Section V: Bluegrass as a Business

Music makes for a very complex and twisted business. There are many business entities that can make or break your career as an artist. Music licensing is an especially complex area in the age of digital media. Further, revenue streams in Bluegrass tend to be especially meager, and if you intend to make a living picking your banjo, you’ll need to pay careful attention to the business aspects.

In this section, we will cover agents, managers, promoters and the rest of the support team that can make or break a band. In addition, we will cover the revenue streams from sales of music, which are changing dramatically in the digital era.

The Business Support Team

Band Manager and Tour Manager

Once your band starts to have some success, you may want to hire a professional band manager. His primary role is to establish an overall strategy for your band… what kind of venues should you be playing and what the financial deal might be and how the risk would be shared with a particular venue. The band manager keeps a sharp eye on finances. Budgeting a touring band is not an easy task and it is very easy to spend more than you make on the road. Managers also can deal with any personnel problems that might arise with the band.

A tour or road manager may also be hired as part of the band’s support team, in addition to the band manager. The tour manager will handle all aspects of a band on tour – transportation, hotels, meals, etc., and will often accompany the band when on the road. Needless to say, as issues arise with band personnel, the tour manager is always the first one to have the bail money ready and the pot of strong coffee there in the morning.

Agents

The Agent’s job is to book the band. Period. They represent the band to all the talent buyers – promoters, club owners, festivals, etc. They will typically work 100% on commission, taking approx. 10 % of the fee (this may vary). If you are not working well over 100 dates a year, an agent probably will not take your band on – they only make money when the band is booked. Look for an agent that is well-connected in the market and one that can work easily with the band support staff /management in setting up venues that route well.

Talent buyers: Promoters and Venue Owners

A talent buyer is there for one reason – to make money. When hiring a band, there needs to be a financial return for the investment made. They will be looking for hard evidence that tickets can be sold. Whether they work directly with the band, or indirectly thru agencies, the bottom line is the fee needs to be commensurate with the likely draw.

Be prepared to make a good argument on why people in the local area of the venue will come to see your band. If your band is unknown in the area, you will probably need to take significantly less money than your set price for at least the first couple of gigs – until you can start to draw in that area.

Publicists

Publicists’ main job is to get press and TV coverage for your band. The best publicists have come from the media industry and have extensive contacts. Most of purchased marketing campaigns for professional bands are done by the record label, but if there is no label or marketing team associated with the label, the publicist can jump in and cover those bases.

Record company (A&R, promotion people, etc.)

Signing with a record label is a big deal. It is not only a reflection of the quality of music being produced by the band, but a sign that record company executives think money can be made selling the product. Very recently, revenue streams have shifted from hard media (CDs, records) and terrestrial radio to streaming and satellite radio. The label can still play a vital role for a professional band – they will typically promote the band by taking out ads (online, print, TV, etc.), manage distribution for any media and work with the touring team to set up successful tours.

Some of the smaller labels and recording studios don’t offer all these marketing and distribution services – these folks will typically record a band for a fee, and either splitting or taking no financial interest in the ongoing band / product. Pay careful attention to contracts, it is easy to sign rights away with little return to the band.

Publisher

If you or people in your band write your own songs (or even if you don’t), you should be aware of the music publication industry. These folks basically take over the ownership (or a portion of the ownership) of the songwriter portion of the copyright for your work. They then market it on your behalf, taking a sizable portion of any revenue that is generated. Many people self-publish which obviously eliminates this middle man. We will have more to say about publication of music and copyrights in the next section.

Music Licensing

Music licensing has become a critically important subject for anyone in the music business to be at least somewhat familiar with. If you are in a band, you will undoubtedly be dealing with original material – either your own or somebody else’s. Even if you don’t write any songs, you will be continually dealing with material that someone else owns. And, if you or people in your band do write songs, you’ll want to understand how to protect these songs so they can be properly monetized.

Further, if you are about to enter into a record contract, music licensing issues are even more consequential. In addition, your band may be dealing with venue owners that will tell you (for example) not to play any ASCAP music.

In the eyes of the law, all of this material – music, notes, lyrics, recordings – contains intellectual property which makes things a bit more interesting for anybody in the music business. We will cover a few basics in this section that can provide a framework for your understanding.

Obviously, nothing in this section (or book) is legal advice (as your author has no background in the law or legal matters) and it is strongly recommended that before you do anything consequential you do consult not only an attorney, but one specifically trained in entertainment industry law.

Copyrights

A copyright is a very broad concept, enshrined in US (and other countries’) law. Copyrights generally apply to many different types of works created by humans (including music). The basic idea of a copyright is to give a limited monopoly to the originator of a creative work in order to encourage people to produce more of it. US copyright law gives its owner the exclusive right to:

Reproduce the work
Distribute the work
Create derivative works
Make a public performance of the work
Publicly display the work

A copyright is granted (by the US law) the moment a particular work is fixed in a tangible medium. In the field of music, this could be writing lyrics and music on a piece of paper, or it could be the making of a recording onto tape or onto a CD of an original song. Once it is fixed in a tangible medium, you own it. Period.

Since proving ownership can be both important and difficult to do at a later time, it is strongly recommended that a songwriter take a few steps to secure that ownership. Two of the most important steps are 1) send a copy of your work (that you have encoded in a tangible medium like a CD) to the Library of Congress and 2) register with a Performing Rights Organization (PRO). We will discuss PROs in detail in the next section.

© (Circle C) and ℗ (Circle P)

Music is a bit unlike other types of copyrightable intellectual property in that there are two separate and distinct aspects that can be copyrighted. These are 1) songwriter rights (symbolized by © or “circle C”) and 2) performance and performing artists rights (symbolized by ℗ or “circle P”). It is best to think of these as two entirely separate pieces, as they are treated differently both in theory and industry practice.

