Deal or No Deal ?

TO DEAL OR NOT TO DEAL: LEGAL ISSUES ARISING FROM RECORDING LABEL SIGNINGS IN NIGERIA’S ENTERTAINMENT INDUSTRY

Introduction

The creative sector in Nigeria contributed approximately N239 billion (i.e. 2.3%) of its Gross Domestic Product (GDP) in 2016[1]. The Federal Government of Nigeria (FRN) has forecasted that through the instrument of its Economic Recovery and Growth Plan (ERGP), the creative industry would be able to contribute approximately $1Billion to Nigeria’s GDP by 2020.[2] Given this huge potential, the significance of ensuring that creative minds are enabled to thrive in an environment that stimulates their creative juices for the long term benefit of society cannot be over emphasized.

The challenges that beset the creative sector in Nigeria are numerous, some of which include piracy, lack of government support, weak regulatory environment, dearth of funding and ignorance, just to mention a few. While the organized private sector and government may have initiated a number of interventions to help sanitize the industry, there is still a lot of work to be done.

Creative minds are the soul of the industry; it is thus disheartening to learn of how several talented artists have entered into contracts perceived to be unfavourable, oppressive and unfair. This must be juxtaposed against the position of producers and record labels that these artists not only entered into those contracts with their eyes open, they also fail to recognize that investments made need to be recouped and returns on them maximized. This then leads inexorably to the enquiries that this article seeks to address. What considerations should guide contracting parties when entering into binding entertainment agreements? What are the red flags? What fundamental terms should the parties look out for? When is it appropriate to just walk away? Guided by the responses to these concerns, it is hoped that all parties would be better equipped to deal seamlessly, going forward.


Legal Framework

Intangible rights in an article, a play, an engineering design, a piece of artwork, an invention, computer software or a song are generally protected by intellectual property rights laws. Owing to their intangible nature, they have proven to be more prone to theft and abuse. Thus, creators of such rights have come to require protection encapsulated in various intellectual property rights laws. The major intellectual property rights protected under our laws are:

 

  1. Patent and Designs Act CAP P2 LFN 2004 which protects inventions that show technological progress;
  2. Trademarks Act CAP T13 LFN 2004 which protects slogans, words and symbols that distinguish different brands of goods and services in the market place;
  3. Copyright Act CAP C28 LFN 2004 concerns the protection of literary works, musical works, artistic works, cinematography films, sound recordings and broadcasts.

Although, there are other intellectual property rights such as Trade Secrets and Right of Publicity that are not protected by specific local legislations such as the Uniform Trade Secrets Act which applies in the United States, they are nevertheless protectable in Nigeria. While Trade Secrets protect confidential proprietary information that belong to a business from unathorised use, the use of which accords that business a competitive edge; Right of Publicity or Image Rights preserves the right of an individual to use ones name or likeness exclusively for commercial purpose.

That being said, Nigeria is one of the signatories to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS agreement establishes the connection between international trade and intellectual property law. Being administered by the World Trade Organisation (WTO), TRIPS sets out the minimum standards that govern intellectual property issues across member states of the WTO, of which Nigeria is also a member. Article 39 of TRIPS provides specifically for the protection of trade secrets. Confidentiality and Non-Disclosure Agreements form part of the protective measures that may be adopted by trade secrets owners.

For this article, we shall focus principally on copyrights which are governed by the Copyright Act Cap C28, Laws of the Federation 2004. Where sufficient effort has been expended on making the work e.g. a musical work, and it has been reduced into a definite medium of expression, the author i.e. musical artist, should first seek protection under the Act by registering a copyright over his work preparatory to entering into contractual relations with a recording label in order to record his work for commercial purpose.


Diving straight into the “show”

Just like any other contract, an entertainment contract is a legal agreement between named parties by which an intended relationship is created and regulated. For an artist who seeks to enter into legal relations with a record company, it does help to proceed with due caution, given the uncertainties that are typically associated with musical works. For instance, a seemingly acceptable album could become totally unsought after due to changes in the mood of the public, which then affects its commercial value and success. In such circumstances, the potential for either or both parties to suffer losses becomes real.

It is no secret that the entertainment industry in Nigeria has experienced an upward surge in the last couple of years, both in terms of musical and cinematography works. Nigerian music can be heard from small bars in Kampala and Johannesburg to the large clubs in Paris, and in the heart of Manhattan. This is in no small way due to the exceptional work of pioneer artists such as Sunny Ade, Fela Anikulapo Kuti, Oliver de Coque, Onyeka Onwenu and in more recent years, Tuface (Tubaba), Don Jazzy, D’Banj but to name a few. However, at the moment, our international recognition and respect in the music world could be credited to current raves such as Davido, Wizkid, Tiwa Savage and Burnaboy.

