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I Want What She’s Getting – “Favored Nations” Clauses in Entertainment Contracts

The “favored nations” or “most favored nations” or “MFN” concept/clause, while not omnipresent in entertainment contracts, certainly gets its fair share of use. This post will explore the purpose and operation of FN and MFN (there is a (slight) difference!). (A note on spelling: Canadian usage prefers “favoured”, but in order to maximize our appearance in search results, this post will use the American spelling of “favored”.)

Background

Favored nations clauses are relatively simple to describe: they are a contractual commitment that no other relevant party will receive “better” (or more advantageous) terms from the party making the commitment. In the entertainment industries, they appear most often in three contexts: in music licensing arrangements; in film/TV/theatre actor deals; and in investment agreements (e.g., where an investor is providing funds for an entertainment project). The music licensing context provides perhaps the most straight-forward illustration of how a favored nations clause operates. Imagine a producer wants to license a song for use in their movie – to keep things simple, we will assume a single publisher owns all publishing rights in the composition and a single record company owns all rights in the sound recording. The license agreements that the producer enters into with the publisher and the record company will almost certainly contain a favored nations clause, which will look something like this (taken from an actual sync license!):

“no co-publisher of the Composition and no master recording owner of the Composition shall receive proportionately more favorable remuneration of any kind including, but not limited to, the Fee.  In the event that you pay our co-publisher and/or the master recording owner of the Composition a higher pro-rata fee than the Fee paid to us hereunder, you shall pay to us the difference between such higher pro-rata fee and that Fee paid to us”

In other words, if you’re paying the publisher $5,000, you can’t pay the record company $7,500 – or you can, but then you have to pay the publisher another $2,500 so that they get equal treatment. Of course, FN/MFN clauses can be much simpler (“on terms no less favorable than those accorded to any other [actor/investor]“) or much more complicated (as we’ll see below).

Favored nations clauses are particularly useful when dealing with relatively large groups of counterparties who are similarly situated – which is why they are employed so often in the actor and investor contexts. For example, when a producer is dealing with a group of actors each of whom have approximately equal screentime and bargaining power, or with investors who are all providing roughly the same amount of funds at the same time in order to finance a production. The favored nations clause offers the advantages of efficiency and protection from structural negotiating disadvantages such as lack of complete information and disparities in bargaining power. For the actor/investor, because they don’t have full knowledge of the deal terms that other actors/investors are obtaining in their negotiations with the producer, the favored nations clause offers the comfort of knowing they are being treated at least as good as (or no worse than) their peers. For the producer, offering a favored nations commitment means that they don’t have to maintain multiple sets of negotiations over the same terms (e.g., the definition of “net profits”), but rather can simply negotiate with the best-placed counterparty and then apply the agreed-upon term to all parties.

A Digression on Terminology

Earlier I mentioned a slight distinction between “favored nations” and “most favored nations” – though the distinction is not always drawn, it’s useful to highlight it; while the two terms can be (and often are) used interchangeably, they can also be used to contrast quite different situations. “Most favored nations” (or MFN) is best used to describe the treatment given to a particular individual – it is a form of protection accorded to a single counterparty, to assure them that no similarly-situated counterparty is getting a better deal than they are. “Favored nations” is best used to describe the treatment given to a group of people – it is a form of protection accorded to a set of counterparties. To illustrate: it is entirely possible/acceptable to have only one person on a production get the benefit of a “most favored nations”/MFN clause (e.g., your highest paid actor); it makes better sense to use “favored nations” when you’re describing everyone within a particular group (e.g., all of your actors are being given “favored nations” protection with respect to on-set perquisites). That being said, for the balance of this post and in order to avoid clunky repetition, I’ll use “favored nations” to cover both situations.

Two Kinds of Scope

When drafting favored nations clauses, “scope” is important – but scope in this context has two different connotations: scope as it relates to which terms of the contract the favored nations protection applies to, and scope as it relates to the class of peers or comparators against whom the favored nations protection will be measured. I’ll address both connotations in turn.

