The Relationships Among Music Industry Players

IV Relationships between Makers of Sound Recordings and...

A. Artists

In Québec, there are only a few independent “makers” who exclusively produce sound recordings. Many are the artists themselves who, with the advent of cheap recording technology, are able to produce their own first recordings and then “shop” them to record companies (or “labels”). If an artist engenders sufficient interest at a record company, the latter often signs him or her to an exclusive recording contract, under which the record company becomes the “maker”.

In Québec, the practice of independent makers licensing the sound recordings of their artists to the “majors” has been largely replaced by the establishment by these makers of their own independent labels. These labels are active across the musical spectrum, from punk-rock to classical music.

In the rest of Canada, independent labels such as Nettwerk, Linus, Sonic Unyon and Maple Music continue to attract artists and to license their recordings to or distribute them through the “majors” (Sony BMG, Universal, Warner and EMI).

The exclusive recording services of an artist are secured by the maker for a specified number of albums. In Quebec, the average number is three (3) and the term is fixed between three and seven years. In the rest of Canada, the term is relatively open-ended, and the number of albums deliverable is higher, although it has been falling since the recording industry began its decline in 2003.

In consideration of the grant of an artist's exclusive recording services and the right to commercially exploit them, the maker agrees to pay royalties, normally based on a percentage of the Published Price to Dealers (“PPD”), a wholesale price. In Quebec, the royalty rates tend to be lower than in the rest of Canada. When the royalty basis was the retail price, a number of deductions were made: packaging, free goods, breakage, new media, etc. The move to a PPD basis has removed the makers' needs for most of these deductions, although the new media deduction is often imposed to reduce the penny royalty payable on downloads.

Most recording agreements between artists and record companies impose few obligations on the record company, other than to pay for the recording and to remit royalties. Under the ADISQ/UDA Agreement (Quebec), the record company has 15 months following execution of the recording agreement to produce a sufficient number of masters to constitute an album, failing which the artist is released from his contract.[1]

The record company's obligation to pay royalties to the artist is generally subject to recoupment by the company of the recording and video costs, so-called “tour support”, and the costs of outside publicity and promotion specialists. (The record company is normally responsible for general promotion and publicity costs: trade ads, radio tracking, etc.)

In addition to producing the sound recordings, the maker is responsible for graphic design of the packaging, manufacturing, promotion and distribution of the sound recordings.

Many smaller record labels often include the cost of pressing and manufacturing. Even after recoupment, the artist does not become the copyright owner of his sound recordings.

The Adisq/uDa Agreement stipulates certain minimum conditions which are worth noting, representing a levelling of the bargaining positions of the parties:

  • any grant specifically allocated to a recording project must be credited toward production costs;
  • master use license fees collected by the maker are deemed revenues for the purposes of recoupment (s. 8-3.04 and 3.05 – rarely applied)
  • recoupment of the company's production costs must first come out of gross profits, deemed to be no less than 20% of the wholesale price in the case of a maker who is also a record label (s. 8-2.02)

The introduction of the new rights has not given rise to a contractual practice of including for recoupment purposes royalties to which artists are entitled. Indeed, the members of ADISQ, CRIA and CIRPA have filed an undertaking with the Copyright Board not to appropriate the performer’s share of neighbouring rights royalties.

B. Authors/Composers

Makers/labels have to obtain mechanical reproduction licences from the author-composers whose musical works they intend to reproduce.

As noted above, the CMRRA has no author-composer members. All dealings with record companies are through the author's publisher. SODRAC does represent author-composers directly. The royalty rate for each mechanical reproduction is established under the ADISQ/SODRAC Agreement: http://www.adisq.com/doc/pdf/ADISQ-SODRAC-03-06.pdf. The tariff is widely applied within the Quebec industry. The practice of granting reduced rates pursuant to exclusive recording agreements (the “controlled composition clause”), prevalent in the rest of Canada and in the United States, is rare in Quebec.

However, in Quebec, makers/labels will often impose on an artist who writes his own songs the requirement that he assign to the label's affiliated publishing house the copyright in songs that are recorded under the recording agreement.

Such assignment is generally for the life of copyright throughout the world. In the rest of Canada, this practice has practically disappeared (with the exception of some very small labels).

The unequal bargaining power between new artists and their Quebec-based labels has resulted in the latter accumulating large publishing catalogues over the years. Unfortunately, many of these companies have disappeared and the catalogues are not being actively exploited.

In the past, the practice was justified by the same risk arguments used to justify recoupment practices and by the fact that radio airplay may be the only significant source of revenue with record sales being relatively low. However, the inherent risks have been significantly reduced through the advent of new funding opportunities for record production and promotion; and the advent of neighbouring rights royalties for makers removes the argument that they receive nothing from airplay of their sound recordings. It remains to be seen whether this long-standing practice in Quebec will be reversed.

C. Distributors

Since this paper was originally commissioned, Canadian Heritage has published the excellent and comprehensive paper by Larry Leblanc on the subject of Music Distribution in Canada. The reader is directed to the Department's web site where the Report may be downloaded at http://www.pch.gc.ca/pgm/fmusc-cmusf/fcm-cmf-eng.cfm

Notes:

  • [1] ADISQ/UdA Agreement http://www.adisq.com/doc/pdf/UDA-ADISQ-phono.pdf, paragraph. 8-2.02. For an excellent comparison of contractual terms and those in the ADISQ/UdA Agreement superseding them, see: http://patrimoinecanadien.gc.ca/pgm/ac-ca/pgm/pda-cpb/pubs/audio_performers/5_e.cfm

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