steps 1 First Steps STATE OF THE UNION This tenth edition is the most extensive rewrite of my book since the first edition. That's because the music industry has changed more radically in the last few years than at any other time in its history. Let me explain: Since the 1890s, music has been monetized by selling something: wax cylinders, piano rolls, shellac records, vinyl records, cassettes, CDs, and cheesy merchandise (well, I guess we're still doing that). But the business is no longer based primarily on sales. Spotify, Apple Music, Amazon Music, YouTube, and similar services have revolutionized how people consume music, so that streaming is now the dominant revenue source for recorded music. And this change is WAY more drastic than you might think. Consider this: 1. In the past, when record sales were the mainstay of the recorded music business, you could go to a record store and buy two or three records at a time. Today, you can only stream one song at a time. That may not seem like a big deal, but... 2. In the days of sales, an artist was paid the same money for each record sold, regardless of whether a buyer listened to it a thousand times or never took it out of the shrink wrap and used it as a doorstop. But today, the more listens you have, the more money you make. However... 3. In the old days, if my records sold big numbers, it didn't make any difference to the number of sales you had. Your fans would buy your albums, and my fans would buy mine. In fact, if you had a big seller, it would bring a lot of people into record stores, and that increased the chances of selling my records. But in the streaming world, that's no longer true. For reasons we'll discuss later, the more listens you get, the less money I make. A truly radical change. The good news is that, after fifteen years of music revenue falling like buckets of rocks, we had our first earnings increase in 2016. And every year after that, we've had double-digit growth. All because of streaming. We still have a ways to go--at the time of this writing, the recorded music business is less than 60 percent of what it was at its peak in 1999. But I predict it's going to be bigger than it's ever been in history. Why? In 1999, the historical peak of the music biz, an average CD buyer spent about $40 to $50 per year on CDs; let's call it $45. Today, with subscriptions priced at $10 per month, the average per-subscriber fee is about $7 (because of student and family discounts). So let's use $7 per month, which means a music fan spends about $84 per year. That's almost double the $45 of CD purchases we got from each fan in the good ol' days. On top of that, the number of subscribers is growing all over the world. But wait... there's more! In the heyday of the music biz, the average CD buyer stopped going to record stores (or even listening to much music) in their early twenties. Today, people of all ages subscribe to streaming services (oldsters listen to Lawrence Welk, and youngsters want stuff like "Baby Shark," a song that can mercilessly eat your brain). Which means streaming is not only generating more money per user (the $84 vs. $45 in the above example), but it's also bringing in a wider range of consumers than ever before. How can the industry not be bigger than ever? Another radical shift in the last few years is how the concept of an "album" is being challenged. What does an "album" mean in the streaming age, when you can listen to just the tracks you like? Why should artists even bother to make albums when they can release individual songs as soon as they're ready? And if albums go away, what does that mean for recording contracts that have always been based on the delivery and release of albums? For example, if your contract requires you to deliver three albums, but nobody wants albums anymore, how do you ever finish the deal? And that's just a taste of what's new in this edition. There's also an update of all the current industry figures, a new section on the recent copyright infringement cases, an overview of the Music Modernization Act, and much, much more. All waiting for you just inside the tent. So step right up, folks, and lemme show you how the music business is shifting around like a Rubik's cube. OPEN UP AND SAY "AHHH" For many years I taught a class on the music business at the University of Southern California Law School's Advanced Professional Program. The class was for lawyers, accountants, record and film company executives, managers, agents, and bartenders who want to manage groups. Anyway, at the beginning of one of these courses a friend of mine came up to me. She was an executive at a film studio and was taking the class to understand the music biz as it relates to films. She said, "I'm here to open up the top of my head and have you pour in the music business." I loved that mental picture (because there's a lot of stuff I'd love to absorb that way), and it spurred me to develop a painless way of infusing you with the extensive materials in this book. So if you'll sit back, relax, and open up your mind, I'll pour in all you need to know about the music business (and a little more for good measure). HOW I GOT STARTED I really love what I do. I've been practicing music law for over thirty years, and I represent recording artists, songwriters, producers, music publishers, film music composers, industry executives, record companies, film companies, managers, agents, business managers, and other assorted mutants that populate the biz. I got into this gig on purpose, because I've always loved creative arts. My first showbiz experience was in grade school, performing magic tricks for assemblies. I also started playing accordion in grade school. (I used to play a mean accordion; everyone applauded when I shook the bellows on "Lady of Spain." I gave it up because I found it impossible to romance a girl while wearing an accordion.) In high school, I graduated from accordion to guitar, and in college at the University of Texas, I played lead guitar in a band called Oedipus and the Mothers. While I was with Oedipus, we recorded a demo that I tried to sell to our family friend, Snuff Garrett (more about him later). Snuff, a powerful record producer, very kindly took the time to meet with me. That meeting was a major turning point in my life. Snuff listened to the record, smiled, and said, "Don... go to law school." So I took Snuff's advice and went to Harvard Law School. While I was there, I played lead guitar with a band called the Rhythm Method. But