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  Industry Profile

Industry Profile: Donald Passman

— By Larry LeBlanc

This week In the Hot Seat: Donald Passman, partner, Gang, Tyre, Ramer & Brown.

Now in its seventh edition, Donald Passman's book ďAll You Need To Know About The Music BusinessĒ (Free Press, Simon & Schuster) continues being an essential read for anyone in the music industry.

If you want to know how major and indie label deals are structured; the different types of royalties that musicians can earn; what a manager, an agent or a publisher should do, itís all in this quirky, often humorous, book.

In the late Ď80s, 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.

In 1991, the first edition of ďAll You Need To Know About The Music BusinessĒ was published. It was a wild success.

This new edition contains extensive updates since the last release in 2006, including recent developments in such issues as digital downloading, piracy, and all-encompassing 360 label deals.

For the past 35 years, Passman has practiced law with Gang, Tyre, Ramer & Brown in Beverly Hills. Founded in 1931, the firm has handled a host of show business royalty for general transactional representation.

The firm also offers counseling and representation in such areas as intellectual property, personal business, wealth transfers and real estate.

During his nearly four decade career, Passman has represented such major acts as Green Day, Pink, Tina Turner, Quincy Jones, Don Henley, Tom Waits, Bryan Adams, Bonnie Raitt, and Randy Newman.

He handled both the negotiations for Janet Jackson's switch from A&M to Virgin in 1994 as well as R.E.M.ís re-signing to Warner Bros. in 1996.

Passman, who has lectured at Harvard Law School, Yale Law School, and the University of California, Los Angeles, has also represented publishers, record companies, managers, producers, film companies, and other significant music industry players. All of these experiences have pointedly helped to inform his music industry handbook which he revises every three years.

Passman grew up in Dallas 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.

While he knew he wanted to be an attorney, Passman didn't realize that there was even such a thing as a music attorney until his first year at law school. He loved music, and he had always been around music. He played in bands, and his stepfather was a DJ.

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 make a change. He joined Gang, Tyre, Ramer & Brown.

One of his first case files was unrelated to music, however. His senior partner, Martin Gang represented actress Elizabeth Taylor, and he sent Passman to Switzerland to handle her divorce from Richard Burton.

Passman has also written two thriller mysteries, ďThe Visionary" and "Mirage," both published by Warner Books.

Did you ever think youíd have a seventh edition of the book?

When I first wrote the book, I had no idea. I certainly had hoped so. But I wanted to do a book even if it was only one edition. It has worked out really well.

Thereís certainly been some big changes in the music industry in the past decade.

Oh man, (with) this last edition, I had to make enormous changes. It was probably the most (changes) that I have ever made. I do the books every three years. I am now updating the UK version of the book. Itís the same book with UK sections. I have a couple of lawyers over there who help me keep up.

EMI faces being taken over by its bankers after failing to do a deal to sell the North American distribution rights for its artists to Universal Music Group or Sony Music. Any thoughts on EMIís future?

I really donít know. I would be surprised if it isnít sold or merged with Warners. EMI Publishing is doing fine, but their house is built on the boat that is floating the record company.

Besides the majors being hurt by downloading on the internet in the past decade, they lost such marketing tools as radio and TV, and their dominance at retail has been diminished. They donít have the clout they once had.

They certainly are not the gatekeepers that they once were. Originally, the record companies were the only way you could get into retail with any prominenceóor at all. They were also the only way to get on radio with (the help of) a lot of independent promotion money and, as well as with, their relationships. It wasnít even just the money. If you funded (a recording) yourself, you still needed the record companiesí clout, threats and things like that to get on the radio.

Now anybody can get their music out there. Itís not that difficult. And radio has become a very narrow channel so that you donít have that much chance to get on radio no matter who you are.

But the problem is that every artist can now get their music out there. I think there are what 7 million bands on MySpace? So that means 7 million bands can do it. How do you break through the noise? The record companies are morphing into marketing machines--to help get your music above the crowd.

Artist managers have expanded into marketing as well.

Oh, I think thatís right. ďEntertainment companiesĒówhatever that means in the futureóis the way the business is going, whether (marketing) comes from the record label side, the manager side or some convergence.

Two decades ago, labels told an artist and their manager, ďHereís your marketing plan.Ē Today, managers may have their own marketing plans that can be developed in working with labels.

