An Interview With Donald S. Passman, Author Of Industry Bible “All You Need To Know About The Music Business”
Here long time practitioner of entertainment law and author of the well respected "All You Need To Know About The Music Industry" Donald S. Passman discusses copyright, streaming, and the state of the music industry as a whole.
Guest Post by Larry LeBlanc of Celebrity Access
Now in its ninth edition, Donald S. Passman's remarkably easy-to-read primer, “All You Need To Know About The Music Business,” continues being an essential asset for those in the music industry.
This new edition focuses on digital rights and how they’re evolving, as well as the nature of streaming deals and how they are beginning to pay off. It also addresses the potential legal fight between the Department of Justice and performing rights organizations, which could change the way performance royalties are collected in the United States.
For the past 35 years, Passman has practiced law at Gang, Tyre, Ramer & Brown in Beverly Hills. During his career there, he has represented such major acts as Adele, Janet Jackson, Green Day, Pink, Stevie Wonder, Paul Simon, Tina Turner, Quincy Jones, Mariah Carey, Don Henley, Tom Waits, Bryan Adams, Bonnie Raitt, and Randy Newman.
As well Passman has also represented publishers, record companies, managers, producers, film companies, and other significant music industry players.
Passman grew up in Dallas, Texas until his family moved to North Hollywood when he was 12. He went on to be a Phi Beta Kappa graduate of the University of Texas, and a Cum Laude graduate of Harvard Law School.
After graduation, Passman worked for a tax firm which, when he was hired, had indicated it would be expanding into entertainment. After 18 months, when the firm had still not developed that business significantly, Passman decided to join Gang, Tyre, Ramer & Brown founded in 1931.
In the late ‘80s, Passman was teaching a course on the music industry at the University Southern California Law School's Advanced Professional Program. He felt that his class notes for that year would make a good outline for a book. As well, he figured that there was a need in the market for a book on how to make it in the music business.
The result was the first version of “All You Need To Know About The Music Business” which was a solid success. Passman revises the book every three years, and total sales to date are 500,000 copies
He has also written three books of fiction, “The Visionary,” "Mirage,” and most recently, “The Amazing Harvey.”
With your first version of the book in 1991, you set out to simplify complex music industry issues?
Yes. I know my audience. I am dealing with people who don’t like to read. Musicians, in particular, are oriented toward their ears, and not their eyes. As it should be. So big print, and lots of pictures. One of the things that I can’t take credit for other than it’s a gift is that I have always in life been able to take something very complicated, and make it simple. It is just something that comes easy to me. I set out intentionally to write a very simple, easy-to-read, step-by-step guide on how to understand the (music) business. That was the goal because I thought that there was a need in the marketplace for people who don’t like business to have something they could take in small doses and understand it.
There are now foreign versions of your book?
Yes. There’s a Canadian version with (Canadian lawyer/manager) Chip Sutherland. There’s a British version which I’m now updating with Chris Organ. That lags a good 6-9 months (behind the U.S. version). There’s a German version done with a lawyer there. I have no idea if it’s any good because I can’t read German.
Is it as difficult today as ever for an emerging artist to break into the music industry?
It’s difficult for different reasons. It’s difficult because the potential pool of buyers has shrunk in the industry. So if you are dealing with the major record companies, there are only three, and obviously with some sub-labels. The good news is that there are more independents. It’s probably easier to get a break than in the past because it (the industry) has shifted. It used to be that there were six majors, and very few independents because they had been gobbled up by the majors. It’s also difficult because the industry is not doing really well. I think that we have stabilized which is good news. But deals are harder to make. You have a more corporate culture in the industry than ever before. So expect that if you are doing a substantial deal, that it has to go up to corporate executives for approval.
I’m a believer in that there aren’t any good old days. That there are difficulties at any time, and there are great positive things at all times. So yeah things are worse now in a lot of ways, but there are opportunities that didn’t exist before.
Are young artists and managers smarter about legal matters today? This is the 9th issue of your book. When you started there was no internet nor books available for researching the music industry. Today, there’s no excuse for not knowing the basic of how the music industry works. Are young artists and managers smarter with all of the resources available?
The answer is yes to both of those questions. There is far more information available to artists than there ever was in the past, and artists are smarter about their business.
Do artists take advantage of the information that is available?
A lot of them are, and a lot of them aren’t. That I think has been true since day one. The smart artists who care about their business knew enough to know they didn’t know it, and they hired somebody who did. The artists that don’t care about business, or are intimated by it, and don’t like it, if they are smart they will hire somebody to deal with it for them. Or they will just sort of meander along, and get battered as the winds of fate take them.