Scope re Terms

It is critical for the parties in a favored nations arrangement to specify which terms of the contract are affected by the favored nations protection. There will inevitably be tension here: the party benefiting from the favored nations protection will want to cast the scope of it as widely as possible, while the party granting the favored nations protection will want its scope to be as narrow as possible. Here is a partial list indicating how many potential aspects of an actor’s deal could be subject to favored nations protection:

  • the amount of the actor’s fixed fee for services
  • the timing of the payment of the actor’s fee
  • on-set perqs (e.g., size of dressing room, amenities in dressing room)
  • off-set perqs (e.g., invitations and travel to premieres)
  • travel arrangements (e.g., business class airfare vs economy class)
  • accommodations (e.g., size, location and amenities of hotel lodgings)
  • presence, thresholds and quantum of box office bonuses
  • presence, quantum and definition of “net profits”
  • participation in ancillary revenue streams (e.g., merchandising)
  • on-screen and paid ad credits (e.g., size, placement, prominence, duration, etc.)

As the foregoing should serve to illustrate, an open-ended commitment to “favored nations” protection can be the starting point for an awful lot of headaches down the road if the scope of its application is not spelled out. Similarly, saying something as generic as “compensation” or “credit” is subject to favored nations protection is a recipe for potential disputes.

Scope re Comparables

Consideration must also be given to which contracts will serve as the standard against which the favored nations commitment is measured. For example, is the actor being given favored nations protection as compared to all other actors on the project, or as compared to all other “above-the-line” participants on the project (e.g., what if the director gets a better definition of “net profits”) or some other sub-set of individuals? Producers may want to create different pools of comparatives so as to ensure that they don’t inadvertently accord benefits which should be reserved for a particular class of counterparties – maybe the actors playing the roles of the two lead characters have star wattage an order of magnitude brighter than anyone else on the project and so their treatment needs to be carved out of everyone else’s favored nations clause. Or, when dealing with investors, there are five investors in a film who are each investing $50,000, and then another three investors who are each investing $250,000 – the producer may want to accord each investor favored nations protection only vis-a-vis the other investors at their tier of investment.

Enforcement

Enforcing favored nations clauses is notoriously difficult: the same informational disadvantage which leads parties to want favored nations protection in the first place means that they have difficulty ever knowing whether their entitlement to protection has been triggered by someone getting a better deal. Contract provisions might also be subject to confidentiality obligations, meaning that counterparties are restricted from sharing the terms of their deal with each other (though the ability to share such information for “policing” purposes might be carved out of the confidentiality obligation). In cases where a collection account is used, examination of the entitlements of the various parties may reveal discrepancies which indicate a breach. In some circumstances, it may be that the only way to reveal the breach of a favored nations clause is to undertake an audit of the books and records of the production company, or via disclosure in the course of a lawsuit.

Conclusion

Whether favored nations provisions should be included in one or more contracts on a project will be a function of a variety of considerations: bargaining power, legal budget, number of counterparties, etc. The favored nations clause can be a useful device for both parties to a contract, though it comes weighted with risks – which can be ameliorated by careful drafting.

I Want What She’s Getting – “Favored Nations” Clauses in Entertainment Contracts

Team Dentons Wants You! (well, not you specifically, just one of the people reading this post)

The National Entertainment Group at Dentons Canada LLP is hiring a Business Affairs Coordinator (to be located in either the Toronto or Vancouver office). The Coordinator will work with the members of the entertainment law team in, among other responsibilities, drafting production contracts, preparing funding applications, and closing financing transactions. Among the requirements for the position are 5-7 years experience in the entertainment industry (with a concentration in film or television). Legal training as a lawyer, paralegal or law clerk is an asset, but is not required.

