Cross-Collateralization

Alright, it's time to speak to musicians about the dreaded Cross Collateralization clause. This is a clause feared by many who know what it is capable of. Many a record deal has been brought to ruin thanks to this gem of a contract.

Cross-Collateralization is a defense mechanism by record companies. It forces artists to repay the record company for any monies spent on the record with successive records. Let's break that down into a real world example. You get a record contract. Yay! Congrats. Now, for your first album the record company spends $250,000 in studio fees, distribution, advertising, etc... Your album doesn't do the greatest, and ended up only returning $150,000 to the record company. The record company isn't concerned though, because they can collect against the $100,000 deficit of the last album through the sales of the next one you make. However, lately it doesn't just stop there. The record companies have found they can do this with every media outlet you try.

In the last 10-15 years record companies have started to use this cross collateralization concept on any form of income to the artist. So, suppose you owe them $100,000 from the poor sales of the last album. Lately, they have clauses that allow them to take money from other sources of revenue for the artist. If you get a great licensing contract to put your song on a movie and get paid $150,000 for it, guess where $100,000 of that is going? Yup, to the record company.

So, musicians be very careful about what you sign and know exactly what rights you are giving up, and what revenue streams the record company can take from.

The wide world of validity

So, today I'd like to take a look at validity clauses. Validity clauses are used by lawyers to keep as much of a contract alive and well as possible. They in brief state that if one part of the contract is found to be invalid the rest of it is still valid. What this means for an artist is this: A contract can, usually, no longer be discarded just because one item in it is invalid.

This is effectively, the black knight's clause from Monty Pythons' search for the holy grail. You can chop of an arm, or a leg, and it still lives. Tis a flesh wound! (please, Monty Python, don't sue!) So, be careful when you sign a contract to remember that even if one section can be thrown out due to an invalid clause the rest of it can continue to bind you to it.

The awesome merger clause!

Alright, with my first intro blog post out of the way it's time to write about something that may actually be of interest(but it's still pretty drab material): The merger clause!

Merger clauses often start something like this, "this contract represents the whole of the agreement between the parties". You might be thinking, so what? Well, this is a very important clause. In your negotiating the contract, did you or the other person make any verbal commitments? Yes? Is it in the contract? ...No. Now you have a problem.

Merger clauses are designed to be all encompassing. They basically tell courts that everything about our deal is in this contract, and nothing outside of it is included. So, if you want to make sure you don't run into problems down the road you need to put everything discussed is in the contract. Otherwise, if a problem arises you may have a lengthy legal battle ahead of you.

And that, is what you need to know about merger clauses.

Introduction day!

It occurred to me a while ago that most people in the entertainment industry may need some help understanding some basic legal concepts. This blog was made to highlight some of those concepts, as well as discuss recent entertainment law news and its effects.

I'm utterly and completely new to this 'blogging' thing, so bear with me. I promise to try to be interesting and not fall into the pit of despair, but don't hold your breath. Much of the law is very boring, but very important.

Hopefully this will help answer some questions for those in the biz, as well as serve the purpose of some shameless self promotion. :P Stay tuned, I'll begin actually posting some material this week.