I’ve always felt it important for an artist to work with the same lawyer for a big bulk of their career. That is if they trust the lawyer, and they do good work. I bet there are artists that you have represented for decades.
Oh yeah, there absolutely are.
Any advice for anyone shopping for an entertainment lawyer other than reading your book.
My book does have a lot of criteria in there about what to look for (in hiring a team including a lawyer). First of all check with the references and make sure that you are talking with someone who is competent. Then once you are sure of that, and you narrow the pool, just go with who you like. Go with who you feel comfortable talking to. Someone who explains things to you in a way that you can understand them, and that isn’t going to just pat you on the head, and say, “I know what’s best. Sign here, kid.” If you are interested in business, they will explain things to you. If you aren’t interested, it doesn’t matter. You want to go with someone that you feel good about, and someone that you feel you’d feel comfortable with if you have uncomfortable questions, or if you had a difficult situation. Someone you feel that you’d be comfortable with talking with in confidence, and they would give you solid advice
Still a lawyer is not a psychiatrist.
It would be cheaper to hire a psychiatrist than most of us.
Would it be advantageous for an artist or manager to become more business savvy before hiring a lawyer in order to know what questions to ask, so they know if they are getting good advice or not?
It is. Yes, of course it is. But most artists are not going to be interested or willing to put their time or energy into that. They are artists because they are passionate about making music, and that’s where most of their time and energy is going. As it should. Most of them are either intimidated by business or have no interest in it or are bored by it, and really hate it. It’s like going to a dentist for some of them. So they are not going to take the time or energy to research and get themselves sophisticated. It’s just not who they are or what they are interested in doing. There are a few who care about business, but more of them don’t. Then they need to make sure that they have people on their team that will take good care of them and will have their back because they do understand the business. A good team member, whether a lawyer or a manager or whatever, will understand creative people’s needs too, and merge them together (with business). The favorite part of what I do is speaking both languages. I can talk to creative people, and I can talk to business people. It’s like translating from German to French. They really don’t speak the same language. That’s exactly what I enjoy about my job.
A complaint of music's legal ¬community is the lack of young talent. Is there a shortage of young lawyers coming into music?
I don’t know if there’s a shortage. I do think that the music industry doesn’t attract as many people as it did in the past. A lot of them now go to tech because that’s sexier. So I think that affects things. It also means that the people who are coming into it (the music industry) are much more passionate, and really love music. I think that there’s a pretty good crop of the next generation of lawyers that is coming through. I don’t want to sound like an old guy on a park bench, but when I was doing it when I was younger, I got extensive training. We represented record companies in those days which doesn’t happen much anymore. I was drafting a lot of contracts. I got a very intense training session, and learned the business from the nuts-and-bolts which doesn’t happen as much anymore. I don’t know how good the training is today, but I see young lawyers that I think are pretty talented. So i think that there is a good continuity in the crop that is coming along.
Would you agree that the music industry is in a significant transitional period?
Meanwhile, major and independent deals are so diverse, and many niche artists might be better off remaining unsigned. So there’s a lot of different deals, and approaches available.
Yes. Very much so. In a way it’s good news as well because if we are getting back to where smaller independents can make money with less sales, we are going to be curating and developing a lot of music that wouldn’t have had a chance in the world of everybody throwing major stuff up against the wall.
So I think in that sense it’s healthy for the business. But we are very much in a transition. It’s not at all clear what the record company of tomorrow looks like. But most likely it’s an A&R curation, and a marketing and promotion machine because artists can get distribution on their own now. But if they want to have a worldwide major career, so far nobody has done it without a record label and with their expertise, their money, and their clout.
An artist may still need a label for some aspects of their career. In the old days the majors’ importance was centered on controlling distribution and bankrolling recording and touring. That’s not true today. But they still provide marketing.
I think that’s right. And the promotion. Also all of them want to see something before they start (with an artist). All the majors do. They want to know that an artist has got a buzz going. They want to know that there is a following on social media and that the artist has already got interest in them so that they can grow it (a career) as opposed to starting at ground zero.
Years ago, labels sent A&R teams to clubs and concerts to discover new talent. Today, A&R is checking out YouTube, and the various social media sites.
Yes, that’s exactly right. The problem is that there’s so much stuff that it’s so hard to find the diamond amongst all of the junk. Yes, I think that’s right though. They definitely have scouts watching whose trending and who is starting to get some traction. But the A&R guys also still go out and listen to live music as well
An artist may have 5 to 10 million hits on YouTube, but it doesn’t mean they can sell tickets to their shows.
