29 May 2023

On 6 February 2023, the Intellectual Property Office (“IPO”) published the results of its investigation into proposals made by the Digital, Culture, Media and Sport Select Committee of the House of Commons (“the Committee”) which, if adopted, would strengthen the negotiating position of artists and musicians when dealing with record labels and rights holders.

In a report published in July 2021, the Committee recommended that the UK should introduce 1) a ‘reversion right’, which would provide a means by which the transfer of copyright returns to music creators at an agreed time-period after the contract with the rights holder has been signed and 2) a contract adjustment right, which would enable music creators to address disproportionate revenues from contractual terms.

Off the back of the Committee’s report, Kevin Brennan MP published details of a Copyright (Rights Remuneration of Musicians, Etc.) Bill (“the Bill”), which intended to give effect to the recommendations. Although the Bill was debated in parliament in December 2021, it did not proceed beyond a second reading.

In response, the government noted that the potential impact of these proposals was “uncertain and warrants further analysis”. Consequently, it instructed the IPO to conduct the research, the purpose of which is not to make recommendations for legislative reform but rather to support the government in navigating the Committee’s proposals and their implications. The report makes for interesting reading for music industry stakeholders and those advising them.

“Asymmetry” in copyright contracts

The Committee’s recommendations were borne out of a perceived asymmetry in the respective negotiating positions of artists and record labels.

As a general proposition, parties come to contractual negotiations with different goals in mind. The creator of the copyright (the musician; the writer; the artist) wishes to gain wider distribution of, and greater remuneration for, his work. The rights holder (the record label; the trade publisher; the music publisher) wishes to secure an assignment or license of copyright so that it can exploit the work and earn a profit. There are various factors at play during contractual negotiations and contracts are never negotiated in a vacuum – the respective identities and cultural capital of the negotiating parties, their finances and what is happening in the market all form part of the negotiating matrix.

The Committee sought feedback from stakeholders to inform its recommendations. For musicians (particularly emerging artists with little commercial leverage), asymmetry was said to result in disproportionately low advances, excessive contract lengths, and limited opportunity for negotiation of contractual terms. Music industry rights holders, however, said that the most difficult element of contracting is that nobody knows in advance which recordings or works will be a success. Accordingly, for the rights holders, there is a risk investment and it is this risk that underpins the negotiations. Added to that is the fact that as a rule, musical works require a degree of investment, and it is labels and music publishers who have the expertise and financial ability to get things off the ground. This means they are often in a stronger negotiating position. Contractual asymmetry is therefore to some degree inevitable.

The Committee’s proposals were intended to address the contractual concerns of musicians in particular. Although we are some way from legislative reform, it is worth considering the proposals and the industry’s response.

Rights reversion

The proposed reversion right would provide a means by which the transfer of copyright returns to music creators at an agreed time-period after the contract with the rights holder has been signed.

According to the IPO’s research, the most common manifestation of these rights is ‘use it or lose it’ clauses, which enable creators to rescind the transfer of copyright if their work is not being issued or made available to the public. Such clauses are often tied into ‘release’ clauses, which enable artists to terminate contracts if, for example, tracks are not released within a certain specified period of time. These reversion rights are fairly common.

Less common are reversion rights that are triggered after a set period of time, rather than being occasioned by a lack of activity.  This type of reversion right was included in the Bill, which provided that rights would have the potential to revert after 20 years. Such rights applies in other countries – in the United States, for example, there is a legal termination right enabling creators to enter a formal application process to rescind the transfer of copyright after 35 years. Industry professionals in the UK, however, say that such a reversion right would be problematic.

The IPO reports that record labels expressed the following concerns:

• rights reversion would have a destabilising effect on their economic modelling, which is based on a lifetime of copyright contractual terms.
• rights reversion could make the UK music market less attractive to global investors, because it would mean labels can invest less in artists, which means less hits for the artists and less jobs for others in the industry including managers, session musicians, lighting technicians and sound people.
• rights reversion would disrupt the ongoing cycle of the music ecosystem, because it would mean that they would be prevented from exploiting back catalogues and reinvesting the profits into new artists, meaning new artists would be at an inherent disadvantage.
• rights holders also fed back to the Committee that if there was a reversion of rights in the UK, such reversions would need to be paid for further down the line – this would either be through rights holders increasing the cost of their products, or by paying lower advances to music creators.

Musicians, on the other hand, submitted that rights reversion would empower them during negotiations, bring balance back by giving more power to those who created the music in the first place, and give them the ability to review their contracts. They stated that there are fundamental problems in the way music contracts work, as creators do not own their work even after advances have been recouped – one of the individuals responding to the Committee likened this to having a mortgage on a house, paying off the mortgage and then still not owning the house. Musicians also argued that the advances record companies provide simply do not justify their prolonged ownership of copyright and that there need to be some controls in place, to prevent record labels exploiting an artist 50 years after paying a £15,000 advance.

Contract adjustment

The Committee’s proposal for a right to contract adjustment is inspired by legislation that exists in several European countries. These adjustment measures tend to allow for changes to contractual arrangements when the rewards to the creators are seen to be disproportionately low in comparison to the overall revenues generated by their work. The purpose of the proposed adjustment is to provide a means of redress in situations where the terms of a contract have resulted in inequity.

In response to the Committee’s call for industry input, labels and publishers argued that there is no need to introduce contract adjustment clauses to contracts. Their position is that successful artists and songwriters tend to have strong negotiating power and ask for renegotiation as their music achieves commercial success. Most record contracts, they say, have a royalty rate in them – the higher the sales, the more royalties are concerned. As such, there is no need for contract adjustment clauses.

This is in contrast with members of the music creators’ community, who argued that such clauses would be useful, particularly since many legacy contracts have low royalty rates and long duration of terms. An example cited was an emerging artist who signs a deal for a 1% share of publishing, and then realises 10 years later that the deal was not a good one and his share should have been much higher. This divergence of opinion is not surprising.

The current position in the UK seems to be that contract adjustment is already possible but happens very rarely and generally only in the case of large artists (one example cited was Elvis’s estate). It may be that this is something that can be negotiated on a case by case basis, rather than as a result of a controversial and possibly unnecessary legislative overhaul.

What next?

It is not yet clear what will be the outcome of the Committee’s proposals. The IPO has floated the idea that if change does not take place at a legislative level, it may be possible for the music industry to implement a voluntary code of practice. Indeed, some of the major music companies have already implemented policies to ensure more contractual symmetry – for example, in 2021 Sony Music Group launched its ‘legacy uncoupled balance programme’, pledging to pay unrecouped balances to recording artists signed to the label since before 2000.

The waters continue to be murky and as yet there is no clarity from the government about how it intends to utilise the IPO’s research and whether and to what extent it intends to implement the Committee’s proposals. It is not clear from the IPO’s report that the changes are even strictly necessary. Those in the industry should nevertheless maintain a watchful eye as matters develop.

In the meantime, musicians and creators are encouraged to obtain legal advice before contracting with rights holders. This is a simple and effective way to ensure that both parties are negotiating on equal footing and to iron out any asymmetries at an early stage.

Lauren McFarlane, Associate: lmf@bto.co.uk / 0131 222 2939