Music management agreement: the importance and legal aspects Rūta Pumputienė Senior Associate, Head of the Life Sciences, Entertainment & Commercial sub-group Jurgita Randakevičiūtė Junior Associate, IP, Media & Privacy sub-group Picture by Darius Grazys www.grazys.com Rūta Pumputienė and Jurgita Randakevičiūtė of LAWIN participated in Vilnius Music Week 2012, and presented the topic to professionals from music industry during the special seminar. Nowadays in order to be successful within the competitive environment of entertainment business, an artist must be able to combine his artistic aspirations with business affairs of music industry. However, a large proportion of artists wish to focus only on the creative side of their careers, such as composing new songs, recording them and performing at concerts. Therefore, a manager who is experienced in the music industry and understands how to negotiate deals is appointed to look after the business side of the artist’s career and ensure that the artist’s activities would be financially successful. Consequently, music management agreements have become a common practice in many countries, including Lithuania. The importance of the music management agreement A music management agreement is a document that sets down in detail the main guidelines governing business and legal aspects of the relationship between the artist and the manager. It is one of the most important documents of artist’s career because by signing the agreement an artist is permitting someone else to represent him in a number of matters affecting his career and committing himself paying that person for that. Furthermore, under this agreement the artist undertakes to participate in all the engagements made on his behalf by the LAWIN publication. September 6, 2012 1 www.lawin.com manager while the manager commits himself to act at the artist’s best advantage. This presupposes that the relationship between the artist and the manager is a personal one. Hence, the highest level of care should be taken while negotiating, drafting and performing the management agreement. It should be noted that there is no legislation in a number of countries, including Lithuania, prescribing any specific requirements for music management agreements. Hence, in Lithuania only the general provisions of the Civil Code of the Republic of Lithuania (CC) on obligations and contracts apply to these agreements and a large part of their content is subject to mutual consent of the parties as long as it does not contradict the imperative norms of law. Nevertheless, there are several aspects in respect to music management agreements that should be taken into consideration. The form of the music management agreement Although, legal regulation in many countries does not prescribe the exact form of the music management agreements, it is advisable that a written agreement would exist. However, most artists at the beginning of their careers are reluctant to enter into discussions with a manager about any formalities, including the terms of the management agreement, and are afraid of making a long-term commitment. Likewise, a part of managers are hesitant during the early stages to ask an artist to sign a management agreement for fear of giving the 1 wrong signals . Usually the form of the agreement is not an issue when things are going well. However, when problems arise it can become stressful and expensive to resolve the dispute without a written agreement setting out precisely what terms were originally agreed between the parties. That is why, once an artist has decided to work with a manager, it is recommended to conclude a written management agreement. The pre-contractual stage Since the terms and conditions of this agreement are subject to negotiation, the parties are able to agree over the desirable provisions governing the business and legal aspects of their relationship. Pre contractual period is the best time to discuss what parties expect from each other. Due to the personal nature of the management relationship, before entering into management agreement the parties should thoroughly discuss the conditions of their cooperation and also act in good faith (Art. 6.163 of CC). In regard to the fact that this agreement is governing a highly personal relationship, at this stage major responsibility rests on the legal adviser. Therefore, before signing such an agreement both parties should seek an independent legal advice. The essential elements of the music management agreement Although there is no exhaustive list of elements that should be included in the management agreement, both parties should be aware that the essence of this agreement is to be found in the (i) mutual relationship of trust and confidence between the parties and (ii) good faith by both parties of the 2 management agreement . It should be noted that if the afore-specified elements stop existing then it is unlikely that the management agreement could continue to subsist. The idea that the relationship between artist and manager requires a high degree of mutual trust and confidence has been stated in several cases by the 3 courts of the United Kingdom . It is a duty upon both parties to take all the reasonable steps to ensure that other party does not lose confidence and trust of him. This means that the manager owes a fiduciary duty to act in the best interest of the artist while the artist must act in a way, which would help the manager to perform his duties appropriately. 