I think thatís right. Certainly, the good managers are doing that. Companies have cut back so much staff that the managers have to make it up (with services). A lot of them are doing it themselves. They donít even bother with the record companies. It is a rough time for record companies, right now. For all of the obvious reasons.

Are there guarantees of marketing support anymore in a record deal, even with a major act?

No. Not really. Thatís pretty well has gone. They (labels) are so scared these days because they donít know what they are going to sell.

Are the deals coming though your office more varied today?

Yes. First of all there are few record deals because there are few players, and the companies are cutting back (on rosters). We are certainly getting into more interesting and more complex things as we deal with digital rights, streaming and artists wanting to put material on the internet. Everything is more complicated.

Have you done any recording deals directly with labels overseas?

I have done a few. An artist needs to have a lot of clout to do that in todayís world. But, yes, I have certainly done some. Usually, (with a deal) itís North America, and the rest of the world. For new artists, itís pretty hard to separate the world out unless they have done foreign first. Record companies donít want to do that. For artists with some clout, you can say, ďThis is all you are getting.Ē

Are recording contracts more complex today? Or are they the same template?

They are somewhat the same template, but with the way the business works every time something new comes along they add another 5 or 7 pages to the contract. So contracts today are longer, and there are now provisions for dealing with all of these new medias. It is trickier, and more complicated (negotiating) because we are dealing a lot of times with things that donít yet exist, and everybody is worried about being left out. It is more complex than it was. But the template is basically the same.

Well, thereís no longer charges anymore for breakage for records shipped.

No more breakage, and there are no returns on digital either.

There is more agreement today on how digital rights should be treated.

Most of the industry--not all--has moved over to a very simplified royalty structure which is the royalty rate applied against the pure wholesale price. Period. It didnít change any penny rate because when they made the switch over they just adjusted the royalty rate to come out as to the same penny. It just makes life much simpler.

Lately, 360 deals have become the norm at all major labels. They want a piece of non-recording income. How hard-nosed are they being in negotiating the 360 degree clauses?

They are being pretty hardnosed. Like anything else if an artist has enough clout you can get around it or you can get it so minimal that it doesnít mean much. But they (labels) are pretty tough about it for the simple reason that they perceive that their core business is no longer all that profitable. For them to put the kind of money into developing an artist that they need to (to be successful), they feel that they have to get other income revenue in order to justify the investment.

Does a major artist have some wiggle room in negotiations to say no to a 360 deal?

If they have enough clout, they can do it with some labels. But others will insist on something, even if itís a small taste.

Are the 360 terms for the length of the contract or are they more ongoing?

They usually end when the deal ends. Thatís true unless the company is taking active publishing rights which go on as long as the publishing deal goes on. They donít cross-collaterize (income), but they may insist that you do make a publishing deal with them the same time that you make a record deal.

A singer/songwriter signs with record company, they have to sign with the affiliated publishing company?

Thatís coming back to some degree under 360 deals.

Traditionally, recoupment provisions in record contracts had payback conditions so onerous and unfair that, in many cases, the amount owed could never be paid back. Are the clauses for recoupment today as onerous as they once were?

They are just as onerous as they once were, but the difference is that a: The companies arenít spending as much so they donít (need to) recoup as much; and, b: The records arenít selling as much. So they hardly ever recoup at all.

No artist today is sacred even if they have just sold 10 million albums.

Well, nobodyís selling 10 million anymore. If the company sells 5 million, they are dancing on the roof.

Traditionally, an artist signed with a label deal for low points, and then renegotiated after a big selling album.

That doesnít work anymore. Even if they have a successful album today, the companies are so scared that the next one isnít going to be very successful that they are much more conservative about (renegotiating).

Under reversion of copyrights, are artists more able today to get back the rights to their masters?

No. It is actually harder today than it has been because the companies are so desperate to hang onto any kind of assets that they can that reversions are very difficult to attain.

The same in publishing?

No. Publishing reversions are still pretty easy to get if a songwriter has enough clout. It is directly related to how much money they want to take from the publisher.

The controlled composition clause on mechanicalsóhow much the company has to pay for each controlled composition-- known as a 3/4 rateóhas been dropped in many territories, but not in the U.S.

In the U.S., for deals made after 1995, the controlled composition clause doesnít apply to digital. It is becoming less and less relevant as the world moves more and more toward digital. It is meaningless.