I think that’s right. I know exactly what you are talking about. You don’t know. Also people who are now selling arenas, in a few years they could be playing clubs.
There are now companies like BMG representing both music publishing and recording rights as well as other ancillary rights. Not necessarily attaining ownership, but certainly seeking to be in a partnership with artists and songwriters. That’s a new model for the music industry?
Yes it is. It doesn’t work for everybody, but yes, the sort of label services model which Kobalt (Kobalt Music Group) is also doing where they will do a profit share and they will put up money for marketing and recording is a new model that is very interesting, and for the right artist is very profitable.
At their core, major record deals have changed little over the years. It’s interesting that with the rise of the internet and social media that labels seek to directly oversee artist web sites and social media. Is that new?
It’s been around for 5 or 7 years. Something like that. Their argument is that they want to control the messaging and imaging and so forth. If an artist has enough clout, they can take that away from them.
Even if a label doesn’t successfully negotiate merchandising rights, they will insist on attaining the rights to merchandise at least one image of the artist.
Yes. And some times more. Certainly, at least, album cover artwork or, maybe, another image or two.
How about rights connected to wallpaper (the background on a mobile device or computer desktop)?
Sometimes. Technically, all of the deals cover it unless you exclude it in some fashion but, yeah, they want to be able to do it.
Traditionally, labels directly negotiated contracts with producers or their managers. Today, artists are more involved with those negotiations, and legal costs are the responsibility of the artist.
That’s correct. That’s been true for a long time. For awhile country was sort of holding onto the old model, but even they have gone toward the artist taking care of it.
The controlled composition clause on mechanicals—how much the company has to pay for each controlled composition–known as a 3/4 rate—has been dropped by labels in many territories, but not in the U.S.
Oh yes. That’s alive and very well, yes.
Not in Canada.
I bet that you have it for (releases) the U.S. In the U.S. we have a controlled comp clause for Canada.
For other international countries as well?
No in the other countries it’s just the customary rates.
All label contracts give artists the right to check the books but, in truth there’s no transparency. Neither artist nor managers have a clue what labels are doing with money. Labels don’t reveal their deals with Spotify or Apple. So is transparency going to be the next big issue for artists to fight for in contracts?
You know that it is. It’s a little better especially if you have some clout, but it’s still difficult. And the record labels still take monies that they try not to share with the artists, although that has gotten a bit better. Most of them have now have been shamed into sharing them in some fashion or other. But there’s not a lot of transparency about exactly how they compute the sharing.
A generation of artists grew up with record club deals where the labels received enormous advances they didn’t share, and artists got stuck with 10 LPs for a penny sales with no royalty. Today, it’s become increasingly harder for labels to hide advances from services.
Yes I agree. But they are still managing. The artist doesn’t have a contractual right to see the deal with Spotify or whatever it is that they have decided to do they do it. Most of the labels will now share what they call “breakage” meaning unrecouped advances, but it would be very difficult to find out if they (artists) are really getting everything they should be not knowing how they (the labels) computed it, and looking at all the figures, and try knowing exactly what they are supposed to get.
It will be interesting once Spotify has an IPO to see how much major labels would own of the company.
Yes. I have sort of heard ranges. It’s not gigantic.
Probably about 5% to 7%.
Something like that.
Monies that won’t go back directly to artists either.
Not even indirectly back to the artists. I don’t think that any of them are intending on sharing that. They look at that as an investment because they paid for it.
Some managers are arguing that 50% of everything be paid to the artist, not 15% or 8% of streaming income. That all digital income should be split evenly. Also if you are an act that doesn’t record anymore, and its back catalogue is valuable, it has earned the right to a greater share of income. Finally, the idea of record companies handing back copyrights to artists after a set period, rather than the traditional setup of ownership in perpetuity, is something for which artists like Billy Bragg support. Maybe, as well, label contracts should factor in success and failure.
Yes, I think that’s right. It’s just the idea of why give up an asset because20 years from now it may be valuable. Look at (American folk musician) Rodríguez and “Searching for Sugar Man.” You never know when something is going to come up.
Or Queen and “Bohemian” Rhapsody” in “Wayne’s World” (1992). Not that Queen wasn’t doing well before that. But the idea is that some random event down the road could make that valuable. So nobody wants to give up an asset.
I don’t understand recapturing of rights in the United States. Why all of the different years?
It’s a good question. We have a complete archaic system which started in 1909. Then it sort of got patch-worked forward and, finally in 1978, we moved to the concept that the rest of the world has which is life of the author plus but even since then it got amended and extended. So now we deal with termination rights for the extra 20 years that got added. So it’s interesting.