Further details about the position can be obtained by downloading this description of the opportunity: Business Affairs Coordinator. Qualified applicants should submit their cover letter and resume by email to resumes.toronto@dentons.com

Team Dentons Wants You! (well, not you specifically, just one of the people reading this post)

Netflix’s Apparent Crackdown on Geoblock Circumventers

Recent reports indicate that Netflix may be cracking down on the use of virtual private networks (VPN) and similar mechanisms to log into Netflix. While VPNs provide enhanced network security, they are commonly used by Netflix users to circumvent Netflix’s geographic restrictions (commonly known as “geoblocking”).

As savvy Netflixers know, Netflix’s library is different from one region to the next. For example, Netflix US’s library is nearly three-times larger than Netflix Canada’s. Feeling slighted, many Canadian Netflixers use a VPN to trick Netflix into thinking that they are logging in from the US, granting them access to Netflix’s US library (side note: when I discussed the VPN crackdown with a colleague her response was something to the effect of “of course you want to log into Netflix US. Netflix Canada sucks”, followed by what has become the standard “…though it has gotten better”).

Because I know you, the reader, are on the edge of your seat wondering what the legal issue is (you are, after all, reading an entertainment law blog), I will spell it out for you: licensing. Put simply, except for shows which Netflix produces itself (a small, though increasingly prominent portion of its library), Netflix must sign licensing agreements to include third party content in its libraries and these licenses are typically on a territorial basis. According to Netflix:

In general, content is bid for and licensed on a country by country basis (in some instances, licensing occurs on a regional basis as in Latin America).

In launching our service in a new international market, we must license a content portfolio for that country.

Further restrictions may be imposed by industry practices such as “windowing”, which is used by industry participants to determine how, when and to which mediums a movie is released following its theatrical run (it is beyond the scope of this post to review windowing in-depth. The New York Times has done a pretty good job of doing my work for me.

The long and short of it is that, in many cases, Netflix is only licensed to show a particular movie or television show within a particular territory, shutting out users outside of that territory. So, for example, Netflix may have acquired the rights to stream a show in the United States, but the rights to stream the same show in Canada may have been previously acquired by a different company — often a direct competitor of Netflix – so, unless Netflix is able to obtain the Canadian rights from one of its competitors, Canadian Netflix subscribers will be out of luck. Geoblocking measures are then implemented to restrict users’ access to content in territories where Netflix is not licensed to stream that particular content.

All things being equal, Netflix could pay more to license a film or television show in more territories but, according to Netflix, the service already spends upwards of $3 Billion per year on content. While Netflix had an advantage in its formative years, having moved into the streaming space earlier than most, licenses are typically granted for a fixed period, so existing licenses will need to be renegotiated, and licensing costs have increased exponentially (700% since 2011). One must also keep in mind that the content industry is fragmented, so Netflix must negotiate licenses with several different producers/distributors, and must bid against other service providers for licensing rights (which is likely to become more costly in Canada with industry heavyweights Bell and Rogers entering the streaming arena with CraveTV and shomi, respectively).

So, what about that VPN “crackdown”? While VPN providers have noted some issues accessing Netflix, Netflix has issued a statement saying “[v]irtually crossing borders to use Netflix is a violation of our terms of use because of content licensing restrictions. We employ industry standard measures to prevent this kind of use. There hasn’t been any recent changes to the Netflix VPN policy or terms of use”, so there may not in fact be a crackdown. With that said, Netflix has been the subject of lobbying efforts to enforce licensing restrictions and may face increased pressure if service providers such as Rogers, Bell or HBO (which recently started a streaming service of its own) sign exclusive licensing agreements with certain producers/distributors or for certain titles in a particular territory.

You might be wondering if using a VPN to circumvent geoblocking contravenes Canada’s Copyright Act (the Act) (you are not alone – others have asked the same question). Section 41.1 of the Act prohibits, amongst other things, circumventing “technological protection measures” (TPM) or providing a service that circumvents TPMs. The Act defines a TPM as “any effective technology, device or component that, in the ordinary course of its operation, (a) controls access to a work… and whose use is authorized by the copyright owner; or (b) restricts the doing… of any act referred to in section 3, 15 or 18 and any act for which remuneration is payable under section 19”. “Circumvent” is also defined in the Act, meaning to “descramble a scrambled work or decrypt an encrypted work” under (a) above, or to “avoid, bypass, remove, deactivate or impair [a TPM]” under (a) or (b) above.