it was quickly becoming clear that my ability to be in the music business and eat regularly lay along the business path. When I graduated, I first did tax planning for entertainers. Tax law, like intricate puzzles, was a lot of fun, but when I discovered there was such a thing as music law, the electricity really turned on. In fact, I took the USC class that I later taught, and it got me so excited that I left the tax practice for my current firm. Doing music law was so much fun that it wasn't even like working (I'm still not over that feeling), and I enjoyed it so much that I felt guilty getting paid (I got over that). My first entertainment law experience was representing a gorgeous, six-foot model, referred to me by my dentist. (I promised him I would return the favor, since most of my clients had teeth.) The model was being pursued (I suspect in every way) by a manager who wanted a contract for 50% of her gross earnings for ten years. (You'll see how absurd this is when you get to Chapter 3.) Even then, I knew this wasn't right, so I nervously called up the guy to negotiate. I still remember my voice cracking as I said his proposal was over the industry standard, since most managers took only 15% (which was true). He retorted with "Oh yeah? Who?" Well, he had me. I wasn't really sure what managers did, much less who they were. So I learned my first lesson in the art of humility. As I began to really understand how the music business worked, I found that my love of both creative arts and business allowed me to move between the two worlds and help them relate to each other. The marriage of art and commerce has always fascinated me--they can't exist without each other--yet the concept of creative freedom, and the need to control costs in order to have a business, are eternally locked in a Vulcan death match. Which means the music business will always need lawyers. Anyway, I now channel my creative energies into innovative business deals, and I satisfy my need to perform by teaching, lecturing, and playing guitar. Just to be sure I don't get too straight, however, I cycle through my weird assortment of hobbies: magic, ham radio, weight lifting, guitar, dog training, five-string banjo, karate, chess, poker, backgammon, and real estate investment. I also write novels, which you are all required to buy. BRAIN SURGERY Speaking of marrying creativity and business, I've discovered that a rock star and a brain surgeon have something in common. It's not that either one would be particularly good at the other's job (and I'm not sure which crossover would produce the more disastrous results), but rather that each one is capable of performing his craft brilliantly, and generating huge sums of money, without the need for any financial skills. In most businesses, before you can start earning big bucks, you have to be pretty well schooled in how the business works. For example, if you open up a shoe store, you have to work up a budget, negotiate a lease, bargain for the price of the shoes, and so forth--all before you smell that first foot. But in entertainment, as in surgery, you can soar to the top without any business expertise. Making a living from a business you don't understand is risky. Yet a large number of artists, including major ones, have never learned such basics as how record royalties are computed, what a copyright is, how music publishing works, and a number of other things that directly affect their lives. They don't know this stuff because (a) their time was better spent making music; (b) they weren't interested; (c) it sounded too complicated; and/or (d) learning it was too much like being in school. But without knowing these basics, it's impossible for them to understand the different aspects of their professional lives. And as their success grows, and their lives get more complex, they get even more lost. While it's true that some artists refuse to even listen to business talk (I've watched them go into sensory shutdown if you so much as mention the topic), others get very interested and study every detail of their business lives. The vast majority, however, are somewhere in the middle. They don't really enjoy business, but they want to participate intelligently in their career decisions. These artists are smart enough to know one simple thing: No one ever takes as good care of your business as you do. It was for my moderately to seriously interested clients that I developed a way to explain the basics in simple, everyday language. With only a small investment of time, these clients understood the essential concepts, and everyone enjoyed the process (including me). It also made an enormous difference in the artist's self-confidence about his or her business life, and allowed them to make valuable contributions to the process. Because the results of these learning sessions were so positive, several clients asked if we could explore the subjects more deeply. Thus the conception of this book. I had just finished teaching my class on the music biz at USC and realized that my class notes were the outline of a book. So after some more research to flesh it out, I sat down and knocked out the first edition. The book is designed to give you a general overview of the music industry. You can read it as casually or intensely as suits your interest level, attention span, and pain tolerance. It's not written for lawyers or technicians, so it doesn't include the minutiae you'll find in a textbook for professionals. Instead, it gives you a broad overview of each segment of the industry, then goes into enough detail for you to understand the major issues you're likely to confront. JUNGLE MAPS When I was in high school, a policeman named Officer Sparks spoke at an assembly. Mr. Sparks hyped us on the life of a crime fighter, seeming sure we all secretly wanted to be cops. In the process, he showed us something I'll never forget. Officer Sparks ran a film in which the camera moved down a street. It was a grainy black-and-white movie, only about thirty seconds long, filmed by a camera bobbing along a sidewalk. When it was finished, he asked if we'd seen anything unusual. No one had. Apart from a couple of people bouncing in and out of the doorways, it looked pretty much like pictures taken by a camera walking past a row of boring shops. Mr. Sparks then said that a "trained observer" who watched the film could spot six crimes being committed. He showed the film again and pointed out each of the incidents (there was a quiet exchange of