Recording Contract

How Kanye West's Lawsuit Against EMI Could Change the Music Industry Forever

Photo by: Joshua Sobel

Photo by: Joshua Sobel

Note: This piece was originally a guest editorial for DJBooth.

Kanye West can’t retire. His music publisher says so.

Buried in the language of an extension to his music publishing deal with EMI is this clause:

“At no time during the Term will you seek to retire as a songwriter, recording artist or producer or take any extended hiatus during which you are not actively pursuing Your musical career in the same basic manner as You have pursued such career to date.”

From the publisher’s perspective, the situation is simple: they don’t make money when West isn't working, so they had him sign a contract that says he can’t stop.

From any other perspective, this clause is outrageous, and West is using that language, together with a decades-old California law, in a pair of lawsuits that could completely change the music business.

In January, West filed suit against Roc-a-Fella Records (and affiliated labels and businesses owned by Universal Music Group), and music publisher EMI (owned by SONY/ATV Music Publishing). Both lawsuits were heavily redacted, making it difficult to understand them in detail, but it was clear there was a dispute over his rights.

We learned more about one this past Friday when text of the EMI lawsuit became public in an exhibit to a document filed with the court.

West’s lawsuit against EMI seeks to end enforcement of their rights, return copyright ownership to West, and compensate him retroactively for the money EMI earned as a result.

This is a huge case that could significantly alter how music publishers and record companies treat their songwriters and performing artists.

If there’s anything that strikes fear into the hearts of media company executives, it’s California Labor Code Section 2855. This provision limits personal services contracts under California law to seven years and is often used by actors and/or performing artists to get out of their contracts. The law is so potentially damaging that record companies and music publishers routinely include language that specifically states their agreements cannot be construed as personal services contracts under California law. Some go even further, demanding the songwriter or artist warrant and represent not only that they don’t live in California, but that they don’t intend to move there in the future.

The law results from a fight that Academy Award-winning actor Olivia de Havilland won against the Hollywood studio system that kept her under contract in the 1940s. At the time, movie studios did not hire actors on a picture-by-picture basis but signed them to long-term contracts. The studios then automatically extended the term of those contracts whenever the actor turned down a role, ensuring that they remained signed even when they weren’t working on a film. Most actors tacitly accepted the practice, but De Havilland—best known for her role as Melanie Hamilton in Gone with the Wind—fought against Warner Bros., and won, creating the “Seven Year Rule.”

That Seven Year Rule governs personal services, but not copyright ownership, and what is significant—and so potentially damaging about West’s lawsuit—is that he appears to be using the rule as a way to force the return of his copyrights.

Under Federal Law, the duration of copyright is either the life of the author plus 70 years or 95 years from publication. Under the terms of a songwriting deal, a music publisher acquires the rights to an author’s compositions (just as under a recording agreement, a record company acquires the rights to a performing artist’s master recordings). Ownership of those copyrights is vital to the publisher or label; they make their money by exploiting those rights, and their value is in part tied to the lengthy duration of copyright.

While disputes over personal services contracts can be ugly, the question of ownership rarely comes up. At issue is whether the contract remains in effect, not whether the company continues to own the artist’s creative product. The artist typically seeks only to get out of the deal, and while the company may be forced to release them, the company still keeps the copyrights.

West’s lawsuit is significant because he’s putting copyright ownership on the table. By doing so, he’s not just saying that California law means his contract ended after seven years (in 2010), but that EMI must also return his copyrights to him. 

This is an existential threat to music publishers (and record companies). If Kanye (read: Kanye's legal team) can convince the court that his argument is valid, artists could be able to use the Seven Year Rule not just to end their contracts, but to reclaim their masters and publishing. This is only the beginning of the fight, as we still don’t know about the lawsuit against his label, or how any of this will play out, but a win would be an incredible victory for songwriters and performing artists, and catastrophic for music publishers and record companies.

Kanye West doesn't shy from controversy, and by suing his label and his publisher, he’s created another. West owes his impact to that audacity and is known as one of the most important artists and producers of his generation because of it. He does things nobody else will, and if he wins this case, he’ll be known not just for changing the music, but for changing the business as well.

8 Possible Reasons Why De La Soul's Problems Are '3 Feet High And Rising'

YouTube

YouTube

Note: This piece was originally a guest editorial for DJBooth.

The members of De La Soul were on Sway In The Morning on Wednesday (February 27) to talk about the news that their seminal early records were going to hit streaming services soon.

While that sounds like great news for hip-hop fans—as well as De La Soul’s royalties—the group actually told a heartbreaking story of neglect, poor communication, bad business, and lost revenue.

"3 Feet High and Rising and all those early albums are special to us and unfortunately, the business that's behind them is horrible," Trugoy the Dove told Sway. "It's unfair."

The story is moving fast. Instagram posts from the group suggesting that they will only get 10% of the revenue prompted JAY-Z to say that, in solidarity with the group, TIDAL (the streaming service in which he is a partner) would not release the records. As of last night, many fans are calling for a boycott of Tommy Boy releases.

Tommy Boy has not responded publicly, so there is a lot we don’t know. (Note: DJBooth has reached out to Tommy Boy for comment, but as of press time has not received a response.)