No Canadian court has yet ruled on whether (i) geoblocking amounts to a TPM or (ii) using a VPN to circumvent geoblocking is a circumvention of a TPM.  But, TPM is defined broadly in the act, encompassing any effective technology and geoblocking is designed to control access to licensed works (in Netflix’s case, the content). VPNs, which trick Netflix into thinking a subscriber is logging in from a different location, help users avoid or bypass geoblocks. Consequently, in this writer’s opinion, a court could find that geoblocking is a TPM and that using a VPN or offering a VPN service to evade geoblocking amounts to a violation of section 41.1 of the Act,[1] meaning that the Act could be an effective tool for restricting Netflix subscribers’ ability to circumvent geoblocking.

In Australia, which has a similar clause to section 41.1 in its own copyright legislation, a parliamentary report recognized a distinction between TPMs and geoblocking. However, Australia’s legislation can be distinguished because it carves out from the definition of TPMs technology that “controls geographic market segmentation” if the work at issue is a cinematograph film.

Alternatively, our friends in the US have cast a wary eye at people who circumvent technology used to block them from accessing specific internet content. Notably, in Craigslist Inc. v. 3TAPS Inc. et al. Judge Breyer of the United States District Court, N.D. California held that using a VPN to circumvent an IP blocking mechanism violated the US Computer Fraud and Abuse Act [2] (the CFAA). (It must be noted, however, that the CFAA is not copyright legislation)

By being the first large-scale international movie and television show streaming service Netflix has been able to act with a certain level of latitude, both in negotiating licensing agreements and in enforcing its VPN policies. But for international Netflixers envious of the more extensive US library, the Wild West days where they are free to pretend they are located in the US might be nearing an end.


The author gratefully acknowledges Bob Tarantino’s comments and assistance in preparing this post.

[1] Provided that the TPM is authorized by the copyright owner.
[2] The CFAA criminalizes intentionally accessing a computer without authorization and obtaining information from that computer

Netflix’s Apparent Crackdown on Geoblock Circumventers

Permit Me to Explain – Work Permits and LMIAs for Foreign Actors

As much as we Canadians (justifiably) boast about our homegrown talent, there is no hiding the fact that to maximize the quality of our music, TV, and film we sometimes need an assist from outside our borders.  For instance, you are a producer of a multimillion dollar film shooting in Canada and want to hire a specific non-Canadian actor to play the sister of the film’s protagonist: can you simply hire the performer?  Like many legal questions, the answer is (unfortunately) “it depends.”

When attempting to determine whether an employer may hire a foreign performer, the first question to be asked is what type of performer are they?  Some categories of performers need to obtain a work permit prior to performing in Canada[1]; other categories of performers, set out in Section 186 of the Regulations to the Immigration and Refugee Protection Act (the “Regulations”), are exempt from the requirement. On June 20, 2014, amendments were made to the Regulations, which revised the list of performers in the “exempt” category.  The list of exempt non-Canadian performers includes:

  •  musicians in a band performing several tour dates in Canada;
  • guest conductors and artists performing with Canadian productions or groups for a few performances;
  • actors in foreign touring theatrical productions;
  • professional wrestlers and circus performers in foreign touring productions;
  • musicians and buskers coming to Canada to perform in festivals;
  • support crew and other workers who are integral to a live production; and
  • disc jockeys coming to Canada to work at private events, festivals, concerts and fairs.[2]

Setting aside the (puzzling) grouping of professional wrestlers with circus performers, producers and their counsel will note the continued omission of film and television actors from this list; something emphasized by section 186(g) of the Regulations which includes the wording:

A foreign national may work in Canada without a work permit as a performing artist appearing alone or in a group in an artistic performance – other than a performance that is primarily for a film production or a television or radio broadcast.[3] [Emphasis Added]