2 1 Guide to Music Management Agreements, Lee & Thompson, 2009 LAWIN publication. September 6, 2012 Harrison, L.; Turton, J. Management Agreements in the Music Industry, 1990 // Entertainment Law Review Volume 9 3 Denmark Productions Limited v Boscobel Productions Limited [1969] 1 QB 699; O’Sullivan v Management Agency & Music Ltd [1985] QB 428 2 www.lawin.com Good faith in contract law could be defined as just and honest conduct, which should be expected of both parties in their dealings. The obligation for the parties to act in good faith cannot be abolished, nor limited. Good faith requires each party to be fair and honest both during the pre-contractual stage and while performing the agreement (Arts. 6.38, 6.163 or 6.200 of CC). Key provisions of the music management agreement Despite the fact that the parties have wide opportunities to decide upon the provisions of the music management agreement, still there are some key elements that one could expect to find in every agreement. The key provisions in any music management agreement are likely to be: 1. The duration of the agreement Due to the conflicting interests of the parties, the duration of the management agreement will be one of the most problematic questions to resolve. Usually the manager will wish for the term to be as long as possible to protect his long-term investment in the career of the artist while the artist will be seeking flexibility to withdraw from the arrangement if the relationship between him and the manager becomes complicated. There are merits to both sides of this argument and agreement must be reached to provide that both parties can find their objectives reasonably satisfied. Much will depend on the status of each party: an unknown manager will have more difficulty justifying a long-term engagement with an artist than a professional manager with an established record of achievement. Also a wellknown artist will have a greater bargaining power than a beginner. There are clearly endless variations on the topic of the duration of the management agreement that may be covered in negotiation. Normally, there is initial number of years and then options for additional years, with the parties generally having the option power. In case only the manager has the option to extend the agreement, the artist can limit the term by requiring “performance standards” whereby, for LAWIN publication. September 6, 2012 example, if the artist does not obtain a recording agreement or does not make a certain amount of money in the initial period, the manager cannot pick up an option and extend the agreement for more years. 2. The remuneration payable to the manager The amount and the forms of remuneration payable to the manager are subject to the mutual consent of the parties. Generally the manager either will be paid by way of commission or will receive a fixed retainer. Usually, the first type of remuneration is applied when the manager is working with an emerging artist, while the latter is more common when the management agreement is concluded with a wellestablished artist. The size of remuneration is subject to negotiation between the parties and could be deducted from the total income of the artist after the removal of the recording costs, tour support and other expenses or from the total “gross” earnings. The size of the remuneration may depend on the extent of the manager’s involvement, i.e. whether the manager may wish to limit his work to the business side of the artist’s career only or wish to be available to the artist day and night. In the first case the manager might be subject to lesser remuneration. Usually the income distributed to the manager must derive from the deals signed by the artist and the deals negotiated by the manager before the termination of the agreement which gave rise to a contract after the termination of the agreement. The management agreement should contain a “sunset clause” which governs the remuneration arising from the artist’s activities that occur after the termination of the agreement. Although a manager would normally wish to be paid perpetually, for example, on sales of records released during the term of the agreement, the parties could agree that the percentage is reduced after a certain number of years until the manager is no longer entitled to any commission. 3 www.lawin.com 3. The ambit of the engagement and the territory covered As it was stated before, the manager is engaged to provide his services personally. Hence, even if the management agreement is signed with a management company, in almost all cases the agreement would contain a so-called “key person” clause requiring the company to appoint a particular individual to fulfil the obligations undertaken by the company. Usually a manager wishes to be appointed as the sole and exclusive manager of a particular author/performer. However, taking into consideration the vast number of artists who aspire to be successful in the music field and the small percentage who succeed, it is clear that a manager will be unwilling to guarantee his own exclusive services. Therefore, in many countries, including Lithuania, it is common that a single manager manages few artists. “Territory” defines the proportion of the world in which the manager will represent the author/performer. Regularly managers are appointed 4 “throughout the world” . However, since a part of managers may have only expertise in their home territory, well-known artists may select local managers to represent them in specific parts of the world. 