Despite not being able to review the actual contract, there are some educated guesses we can make to help understand the situation. It all adds up to a huge mess, with De La Soul unable to see much (if any) of the revenue due them from finally having their early records on streaming services.

For those of you following along at home, here’s a list of issues to be aware of as the story unfolds:

1. It’s highly unlikely that any samples on their early records were cleared at the time.

Unauthorized samples were rampant in early hip-hop, and copyright law was untested as a means to stop them. Rightsholders didn’t have a clear-cut infringement case to bring to court until Biz Markie released “Alone Again” in 1989. (Coincidentally, this was the same year as De La Soul’s debut album 3 Feet High And Rising.) Until that case made it through the courts—and Biz Markie lost badly—unauthorized samples were not a huge financial risk for labels. Now they are, and labels think twice before dropping any music that hasn’t been cleared.

2. They have a crummy record deal.

This is an assumption, as I haven’t seen it, but a new hip-hop artist on an indie label in the late 1980s would not get a huge royalty. And at the time, royalty calculations were based on retail price, and so royalty rates were lower than they are now. Furthermore, record labels often used “deductions” to lower those rates further, knocking artists for “breakage” (a 10% deduction); “container charges” (another 10% - 15% deduction); and “new technology” (a deduction—sometimes higher than 15%—charged on CD royalties because they were so expensive to manufacture at the time). It is not unreasonable that the group’s royalty could be reduced to 10% without a renegotiation, something that only seems to be happening now.

3. They are unrecouped.

The group says as much in the interview, meaning that despite their success, they are not receiving royalties, as their share of record sales is being used to pay back the record company. While this is standard procedure in record deals, it can easily get out of hand.

4. Tommy Boy lost the rights to the records. 

I don’t know all the history here, but the rights to many Tommy Boy records were transferred to Warner when their joint venture ended in 2002. During this period, De La Soul’s records were in limbo, and with nobody at the helm, opportunities to make money would have been lost.

5. The records were never reissued digitally. 

Again, this comes up in the interview, and makes sense when you consider numbers 1 and 4, to say nothing of the costs required to remaster them. With their label in limbo, there would’ve been no push to release anything, and because the uncleared samples were a huge financial liability, it would’ve been prohibitively expensive to do so. At the point such reissues would’ve been discussed, no label would take the risk of releasing such classic records without clearance.

6. They remain unrecouped because there were no digital sales (and still no streaming revenue). 

Another point raised in the interview, this exposes how this chain of events so dramatically affect De La Soul’s royalties. Record companies want to own an artist’s masters because they can take advantage of the revenue stream for a long time, thereby spreading out their risk. That said, if they are not actively working that catalog, those older masters won’t generate much new income for anyone. De La Soul suffered considerably because of the limbo Tommy Boy was in. Despite having such an important back catalog, the records were effectively out of print, not generating royalties and not paying off the group’s unrecouped balance.

7. When Tommy Boy reacquired its rights, they didn’t write off any unrecouped balances.

Again, I don’t know the entire history here, but the group says that despite all the trouble they had with the label losing the catalog when Tommy Boy reacquired that catalog in 2017, they offered no relief to the artists. It was as if they just pushed pause, and after a period in which the artists were prevented from making money, hit play again and expected the artists to continue to pay back their debts as if nothing happened. In De La Soul’s case, they lost all of the years in which they could’ve been selling downloads. And because of No. 6 (see above), we can infer why this balance exists, so even with that catalog finally hitting streaming services, future revenue will only be applied in favor of recoupment. (And note that this will happen at the crummy rate we are assuming in No. 2.)

8. If the records are now going to hit streaming services, it’s safe to say the samples have been cleared.

While it’s exciting that these records can now be released without any risk of copyright infringement, that it took 30 years for them to be cleared means that Tommy Boy paid 2019 prices for the licenses, not 1989 ones. Sample clearance is treated as a recoupable cost by labels, so these licenses are part of that $2M balance the group refers to in their interview. That is a big chunk of change and will impact the group’s royalty stream for a while.

This is a perfect example of what happens in the record business when a number of events all turn against an artist. There is lots to be learned here, and we should pay attention to how it plays out. Let’s hope that De La Soul can finally get their due and reach entirely new audiences through streaming.

UPDATE: Late Thursday afternoon, Tommy Boy Records announced in a statement that they were postponing the release. The label explained that they wished to continue negotiating and that they were “hopeful for a quick resolution."

Let’s add to my list:

9. This dispute is over who owns the streaming rights.

There’s no language governing “streaming” in the group’s record contract. Streaming didn’t exist in 1989, yet the language is broad enough that Tommy Boy owns the rights anyway. Therefore Tommy Boy can argue—correctly—that De La Soul is to receive the same royalty now as they did then, that nothing has changed in their deal.

Record labels have more leverage than new artists. When you’re new, you don’t have the power to dictate terms. That’s business, and record labels use that leverage to mitigate the enormous risk they take on when signing a new artist. As that artist gains popularity, however, it becomes easier for them to renegotiate their contracts and get better terms.