So, at this point we know that any non-Canadian actor participating in any film or TV production will be classification as a temporary foreign worker (“TFWs”) and must obtain a work permit.  The work permit allows TFWs to work in Canada to perform a specific service for a designated employer for a defined period of time.  To obtain a work permit, performers may apply at a Citizen and Immigration Canada visa office[4] or at a Canadian port of entry (in the case of citizens of contiguous states).  So, is a work permit all that is required for producers to hire a non-Canadian actor?  Yet again, the answer is “it depends.”  The producer may, in addition to obtaining a work permit for the actor, be obliged to complete a Labour Market Impact Assessment (“LMIA”).  Whether an LMIA is required is dictated by (a) whether the performance is for (i) film; or (ii) TV; and (b) whether or not the production is a Canadian co-production.

If the performer is being brought into Canada to perform in a certified Canadian co-produced film (i.e. commonly referred to as a “treaty co-production”)[5] [6], then the producer of the film is not required to complete an LMIA.  For non-Canadian performers appearing on a (a) film; or (b) TV series, that is not a Canadian co-production, then an LMIA will be required in order to determine whether a work permit will be granted (and the length of the work permit).  The LMIA is performed by Employment and Social Development Canada (“ESDC”)[7] and is meant to evaluate whether the employment of the non-Canadian performer is likely to have a positive or negative effect on the Canadian labour market.  To commence the LMIA process, the producer submits a completed LMIA[8] [9] to Service Canada.  Employers may also create an account with the TFW Web Service[10] which allows them to submit their LMIA application online and monitor its ongoing status.

When it comes to television series, the situation is less clear. There is some ambiguity in the wording on the ESDC website: the wording specifically mentions an LMIA exemption for “actors and workers on a film co-production between Canada and a foreign country”[11]; but elsewhere on the same page, reference is made to “film” and “television”, hinting that the absence of “television” in the description of the LMIA exemption indicates a deliberate intention to not include television co-productions as being eligible for the LMIA exemption.  However, producers we have spoken to have relayed that, as a practical matter, they have qualified for this LMIA exemption for Canadian co-produced television productions.  Producers seeking to utilize this exemption may wish to submit a LMIA exemption request to Service Canada who will provide the producer with an opinion as to whether they qualify.[12]

At some point along the way, the budget-conscious producer (i.e. any producer) reading this article must be wondering about costs.  The June 20, 2014 amendments previously mentioned increased the LMIA application fee from $275 to $1,000.  Despite this over 350% increase, likely of greater significance is that the June 20th amendments increased the processing time for LMIA applications.[13]  The ESDC website currently states that LMIA applications will be processed within 10 business days.  This could potentially be problematic for producers who find themselves in a situation whereby the casting of a performer takes place less than two weeks prior to that performer’s first day of principal photography.  Concern may be further magnified if the performer is needed for pre-production activities.

Apprehensive that this processing time may harm productions in Canada, in mid-July members of the film and TV community met with federal immigration Minister Chris Alexander.  It was reported that during this meeting Minister Alexander gave assurances that film and TV productions facing time constraints would receive quick and efficient services in regard to their LMIA applications.  Speaking with colleagues, and barring some initial hiccups, Mr. Alexander has seemingly been good to his word.  Despite a 10 business day processing period, those administering the LMIA application process appear cognizant of the time sensitive nature of film and TV productions.

Although there is reason to expect continued expedient LMIA application processing, producers who are required to complete an LMIA should remain mindful of the 10 business day timeline.  When completing one’s LMIA application[14] careful attention should be given to box 4 on page 3 entitled “Expected employment start date”.  Producers would be wise to give themselves flexibility.  Performers at one time not considered necessary for pre-production may later be needed prior to principal photography or perhaps shooting schedules may change such that Actor #8 is now an “SW”[15] on the Day 2 call sheet as opposed to Day 6.  As unforeseen events are inevitable during the production process, when completing box 4 producers should ensure that either (a) they are 100% certain the performer is not needed any earlier than the start day written on the LMIA; or (b) give themselves some flexibility in choosing a date in order to provide for unpredicted delays or changes in schedules.