While it has become harder to get physical CDs into stores--even for the majors--at least 70% of the business of some labels is still in physical goods.

It absolutely is. But so far thereís no movement to get away from it (the controlled composition clause).

Outside North America, the mechanical rate is a percentage of wholesale. American publishers have always refused to adopt something like that. Meanwhile, the wholesale rate continues going down which affects the impact of the mechanical rate.

Exactly. Thatís all the more reason why they think they need the controlled composition clause. From the artist point of view, it absolutely should be taken out but, from the record company point of viewóas I understand their positionóas prices drop, and as mechanicals become a bigger and bigger piece of the wholesale price, they need to have some cap there.

Many in the industry are skeptical that ad-supported music services will work in any significant way. The services are still having a difficult time monetizing music to advertisers.

I personally believe in a subscription model, but I donít think that we can deliver the kind of subscription service in order to make it really work.

Subscription-based services arenít cross-platform nor convenient enough yet.

Yeah, cross platform. I have my iTunes player organized on somebody elseís server plus access to anything else that I would want. I can get that on my computer but I also can get it on my portable connected device, my stereo at home, my car and even, maybe, on an airplane. When I can get that with a (subscription service) then, I think, we will have a subscription service that people will actually pay for.

With the music industry still coming to terms with the digital world, it is hard for anyone to even start a music service other than as a niche player.

Well, I think thatís right. I think that itís getting better because the companies are feeling more pain. But, it is still tough to get anything done if you are a new company.

Meanwhile, thereís the argument that artists and labels should give music away for free, and then pick up revenue from other revenue streams.

I donít agree with that. That is essentially what is happening right now to a large degree, but I donít think that (the music industry) is ever over. I just donít think that we havenít delivered the services that people want. Technologically, I donít think we can yet, but I think that within a few years we will be able to.

At the same time itís harder to find individual titles at retail today.

Certainly, the (brick-and-mortar music) retail business is going to be extinct. It is pretty much there now. Not really but it is going to be extinct in the not so distance future. The brick-and-mortar music retailing and physical CDs. I donít think thereís any question about that. But, I donít think that the music business is going to go away. The way I understand it is that there is more music being used and consumed now than ever in history. It isnít being paid for, but itís out there and very much part of the culture.

People still like to shop though.

Thereís a generation of people that are used to shopping online. The experience of going into a record store hardly exists here (in Los Angeles). Amoeba Music is here, and itís terrific. But most retailers are cutting back floor space (for music) because they are selling less CDs which means that they even cut more floor space.

In buying or downloading music online, an emotional component is missing...

I totally get it, and I agree with you. But kids have grown up with (the attitude) you get music by trading with friends.

How do you then monetize music?

As I said, I think we have a subscription service that delivers what is perceived as value. Then we can strip the pirates.

Are most of the contract disputes that arise with a label over, ďYou blew my last record?Ē

Thatís sort of the standard argument. ďWhy didnít my record do as well as I thought it should have?Ē The other disputes center around money. Royalty audits or disputes how much money someone is getting paid on publishing.

All contracts give artists the right to check the books of a label.

Virtually every contract lets you look at their books. Even if they didnít, you could file a lawsuit and do it. The problem isnít looking at them. The problem is what does the contract say. Whether they did what they were supposed to--even if it is outrageous. An artist, if they are successful, may send in an auditor to make sure they got paid what they were supposed to be paid. There may be some areas where you will have some dispute.

There are always questions over collection of foreign income.

All of the time. You can insure (collection) in the contract but whether or not they do it is a different issue.

Labels usually have term options that they can cancel or modify a contract. Itís hard for an artist to open up a contract before it runs out.

Well, it has gotten more difficult. If you are an artist who has really exploded, and had success for a couple of albums, you are going to be able to renegotiate. You might not get what you would have got 10 years ago. You wonít, but you will certainly be able to renegotiate. If you are an artist who has had only one successful album, it is much harder (to renegotiate) because (the labels) are scared that it was a fluke. There are a lot of examples these days with artists with huge albums, and the next one sells nothing. They are very worried about things like that.

A decade ago, there were numerous high-profile joint venture deals with artists. But labels seem to have shied away from them since. Itís very difficult to get any kind of deal with a major label where they are going to take the risk, spend all the money, and get half of the assets.

I think thatís right. They (joint venture deals) are much harder to come by these days. But they are still around, if an artist has enough clout.