4. Obligations of the parties Due to the personal nature of a management relationship, it is difficult to be precise regarding the rights and obligations of the parties. Every artist has his own image of how a manager should work, while each manager will have different view to the various aspects of what a manager is required to do. Likewise every artist usually is a distinct personality having specific career expectations. Nevertheless, the parties should put their best effort to delineate their rights and obligations as clear as possible. (a) The manager’s services The standard provision is that a manager is obliged to use his best endeavours to promote and develop the career of the artist and to “advise and consent” the latter in all matters concerning his career. The manager will mainly be searching for contacts, finding ways to promote the artist and performing creative functions, such as, developing the image of the artist. The obligations of the manager will mostly depend at which point of the career is the artist. If the latter is a beginner, the primary task of the manager will be securing the recognition for him, while the manager’s role in relation to a recognised 5 artist will be more multi-faceted. Due to the pre-existing fiduciary relationship, the manager will have a duty of trust to look after the artist’s interests and to ensure that things are done 6 to artist’s best advantage. This means that if the artist before concluding a management agreement is not able to afford an independent legal advice, the manager should provide his client with the opportunity to receive it. In the absence of such advice, there may be a presumption of the abuse by the manager of a superior bargaining position or may lead to gross inequality of the parties (Art. 6.228 of CC). This might result in the terms and conditions of the agreement being changed or even held to be void. (b) The artist’s obligations The provisions describing artist’s responsibilities are also subject to negotiation but usually obligations should include carrying out to the best of his ability to attend all performances arranged by the manager, providing his manager with the information necessary to perform the latter’s obligations and respecting the engagements made on the artist’s behalf by the manager. In general, the artist should understand that his activities require hard work and professional approach. 5 4 Harrison, L.; Turton, J. Management Agreements in the Music Industry, 1990 // Entertainment Law Review Volume 9 LAWIN publication. September 6, 2012 6 4 Guide to Music Management Agreements, Lee & Thompson, 2009 Harrison, L.; Turton, J. Management Agreements in the Music Industry, 1990 // Entertainment Law Review Volume 9 www.lawin.com 5. Fines Since music management agreements govern a personal relationship, it cannot be enforced (Art. 6.213 of CC). This means that if the artist breaches this type of agreement it is impossible to compel the artist to continue to allow the manager to represent him. Therefore, in order to secure the interests of the parties, all management agreements have provisions indicating that in case one party terminates the agreement earlier or commits a substantial breach of the agreement the other will be entitled to a fine. agreements may vary significantly. 6. Confidentiality Usually management agreements contain a confidentiality provision which establishes that during the term of the agreement and after the termination of it the parties undertake not to reveal any confidential information, including but not limited to the information in relation with the price, the distribution of the income, the execution of the management agreement and all the other information that the manager provides the artist with during the performance of the agreement and etc. It is advisable to define the categories of the confidential information in the agreement as clearly as possible. It should be noted that revealing confidential information to the public institutions when that is prescribed by laws, to the attorneys at law and other persons, who, according to the existing laws, are obliged to keep the information secret is not considered to be a breach of the duty of confidentiality. In order to secure the interests of both parties and provide clarity to the arrangements agreed, it is advisable to conclude music management agreements in a written form. Mutual trust, confidence between the parties and good faith are the main preconditions for the validity of music management agreements. Hence, both the manager and the artist must put their best effort and cooperate while performing their obligations. Due to the fact that music management agreements govern a relationship between the artist and the manager that is of a personal nature, these agreements cannot be enforced. Conclusions Although music management agreements have become a frequent practice, there is no specific regulation governing the terms and conditions of this type of agreements. The principle of freedom of contract is applied when concluding management agreements and general provisions on obligations and contracts of the Civil Code of the Republic of Lithuania determines their content. Therefore, the terms of music management LAWIN publication. September 6, 2012 5 www.lawin.com