 

Summary of Requirements for Different types of Performers

Type of Performer

Work Permit Required

LMIA Required

Actor in Film (Canadian co-production)

Yes

No

Actor in Film (Not Canadian co-production)

Yes

Yes

Actor in TV Series (Canadian co-production)

Yes

ESDC wording is unclear, but we hear they are treated like film actors

Actor in TV Series (Not Canadian co-production)

Yes

Yes

[Many thanks to articling student Ben Iscoe for his invaluable assistance in researching and writing this post.]


[1] Immigration and Refugee Protections Regulations <http://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-227/>See section 8(1) A foreign national may not enter Canada to work without first obtaining a work permit.  See also section 8(2) which states [s]ubsection (1) does not apply to a foreign national who is authorized under section 186 to work in Canada without a work permit.  Provisions of section 186 to be discussed.

[2] Employment and Social Development Canada <http://www.esdc.gc.ca/eng/jobs/foreign_workers/higher_skilled/film//index.shtml>.

[3] See Section 186(g) of the Regulation to the Immigration and Refugee Protection Act <http://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-227/>.

[4] Citizen and Immigration Canada Offices <http://www.cic.gc.ca/english/information/offices/index.asp>.

[5] A co-production appears to need Telefilm certification to qualify for the exemption.  For more information on Telefilm certification, visit “http://www.telefilm.ca/en/coproductions/coproductions/guidelines”.  Once certified, for assistance bringing performers into Canada to work on the co-production, visit “http://www.telefilm.ca/document/en/04/ProcedureImmigrationversionanglaise.pdf”.   This latter link provides helpful guidance; including offering a template letter that will may be used by Telefilm if Canadian authorities contact them to confirm information.

[6] Citizen and Immigration Canada does not define “film.”  A feature length live action production seems to be the template format, but for other formats (e.g. episodic television series, movie of the week, short film, animated film, etc.) a producer will likely have to submit a LIMA exemption request.  For information on submitting a request see “http://www.cic.gc.ca/english/work/employers/lmo-basics.asp”.

[7] Employment and Social Development Canada <http://www.esdc.gc.ca/eng/home.shtml>.

[8] The LMIA form may be found on the Employment and Social Development Canada website <http://www.servicecanada.gc.ca/eforms/forms/esdc-emp5517(2014-11-019)e.pdf>.

[9] Please note that “[e]mployers in the Film and Entertainment sector are exempt from the recruitment and advertisement requirements.”  Employment and Social Development Canada <http://www.esdc.gc.ca/eng/jobs/foreign_workers/higher_skilled/film/index.shtml>; see “Recruitment and Advertisement” tab.

[10] Employment and Social Development Canada <http://www.servicecanada.gc.ca/eforms/forms/esdc-emp5536(2014-01-003)e.pdf>.

[11] Employment and Social Development Canada <http://www.esdc.gc.ca/eng/jobs/foreign_workers/higher_skilled/film//index.shtml>.

[12] For information on submitting a request see “http://www.cic.gc.ca/english/work/employers/lmo-basics.asp”.

[13] Mas, Susana.  “Temporary Foreign Workers: Film, TV industry assured timely permits.”  CBC.ca. July 18, 2014 <http://www.cbc.ca/news/politics/temporary-foreign-workers-film-tv-industry-assured-timely-permits-1.2710488>.

[14] A link to the LMIA form may be found under footnote 8.

[15] An acronym standing for “Start Work” and indicates the performer’s first day of principal photography.

Permit Me to Explain – Work Permits and LMIAs for Foreign Actors

Ginuwine Concerns for Management Contracts

[We proudly offer a guest post authored by esteemed colleague and articling student Ben Iscoe, with an assist from yours truly. I'm proud to say that I actually knew Ginuwine's real first name before I read this article.]