In contrast to the stories of despair in the industry, in January 2016, a massive indicator of the phenomenal progress being made by the Nigerian Music Industry crystalized with Davido inking a deal with Sony Music Worldwide. Over the last couple of years, Davido and Whiz Kid have both received international recognition for their musical talents including Channel O Music Video Awards, MTV Africa Music Awards, BET Awards, MTV Europe Music Awards and All Africa Music Awards. This was important as it served as validation for the efforts made over the years to grow the industry in Nigeria and Africa. It also meant that one more barrier towards the worldwide domination of Afro-centric music genre had been lowered. In the not too distant future, other acts like Wizkid, Burnaboy and Mr. Eazi could hope to win similar awards and sign deals with other foreign labels, and further underscore the value to be gleaned from the Nigerian music scene.

It is no surprise, considering the continuing success of Davido and Wizkid that a lot of young men and women, mostly from modest backgrounds, are now chasing their music dreams in an attempt to, putting it colloquially, ‘blow’, and as a result, are flocking to a seemingly already saturated industry. Because of this saturation and combined with the overwhelming rate of poverty in the country, many find themselves in positions where they are forced to accept whatever terms and conditions are offered to them. This is why exploitation is so rampant in the industry.

In the same vein, the media power houses such as  record labels and producers spend millions of naira to promote these artists who, usually, have little or no vocal training and tend to be extremely rough around the edges; needing polishing. They view young music talents, and perhaps, rightly so, as their pieces of investments. These investments could either be good, in which case they make profit for the label, or bad i.e.  result in zero profits or even cost the label resources in the form of money and time. This reality underscores the importance of ensuring that both parties seek protection under the law.

The music industry is rife with tales of exploitation and conflict. In the last couple of months, we have been inundated with stories of some artistes who, in seeking to extricate themselves from unfavorable contractual situations, found themselves at loggerheads with label bosses unwilling to compromise. At the root of these issues lie feelings of exploitation and bad faith. The artists feel they have not been given a fair deal while their label executives are of the disposition that the artists have contractual obligations that just simply must be respected. This points to a climate of ignorance and misinformation where artists who don’t know any better execute agreements that aren’t in their best interests. This misinformation coupled with socio economic factors like material deprivation and a lack of appreciation for professional advice are some of the root causes of the exploitative practices we’ve heard of.

The Importance of a Good Team

As a budding artist, it would be a disservice to assume that these big names ‘made it’ relying solely on their (undeniable) talent.  A crucial component of the success story of any artist is the establishment of a good team. A structured team handles the non-creative aspects of being a star for the artist and allows him/her to maintain a level headed imaginative flow, ensuring that his career remains progressive outside the walls of his innovative sphere.

Four major kinds of representatives that are absolutely crucial to representing recording artists, performers, and songwriters in the music industry, whether they be upcoming or more mainstream artistes are personal managers, agents, creative directors, and arguably, most importantly, lawyers.

Lawyers, in this writer’s opinion, are the most important representatives because they are the ones to draft and review these record deals and incorporate the protective provisions that prevent exploitation and disenchantment.


The Almighty Contract

What is a record deal? According to Wikipedia, a record deal is a “legal agreement, that is a contract, between a record label and a recording artist (or group), where the artist makes a record (or series of records) for the label to sell and promote”.

A record label, or record company, is a brand or trademark associated with the marketing of music recordings and music videos while a recording artist is a musician who records music, or who fills in missing musical parts on a song. Examples of such are a pop music star or a rapper who has a contract with a record label.

There is probably no subject in the music industry more frequently discussed, yet more confounding, than the subject of recording deals. Recording contracts are very important because they are, perhaps, the most important singular form of protection both parties have when entering into a business relationship. If done right, they are impenetrable and offer a balanced relationship between the two parties. If done wrong, one party suffers and the relationship deteriorates in the course of time.

Although, there is no one model recording contract used by all record companies, as each company is unique in the fact that it has its own fundamental layout which is used as the basis for negotiations, the majority of record deals are structured in a standard way. They employ the same concepts, and look quite similar. This is especially true in the case of major label contracts.

Thus, there are basic elements that every recording contract should have. Although, this varies from country to country, there are several that apply across board. These are:

 

  1. Term of Contract
  2. Release Commitments
  3. Exclusivity
  4. Royalties
  5. Auditing Rights
  6. Recording Costs and Recoupment 

    1. Term of Contract

No lawyer worth his salt would advise an artist to sign a contract with an initial term exceeding one year. Typically, the length of an initial recording contract is for a period of one year. This is usually followed by a number of option periods, where the record label is within its right to renew a contract for additional time periods if she likes the work the recording artist is producing. This limitation i.e. inserting a term of one year, prevents a record label from effectively controlling the life and creative work of an artiste for an unreasonable amount of time. In Nigeria, it is not uncommon for record labels to offer more than a year’s deal. Due to very limited sources of income, artistes are usually offered a minimum of two years, with option periods to extend. Signing these types of contracts is not advisable simply because of the dynamic nature of the industry; a penniless artist could prove successful from one song and become a megastar. Consequently, it is very important for an artist to keep his options open. There are numerous cases of unscrupulous record labels using five, sometimes ten-year terms, locking their artists into long-term contracts that compromise their artists’ creative lives and financial futures. It is important, as an artiste, to be vigilant and pay proper attention to the terms of contract. Or better yet, find a competent entertainment lawyer to review it with a combing eye.

