Contracts are the backbone of the music industry, governing collaborations and partnerships, safeguarding rights, and ensuring fair and timely compensation. Contracts are used in almost every aspect of the music business. Understanding the structure and significance of various music-related agreements, from music producer contracts to co-publishing and management agreements, is crucial for everyone in the music industry – from artists to label execs to entertainment attorneys to everyone in between. Understanding what constitutes a contract, and how they’re structured and formed, will help give you a leg up in the music industry.
Understanding Contracts
A contract, also known as an “agreement,” is a legally binding document between two or more people or entities (known as parties to the contract) that contains promises made between the parties.
The terms of a contract are spelled out in clauses, which are subsections of the agreement that generally speak to particular promises and rights under the agreement. For example, a “compensation” clause that specifies the money one party is paying to the other.
What Constitutes an Agreement?
In order for a contract to be legally binding, three elements are required:
- An offer
- Acceptance
- Consideration
An offer is a proposal for entering into an agreement. For example, if I tell you that I’ll sell you my 1961 Fender Stratocaster for $5,000, I’ve made you an offer to buy the guitar for $5,000. An offer can be conveyed verbally or in writing—though it’s always better to have it in writing.
Acceptance is agreeing to the proposed offer. This could be verbally accepting the offer, giving written acceptance, or by implication. Implied acceptance is when a party doesn’t explicitly agree to the offer, but still perform the terms of the agreement. For example, if you don’t respond to my offer to sell you the Strat but show up at my office, give me $5,000, and take the guitar, then you’ve accepted the offer.
The final element of a valid contract, consideration, is something of value that is exchanged in an agreement. It is the bargain. This could be money—like the $5,000 for the Strat—or it could also be something else of value, like performing a service. For example, imagine if I agreed to give you the Strat if you powerwashed my house. The service being performed is still something of value.
What is the form of a contract?
Contracts typically include, most if not all, of the following general sections:
- Title of agreement
- Preamble and date(s)
- Recitals (or “whereas” clauses)
- Defined Terms
- Terms and conditions: Business terms
- Terms and conditions: Boilerplate provisions
- Signatures
Title of Agreement
At the very top of every agreement, there is a title. This could be “recording agreement” or “producer agreement.” The title is simply there to enable someone who picks up the agreement to know what it is. Contrary to popular belief, in most instances, the title of the contract has no bearing on its validity or enforcement.
Preamble
Contracts tell stories between the parties. The preamble, the very first paragraph of a contract, explains who the parties are, provides their addresses and other contact information, and generally establishes the date that the contract is effective.
Recitals
Sometimes, the backstory between the parties and why they’re entering into a deal is important for understanding the agreement being made. These are typically the paragraphs that start with the phrase “whereas.”
Defined Terms
In contracts, you may notice words that are capitalized within the middle of a sentence. These are what is known as “defined terms.” It is standard for certain words or terms to be defined in an agreement, and then that capitalized term will be used throughout the remainder of the contract. For example, if someone will be providing services under the deal, instead of describing those services over and over every time they’re mentioned in the document, they might describe the services just one time in the agreement and define them by one word: “Services” with a capital “S”. Then, any time the full description of the party’s services needs to be referenced, the contract will simply use the defined term “Services” with a capital “S” as opposed to lowercase “s” services.
Terms and Conditions—Business Terms
Contracts contain “material terms” which are the most important promises made between the parties, such as the amount of money one party is paying the other, what services or rights one party is providing or granting to the other, how long the contract will last, etc. These terms are sometimes referred to as the “business terms” of the deal.
Terms and Conditions—Boilerplate Provisions
Contracts also contain “non-material terms” which deal with how the overall agreement is administered and enforced, such as how the parties formally communicate with one another, what laws govern it, how parties enforce it, etc. Non-material terms are typically contained in what are known as “boilerplate clauses.” They’re called “boilerplate” because they appear in almost every agreement. This is not to say they’re unimportant, but rather, that they're not the heart of the deal being struck between the parties.
Signatures
The signing of an agreement is sometimes referred to as the “execution” of the deal. If one party signs, the agreement would be “partially-executed.” If both parties have signed, the agreement would be “fully-executed.” In most cases, a contract is not binding until both parties have signed it.
Conclusion
Of course, there’s more to understanding music industry agreements than how they’re typically structured. But this is still an excellent place to start. For a more comprehensive look at contracts in general and how music industry deals are put together, check out the Basics of Agreements course at Creative Intell. In addition to much more detailed text instruction, the course is chock full of charts, videos, and learning checks that make contracts and contract formation easy for non-lawyers to understand.
(Disclaimer: I’m one of the music lawyers at Creative Intell who built this course).
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