Elgin Baylor Lumpkin (the performing artist better known as “Ginuwine”) is being sued by his former manager.  For those familiar with the R&B star, one could make the (terrible) pun that he is being asked to “Pony” up dough for outstanding royalties.[1]  But how did this lawsuit come about?  It is unlikely that Ginuwine and his manager entered into their artist/manager relationship with the expectation that it would culminate in litigation.  What went wrong?  Could Ginuwine have done anything differently to avoid this costly and time consuming ordeal?

Musicians, generally speaking, are not business people; they are musicians.  Elvis, “The King”, may be one of the most iconic musicians of all time, but behind the scenes Colonel Tom Parker was managing his way (in the extreme case) to half of The King’s earnings.  Was this a good deal for the King?  The answer depends on one’s point of view.   Elvis himself said “I don’t think I’d have ever been very big if it wasn’t for [Parker]” reminding one of the adage “50% of something is better than 100% of nothing.”

So how does an artist know if they are entering into a favourable, or even equitable, manager/performer relationship?  How do future Ginuwines minimize their risk of litigation or more generally, entering into an unfair agreement?  Artists spend their time composing that addicting hook coming out of the bridge; Business 101 is likely on the backburner.

Below are general guidelines for artists when contemplating whether to enter into a management agreement.  This list is not exhaustive, but merely meant to be a helpful tool and should not be interpreted as a substitute for obtaining legal advice.

1. Defining Expectations

Almost all artists will say that they want their manager to help them grow/make a livelihood performing their art.  What does this mean?  Vague terminology is a recipe for future tension.  For instance, does the artist want to handle their own merchandise or have the manager handle this?[2]  Does the artist want to plan their own tours and just have their manager shop their album?  It is impossible to include every detail, but artists should be as specific as possible to ensure that all parties are of the same understanding.  It is better to disagree on specifics up front (when there is little or no commitment) as opposed to when the relationship is long established.

2. Duration

How long do you want the artist/manager relationship to last?  It is probably advantageous for the artist to enter into a short term contract, and then renew if the manager is delivering to the artist’s satisfaction.  However, if the artist is unknown, it is unlikely that much income will be generated in the first couple of years.  Therefore, the manager will want a longer contract as they would find it unjust (and a horrendous commercial practice) to allow another manager to reap the fruits of their labour (i.e. they spend the first couple of years helping the artist establish themselves only to have another manager start collecting 20% once the artist begins generating significant revenue).

This is an area where the artist, especially an unknown artist, will have to give the manager some slack.  Whatever the case, specify a period of time.

3. Exclusivity

Does the artist expect to be the manager’s sole client?  If so, it is important to specify.  For an unknown artist, this is an unrealistic ask.  As mentioned above, it will likely be a while until an unknown artist will start to generate significant revenue.  Asking a manager to rely on a percentage of a minimal (or perhaps non-existent) income for any period of time is unreasonable.

4. Territory

Where does the manager have connections?  Are they a mover and shaker locally, but not nationally?  Perhaps they have every domestic record exec on speed dial, but have no international connections.  In a smaller market, Canada being a prime example, artists may have interests in growing outside their national borders (i.e. in the US).  In such a situation, the artist may want to be mindful to specify what areas are covered by the management agreement?  For instance, emphasize that one manager will be the artist’s exclusive representative in Canada, but not the US.

Keep in mind, people respond to incentives.  If an artist wants to penetrate the US market and their manager will not generate any revenue from the artist’s activity there, why would the manager make any efforts south of the border?  Carving up territories should be used if the artist believes that they can establish themselves in a specified market without the manager’s assistance.  This may be accomplished by either (a) the artist’s own connections to the market; or (b) another manager who will have exclusive responsibility to that other market (i.e. the artist will have multiple managers to cover multiple markets).