Earlier this year the Copyright Office issued a 245-page report seeking to shake up music licensing. One suggestion is extending the public performance right and sound recording to radio. That’s a right pretty well enshrined around the world, but not the United States.
Yes, it’s in virtually every industrialized country except the States where we have extremely strong radio station lobbyists
Don’t you think that there’s more pressure from labels today because they are losing revenue from physical and other sources. Or has their efforts stalled?
Who do you think has the more powerful lobby the record labels or the radio broadcasters that have stations in every city where the people elected to congress want to reach their constituents?
[In April, 2015 U.S. Congressman Jerrold Nadler and Marsha Blackburn introduced the Fair Play, Fair Pay Act of 2015 – which seeks to impose a performance right that would see artists and labels paid when their tracks are played on AM/FM radio.
Songwriters are currently paid when their tracks are broadcast on terrestrial radio, but performers are not – setting the U.S. apart from almost every country in the world. Still artists are paid when their tracks are played on personalized digital radio such as Pandora, and satellite radio such as SiriusXM.
The Fair Pay Act of 2015 seeks the establishment of a sound recording royalty for AM/FM radio, removing satellite radio’s below-market-rate exemption, and treating pre-1972 recordings with the same as those made after February of 1972.]
Broadcasters can exert grassroots pressure locally as well as pressure through a lobbying group in Washington.
Exactly. Having said that it has surprisingly taken on a little movement, but for a reason that isn’t obvious. That is it is becoming clear that the world is moving to digital and a lot, if not all of the performance money will end up digitally where there is a payment for the master recordings already built into our Copyright Act, the radio stations are saying, “Well, wait a minute. If we get a little break on digital maybe we can give you something on the terrestrial broadcasts.
Meanwhile, Pandora, which currently operates under statutory rates in the U.S. that are set by the Copyright Royalty Board, wants to be regarded in terms of being a terrestrial radio station. They would like to be from the other end of the broadcasting spectrum.
(Laughing) They would. They certainly would.
Reactions to the recent Copyright Royalty Board decision determining non-interactive streaming music rates hint at action ahead by both sides. Critics believe the rates set by the CRB do not reflect a market price for music, and will further erode the value of music. What's your take on the decision?
I’m not versed enough in the proceedings to really comment, except to say that our entire system of dealing with music rights is very out of date, and that regulated markets generally do not reflect an arm’s length deal.
[The outcome of the Copyright Tribunal decision was a 20% increase of Pandora’s ad supported stream rate from $0.0014 per non-interactive stream to $0.0017.]
I know your books well, but I was struck in reading the new version how the topography of the music industry has changed so much from when you released the first book.
Absolutely. If you look at it from a publishing standpoint when I started out mechanicals were by far the biggest publishing income. Now it’s performances. That’s mostly because of cable TV and those kinds of broadcasters. As we move into streaming, interestingly, the mechanical portion of streaming, at least in the United States, is much bigger than is the performance side of it. So there are going to be all kinds of things moving around as we head into the future.
Music publishers in America suffer from a legal framework that has prevented the creation of a stand-alone buyer-seller marketplace with mechanical and performing rights. Per capita publishing revenues are significantly lower in America than in Europe, and publishing rights are significantly undervalued compared with recording rights. This became more evident as music fans moved online, where songs are monetized at lower rates.
As a result, several American-based music publishers are taking a much more head-on role in negotiating rights in contrast to traditional collective bargaining. Does direct negotiating by music publishers not weaken the collective bargaining process?
Yes, of course it does. That is one huge issue that is going on right now which is whether or not the Department of Justice is going to allow publishers to withdraw just their digital rights from the collective bargaining.
The problem with the collective bargaining in the U.S. with ASCAP and BMI is that they are under what is known as a “consent decree,” which means that in order not to be subject to being broken up because they are monopolies or too big under the United States anti-trust laws, basically that consent decree says that you cannot refuse to give a license to someone. That wasn’t a big deal until recently because we were all within sort of a range. But what has happened in the digital age where there is no industry norm is that they could never agree on a right between the societies so they ended up going to a rate court which means a judge decides and that takes years. And the decisions have not, in the opinion of the music industry, been very favorable to the publishers. They have been more favorable to the other side, and they don’t reflect the market rate. So that’s why there’s a push by the publishers to withdraw because if they withdraw their rights they can say, “We are shutting you down. You can’t use our music unless you make a deal with us.” A very different bargaining power than the societies that say, “You can continue using our music while we argue about the rates.”