Songwriter Royalties ©

As mentioned above, when a songwriter completes a song, he or she owns the copyright to it the minute it is fixed in a tangible form and the songwriter is granted a limited monopoly with respect to this work.

There is, however, one very important caveat to the limited monopoly granted by the government that applies to music: Under US law, once the ‘tangible form’ of music is put into the public domain (e.g. recorded and distributed on a CD), a mandatory license is issued to anyone wanting to use the song. The songwriter at this point cannot prevent anybody from using the song. But the good news is that the law also prescribes that the songwriter, in return for issuing this mandatory license to anyone, will be compensated for such usage. Let’s take a look at the revenue streams a songwriter can tap into.

There are five different royalty streams associated with songwriting:

Mechanical licensing: This is the compensation that anybody making a CD of your song will need to pay you, the songwriter. The statutory rate is 9.1 cents per copy of the song. It is most commonly paid thru a company called the Harry Fox Agency (described below).
Synchronization rights: If your song is synchronized with moving images (video, TV, commercials), the royalties are treated under sync rights and is entitled to compensation.
Performance rights: If your song is “performed” (e.g. broadcast, played, or otherwise consumed in a public setting), you are owed royalties under so-called performance rights. They are tracked and collected by PROs (described below).
Special use – this category includes things like Karaoke and video games.
Print – includes sheet music that is published.

Harry Fox Agency

Harry Fox Agency was designated by the National Music Publishers Association in 1927 as the organization to license, distribute and collect music royalties based on mechanical licenses. If you want to collect mechanical royalties on a song you have written (at the statutory rate of 9.1 cents per copy), you need to register with Harry Fox. If you are working with a publisher, then they will take care of this for you. Anytime a CD or record is sold with your song on it, the issuer of that CD pays Harry Fox who, in turn, pays you.

Performance Rights Organizations (PROs)

The organizations responsible for administering, collecting and tracking songwriter royalties are called Performance Rights Organizations, or PROs. There are three big ones: ASCAP, BMI and SESAC. These folks keep track of every song (in their catalog) that is played or performed in the US (and have cross relationships with PROs in other countries). They collect and allocate royalties to the songwriters (and/ or publishers if the song is owned by a publisher). If you are a songwriter, it is important that you register with one of these three so you can get paid the revenue associated with this royalty stream

Publishing houses

Many times, songwriters will work with third party publishers regarding © revenue streams. Using an agreement called a “publishing contract”, the songwriter can assign the copyright to a publishing house. The terms of such a contract vary widely, but the songwriter can receive an advance, and/or some portion of the royalty stream (once the advance is paid off). In return, the publisher markets and tracks the revenue for the song. They will deal with the PROs and Harry Fox on behalf of the songwriter.

Performance Royalties ℗ and the Master Recording

When a recording of a song is made, the studio musicians and producer use their creative talents to play and record a song. Of course, the songwriter maybe the one making the recording, but for clarity, let’s use the example where the studio musicians have not written the song. These session players and producers play a big part in making a song successful in the marketplace, and it is only fair that they are also compensated for their creative work.

Indeed, this recording process is covered by copyright law under the Circle P symbol, or ℗, and the resultant copyrightable work is often known as the Master Recording, or Master. The musicians who play on a record (and the producer) own this portion, not the songwriter. Unless of course there is a contract between these session musicians and the record company, in which case the record company might (and probably does) own the master.

These master recording ownership rights are administered differently and will constitute a revenue stream entirely different from those rights associated with songwriting. Note that if you are working with a record company, it depends strongly on what deal you’ve made with them – but in many cases, the record company owns the master and is entitled to the revenue stream coming from ℗ sources.

Tracking and distribution for sound recording licensing royalties have historically been done by record labels. When an artist enters into a contract with a record company, he or she is compensated in some form – typically 12-18% of sales (after certain expenses are deducted).

Sound Exchange

The Library of Congress has designated a company called Sound Exchange to administer the performance royalty streams (circle P or ℗) for Digital Radio sources, which include Internet Radio, Satellite Radio and Cable Radio. Note that the PROs (ASCAP, BMI and SESAC) still collect and track songwriter royalties for these digital sources. The arrangement with Sound Exchange is that the featured artist on a particular recording is paid 45% of the net royalties. Non-featured artists are paid 5% and the master recording copyright owner (typically the record label) is paid the remaining 50%. Pandora and Sirius XM are examples of companies that pass their royalty payments for performance royalty streams thru Sound Exchange.

CD Baby

CD Baby is an online distribution company that enables anyone to get a broad distribution for their music. If you are considering recording and producing your own music, CD baby would be a good place for you to start.

CD Baby started out as a way for small acts to get distribution for physical CDs. Recently, they have grown into one of the best ways to get music directly into digital distribution (such as Spotify and Apple Music / iTunes).

CD Baby also offers a complete set of trends and analytic tools so you can get effective feedback on your marketing programs. Further, if you record cover songs (i.e. material written by someone else), they will also perform all the mechanical licensing payments and paperwork for you for a small fee. It is truly a one stop shop for the small recording artist and definitely worth checking out.

Digital Music Licensing and Revenue Flow

It will be no surprise to the reader that music is increasingly consumed digitally, and that physical media such as CDs and records are disappearing at a rapid rate. Digital music is becoming increasingly important as a source of revenue for musicians and songwriters.

The graphic below from Future Music Coalition is a great summary of all the revenue streams from digital sources and illustrates how they are distributed to copyright owners. The streams in red (marked “C”) are songwriter, or © royalties and the ones in yellow (marked “SR”) are performance, or ℗ royalties.