5. Expenses

As mentioned above (and to be reiterated throughout), a manager is unlikely to be making much money off of the artist in the artist’s early days.  Despite this lack of revenue, the manager may need to spend money to assist the artist’s career.  If the manager is going to survey a venue, s/he will need to drive to the venue and park; who should pay for their gas and parking?  If the artist is hoping to have their manager arrange a tour, the manager will likely need to call a plethora of out of town venues; who should pay for their long distance calls?

These trivial sounding expenses may rapidly culminate in a bill the artist is ill equipped to pay.  At the start of the relationship the artist and the manager should specify what expenses the artist will cover.  It is not feasible to cover all possible scenarios, but a management agreement should attempt to cover general categories (like those identified above) to avoid future disagreements.  The artist may also consider creating caps for certain categories.  For example, in a given month, if long distance costs exceed ‘x’ dollars, then additional permission from the artist is required.  It is important to consider how much discretion or oversight the parties want built into the relationship.

Whatever your arrangement, it is crucial that any expenses require receipts.

6. Compensation

The days of Colonel Parker and managers receiving 50% are over.  Seemingly, a manager’s commission floats between 15-20% of the artist’s gross income.  This may seem significant, but in the early stages of the artists career 20% of nothing is still nothing.  This number may only lead to significant income for the manager once the artist has made it big, and there is likely a direct correlation between the rise in the manager’s income and the value the manager has added to the artist’s career.

There is no reason for a manager to receive any payments upfront.  A manager’s revenue should derive from the fruits of their labour, not an artist’s vain desire to say “I have a manager.”  Artists should be mindful of indirect attempts for managers to elicit money up front.  For example, artists should be wary of the manager who has a financial interest in the studio where (a) s/he wants the artist to record their next album; or (b) have promotional photography done.  That is not to say that these facilities should never be used, but rather that artists should be cautious to ensure that the rates at which they are being charged remain competitive with the industry norm.  If in doubt, artists may be wise to use other facilities (and see if their manager maintains their interest in representation).

Compensation should also specify for what activities the manager should collect a commission.  What about merchandise?  What if the artist begins writing with or producing for other artists?  What if the artist gets into acting?  What about the artist’s pre-existing revenue streams (e.g. endorsement deals)?  Or as in the case of Ginuwine, how should royalties be determined?

7. Option/Exiting

A management agreement will likely contain a provision that allows a manager to extend the relationship.  Such a provision is somewhat standard, but the nature of the option to extend must be clearly defined.  The option should specify (a) how often the option may be extended; and (b) for how long the relationship may be extended with each option.

Conversely, the management agreement should state how either party may exit the relationship.  The desire to exit the relationship may be difficult to visualize at the time of formation; at this time the manager and the artist should be enthusiastic about one another (if not why enter such a trusting relationship).  The terms of the agreement should address what happens when this relationship is no longer harmonious, more specifically what are each parties’ obligations when either party wants to end the relationship.

What compensation will the manager be entitled to once the artist/manager relationship has concluded?  The manager will argue that a portion of the artist’s revenue received after the artist and manager have parted ways derives from the labour of the manager (e.g. the manager secured the recording contract that continues after the conclusion of the artist/manager agreement).  Consequently, the artist and manager should consider sunset provisions.  These provisions entitle the manager to a certain declining percentage of the artist’s revenue in the years following the conclusion of the contract (e.g. 15% for the first year after the conclusion of the contract; 10% in the 2nd year; 5% in the 3rd year; and no compensation going forward).

8. Power of Attorney

Does the artist want the manager to be able to sign on their behalf, or only after checking with the artist first?  Can the manager sign on the artist’s behalf when it comes to certain contracts, but not others?  Include in any management agreement a power of attorney that clearly demonstrates under what circumstances the manager may sign on the artist’s behalf.  For logistical reasons, this type of provision may prove helpful; sending an email to a manager to give them permission to sign a document on the artist’s behalf could save valuable time and money.



[1] For those unfamiliar with the R&B Star, 1996’s “Pony” was the name of arguably Ginuwine’s most well-known single.

Ginuwine Concerns for Management Contracts