If American music publishers come to directly negotiate those rights, how does it affect the global market?
It’s a good question. Each territory is different but, in essence, the large societies that control mechanicals and performances like SACEM in France, and GEMA in Germany are making their deals with these streaming services. Those are more marketplace type deals.
The music industry is primarily set on the subscription streaming model but the public doesn’t seem to want competing music services with separate fees.
I agree. The same way that you don’t have three or four different cable companies, particularly if you are getting exactly the same thing in every place. So there will probably be one dominant player that comes through in that market. But, in the meantime, there are still competing services. You can get satellite or you can get a cable and, essentially, get the same thing. Some people have one and some people have the other. I think that there can be more than one in the marketplace. You are quite right. People won’t want to pay for more than one service.
The winner will be the service providing the most licensed and most exclusive music.
Well yes, I think that’s right. Basically, people don’t care where it comes from as long as they can get what they what.
How does the battlefield look after Apple’s three month giveaway and Spotify’s premium offer?
Spotify, of course, doesn’t have a three month limit. You can stay on their free service as long as you like. I don’t know if Apple have disclosed their numbers after the free trial period. I really don’t know what the numbers are. I think it’s a number of million of subscribers at $10 a month. That’s a business. Maybe not to Apple but to the rest of the world. Spotify is building subscription users and, at this point, it’s fairly substantial.
[Apple’s CEO, Tim Cook announced in October that the company’s streaming service had amassed 6.5 million paid subscribers and 8.5 million listeners within the three-month free trial period. It was recently confirmed that Apple now has 10 million paying subscribers although there has been no confirmation of how many subscribers are active on the platform. Spotify has an estimated 75 million active users, but only 20 million of those pay a subscription for the service.]
Still the bulk of Spotify users are not paying, and while the ad-supported freemium model may be a gateway to premium paid subscriptions, it also drags down per-user revenues.
That’s correct. But their free service is advertising supported, so they are paying something. The problem is that are about 3 to 1 free to paid which means that the dollar per subscriber you get on Spotify is substantially less than the dollar per subscribers that you get on Apple because Apple is not diluted by the much lower paying free service.
With live music becoming so important as a revenue stream for artists, I would think that they now have to really look at expense deductions by many promoters.
Oh, yeah. And you are quite right. For a touring artist, by far their biggest money is going to be coming out of touring.
A lot of money is being left on the table whether it’s with fake invoices, radio ad rebates, or rebates from ticket vendors. Little of that income will go back to a touring artist.
Unless you are a really major artist and you are in there beating the hell out of them. You are right those things don’t find their way into it.
Are these things Irv Azoff would pay attention to?
Oh yeah. Certainly. I guarantee you that the Eagles get every penny.
And even more.
And even more. Even something the promoter didn’t know that they had, yeah.
In touring internationally there are withholding taxes that many artists don’t consider until it’s too late. They should consider that a touring cost upfront.
They absolutely have to do that. If they are a major enough artist, they will have a sophisticated tax accountant that understands the different territories and can minimize the withholdings.
International touring contacts are more complicated and the type of venues, and transportation as well as withholding taxes all have to be considered.
Yes. All of those things. I don’t want to give away too many secrets to the Inland Revenue Service, let’s just say that it needs to be structured carefully and it can be complex.
You invest it very conservatively because it may have to last you the rest of your life.
Most artists don’t consider that.
Most of them don’t. The smart ones do. They have business managers that are pretty conservative. I have never wanted to take major risks with artists. I have had people come to me with all kinds of schemes, and all kinds of ways to save them money, and I never wanted to do it. I just think that it’s the wrong thing to do for an artist whose career may be limited.
Do you represent music executives as well?
I do. I have done so in my entire career in one form or the other.
What activities does that include?
Negotiating with the label for their employment contract.
Are executive contracts with labels complicated? Do they cover deal points, and participation on successful recordings?
It depends. If you are dealing with the heads of the label then no. They are usually going to be on a company incentive plan. In fact, the labels don’t want executives to have any participation in any artist (royalty) because they would be worried that they would favor those artists. So they deal with an overall plan to make the company successful. If you are dealing with A&R people, most of the companies have an A&R plan which means that they get money for the people that they bring in or the people that they A&R for. It is basically a royalty, but it’s more complicated than that. So they do have an incentive for the people that they are working on.
A George Martin clause?
(Laughing) It could be. It could be. It’s really the Snuff Garrett clause. He was the first A&R (executive) to ever want to get a royalty because he was producing records. He went in and said, “If you want to keep me, I want a royalty.” I think he want