[While major labels may have viewed artists' imprints a decade ago as little more than as an investment in keeping a performer happy, deals were negotiated for: Shaggy's Big Yard (MCA); Busta Rhymes' Flipmode (J Records); Backstreet Boys' the Label (Interscope); DMX's Bloodline (Def Jam); Wyclef Jean's Wyclef Records (J Records); and Madonna's Maverick (Warner Bros).

The most successful joint venture artist deal has been the Maverick Records co-venture by Madonna with Time Warner in 1992.

I think thatís probably right though David Foster has a pretty successful label too. Heís done quite well with it.

[Despite a colorful two decade production and songwriting career, Canadian Foster made his mark as a bonafide industry mogul in 1994 with the founding of 143 Records, his joint venture with Time Warner. He has since discovered, developed and successfully launched the careers of the Corrs, Plus One, Kevin Sharp, Renee Olstead, Josh Groban and Michael Bublť.]

Not all artists understand the business responsibilities they have when they start their own label

It depends on how big it is. Not all of the (companies) have employees. Some are just pure A&R sources. They (the artist) just find talent and turn it over to the (bigger) label. It just depends on the size of the venture (what their responsibilities are). But, you are quite right. Itís not just a casual vanity thing to do, particularly these days.

JV deals used to be a way for the major labels to keep a major artist happy.

For the most part, the artist-driven (joint ventures) havenít worked that well. The ones that have worked are the ones driven by someone like a producer; or someone with a management or an executive (business) background who can make sure that if great records get delivered, then someone, ideally, is running the company like a business.

Many of these operate more like production deals than true joint ventures.

Exactly. JV can be a production deal, and still be a profit share. It doesnít necessarily mean how much they take out of it. Normally a production deal will be (with) a royalty, as you are suggesting, but there are others that have others things with it. I was trying to draw the distinction of whether they were really starting a label or if they were just trying to find a couple of artists.

You represented Mariah Carey when she moved her publishing catalog in 2004. When a songwriter of that stature moves their publishing, what are they generally looking for from another publisher? More aggressive working of the catalog? Wider exploitation?

Yeah, I think thatís right but at a high enough level, you are mostly dealing with a banking deal. A lot of people think that publishersóa number of themódonít do as much as they say they are going to do. But, at the highest levels (of music copyright owners) yes, they definitely want someone who will exploit and work the catalog. They are also usually looking for a large check, and for better splits. Just an overall better deal. A lot of time, they can get a fresh start with people (new publishers) who come to the party that are enthusiastic. That can be boost.

[In 2004, Mariah Carey left Sony/ATV, and signed a long-term publishing deal with Universal Music Publishing Group. The worldwide pact included 135 copyrights, including 14 of Carey's 15 No. 1 hits on the Billboard Hot 100 (her remaining No. 1 was a 1992 remake of the Jackson 5ís 1970 No. 1 hit, "I'll Be There.")]

Have you handled any deals for estate catalogs?

I havenít taken any. I have been asked to do a couple but, for various reasons, they didnít seem like a fit for what I was doing. It is a different dynamic. You are not dealing directly with the artists; you are dealing with heirs. It's just a very different dynamic. It is not something I wouldnít do if the situation was right. With the ones that I have been asked to be involved in with there were problems within the camp. Thatís primarily why I didnít do them.

Other than on net neutrality President Obama has said little about copyright.

No. I donít think that thereís much movement to do any sweeping changes in copyright at this point. We canít even get a performance right for masters done. It is just politically very difficult.

Why do you write fiction?

The same reason I do a lot of things. Compulsion. I have always loved writing. Itís a creative outlet.

You became a fiction writer late in your life.

I have been writing since I was a little kid. I put it on hold while I was building my legal career. Then I came back to it later in life. When my life was a little more settled.

Who are your favourite authors? Say in mystery.

I like James Lee Burke a lot. Heís a terrific writer. I like Michael Chabon. Heís not a mystery writer. ďThe Amazing Adventures of Kavalier & ClayĒ (an epic historical novel charting 16 years in the lives of two Jewish cousins who create a popular series of comic books in the early Ď40s) won a Pulitzer (the 2001 Pulitzer Prize for Fiction). Heís a real good writer. I also like Jeffery Deaver.

Larry LeBlanc was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, the London Times and the New York Times.

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