drugs, a pickpocket, etc.). This time, the crimes were obvious. And I felt like a doofus for missing them. Any time I learn a new skill, I go through a similar process. At first, things either look deceptively simple, or like a bewildering blur of chaos. But as I learn what to look for, I see a world I never knew was there. From my experience, the best way to become a "trained observer" is to have a guide to the basics--a framework in which to organize the bits and pieces. So that's the purpose of this book--to be a map through the jungle, and show you where the crimes are. (Officer Sparks, if you're out there somewhere, I hope you're proud.) DETAILS There is no way one book (even one filling several volumes) could poke into every nook and cranny of a business as complicated as the music business. So the purpose here is to give you the big picture, not all the details. (Besides, for some of those details, I charge serious money.) Also, even if I tried to lay out all the little pieces, as fast as everything moves in this biz, it would be obsolete within a few months. So the goal is to give you a broad overview (which doesn't change nearly as quickly, or at least it didn't until this edition). The idea is to give you a bare tree on which to hang the leaves of your own experience. Oddly, it's easier to pick up details (from the Internet, gossip at cocktail parties, etc.) than it is to learn the structural overview, because few people have the time or patience to sit down and give it to you. In fact, giving you the overall view turned out to be a much bigger job than I thought when I started. But you're worth it. SOME RESULTS Since this is the tenth edition, I now have feedback from experiments using this book on actual human subjects. Of all the responses I got, I thought you might enjoy hearing about two in particular: First, I received an irate call from a music lawyer, who was upset because he charged thousands of dollars to give clients the advice I had put in the book. Second, I received an equally irate call from a manager, who said that most of the artists he'd approached kept pushing my book in his face. Way to go! Keep shoving. And if you'll permit me a momentary lapse of modesty, my favorite compliment was from someone who said this was the first book he'd ever finished in his life. STAPLE, SPINDLE, AND MUTILATE When you go through this book, forget everything you learned as a kid about taking good care of books, treating them as sacred works of art, etc. Read this book with a pencil or highlighter in your hand. Circle or star passages you think you'll need, fold over pages, mark them with Post-its, paper clips, or bong water--whatever helps (unless you're reading an electronic edition, in which case you might want to lose the bong water). This is an action book--a set of directions on how to jog through the music biz without getting mugged. So treat it like a comfortable old pair of shoes that you don't mind getting dirty. It doesn't matter what they look like, as long as they get you where you're going. CHOOSE YOUR OWN ADVENTURE When my sons, David, Josh, and Jordan were little, their favorite books were from a series called Choose Your Own Adventure. They work like this: You start reading the book on page one and, after a few pages, the author gives you a choice. For example, if you want Pinocchio to go down the alley, you turn to page fourteen, but if you want him to go to school, you turn to page nineteen (my boys never picked school). From there, every few pages you have more choices, and there are several different endings to the book. (The boys liked the ending where everyone gets killed, but that's another story.) These books are not meant to be read straight through; if you tried, you'd find yourself crashing into different plots and stories. Instead, you're supposed to skip around, following a new path each time. This concept gave me the idea of how to organize this book. You have a choice of reading for a broad overview or reading in depth, and the book tells you where to skip ahead if you want to do this. However, unlike the Choose Your Own Adventure books, you can read straight through with little or no damage to the central nervous system. Here's how it's organized: Part I deals with how to put together a team to guide your career, consisting of a personal manager, business manager, agent, and attorney. Part II looks at record deals, including the concepts of royalties, advances, and other deal points. Part III talks about songwriting and publishing, including copyrights and the structure of the publishing industry, as well as a section on protecting your name from people who want to pirate it. Part IV explores things you'll need to know if you're a group. Part V deals with concerts and touring, including agreements for personal appearances, and the role of your various team members in the process. Part VI, on merchandising, tells you how to profit from plastering your face on posters, T-shirts, and other junk. Parts VII and VIII explore classical music and motion pictures. They're the last sections because you need to understand all the other concepts before we can tackle them. Now, to choosing your adventure. You have four mouth-watering ways to go through this book: 1. EXTREMELY FAST TRACK If you really want a quick trip, then: (a) Read Part I, on how to pick a team of advisors; (b) Get people who know what they're doing; (c) Let them do it; (d) Put this book on your shelf to impress your friends; and (e) Say "Hi" to me backstage at one of your concerts. 2. FAST TRACK Short of this radical approach, if you want a broad-strokes overview of the business, without much detail, skip ahead each time you see the FAST TRACK directions. 3. ADVANCED OVERVIEW If you want a more in-depth look, but less than the full shot, then follow the ADVANCED OVERVIEW directions. This will give you a solid overview, plus some detail on each topic. 4. EXPERT TRACK For you high achievers who want an in-depth discussion, simply read straight through. Feel free to mix and match any of these tracks. If a particular topic grabs your interest, keep reading and check out the details. (Amazingly, topics that grab your interest tend to be things currently happening in your life.) If another topic is a yawn, Fast Track through it. So let's get going. Everybody starts with Part I. Excerpted from All You Need to Know about the Music Business: Eleventh Edition by Donald S. Passman All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.