 

2. Release Commitments

If a record label fails to release a record as promised, the artiste should be able to terminate the deal, with the option to buy back the recordings, so they can be licensed to another label, or perhaps self-released. This clause is very important to protect the artiste, and prevent stagnancy. Without a release clause from the label, there will be no guarantees that the label will actually do the work to get the album produced, packaged, and adequately distributed, and also pump the necessary finance, as stated in the contract, into the artiste’s career. A typical release clause is essentially a promise from the record label that it will release at least one project, usually an album, during the first part of the contract term. If the necessary tracks required for a record have been duly prepared, and the label fails to release the record, the artiste should then be allowed to walk away from the contract. In addition, the artiste should think about negotiating a minimum marketing spend as part of the release commitment, which should include tour support. This makes the record label to be at risk financially if the investment doesn’t pan out; forcing them to actually spend money to market creativity, thus ensuring all the hard work invested by the artist pays off.


3. Exclusivity

Although, this protection usually favors the label, it is essential to be added to this article to provide an unbiased view of both sides. A typical recording contract gives a recording company the exclusive right to all of the artiste’s recorded work during the length of the contract. In other words, the artist cannot record any material for any other record company for as long as said contract is subsisting. Usually, the “exclusivity” clause in recording contracts is very broad, and gives the record company the exclusive rights to the artiste’s performances in all creative avenues, from long-form concert videos to use of their music soundtrack in films, including name ownership rights. Notwithstanding, there are labels, however, that will agree to a clause in the recording contract allowing the artist to do a specified number of ‘outside’ projects per year.

Whether an artist can get this will depend on the particular label involved, the bargaining power of the artist and the legal prowess he has backing him/her i.e. how good his lawyer is. Traditionally, the record company does not have any right to share in any of the artist’s live performance income. However, given the current state of the record business, there have been moves by major record labels to change this policy, potentially permitting the label to have a stake in their artists’ live performance/touring income, as well as merchandising income (income from the sale of t-shirts, hats etc.)


4. Royalties

In an ideal situation, where the revenue rate awarded to an artiste is indeed reasonable, it is still imperative to be wary of hidden deductions. Before paying an artist even one kobo in revenue, the record label is permitted to recoup much of its expenses through deductions. This is understandable as labels can spend as much as 100 million naira on an artist in the attempt to make him/her ‘blow’. Standard deductions include recording, video production and promotion, the cost of CD and DVD packaging, costs of adding projects to digital music sites such as Apple music and so on. However, some record labels sneak in obnoxious and enormous deductions that all but guarantee the artiste will never receive a cheque. It is important to look out for deductions based upon the record label’s general costs of doing business, for example deductions of record label owners’ salaries and benefits. Another form of obnoxious deductions are those unlimited deductions for travel, hotel stays, cars, meals and entertainment, and other costs that give the label a blank cheque and a devious record label could use these to rack up a lavish deduction at the expense of the artiste.

 

5. Auditing Rights

This is an important clause that enables the artiste to audit the record label on revenue payments. It is not uncommon for artistes to ask how they can ensure their record label is being honest about the total number of albums or tracks sold, and the total amount of money gotten from performances. Without transparency measures put in place such a candid correspondence and detailed documentation of records, the relationship between an artist and its label can quickly turn contentious. An audit provision is the best way to prevent this type of breakdown in transmission before it occurs. The typical audit clause gives the recording artist the right to hire a third party auditor to go through the books and records and make sure they’re indemnifying the artist what he or she is entitled to under the terms of the contract. Typically, the artist must pay for this type of audit. However, a well drafted audit clause should require that the record label pay for the audit if a large discrepancy is found in the course of auditing.

 

6. Recording Costs and Recoupment

This usually requires the record company to pay the monetary value of the recordings done for the label, subject to the specific limitations stipulated in the contract. Although, the record company will give an advance for the costs, it will have the right to reimburse itself out from the artiste’s royalties.

 

 6.1 Ensure the percentage rate is reasonable.

It is common knowledge that record sales are almost non-existent in Nigeria. This is because of the rampant piracy and flagrant copyright infringement that goes on in the industry. Because of this, labels are compelled to find additional ways to make more from artists in order to have a shot at making a profit.

The trend in recording contracts is what is known as the 360 deal. This is a deal that gives the label access to any income that an artist may earn while under contract and not just record sales. To find anything but a 360 deal of some type for a new artist today is very unlikely. Signing a new artiste is a gamble and because of the notoriety of piracy in the country, labels make most of their investment back through performance fees (show money) and digital sales to cover costs and make the gamble safer. Profits from these sales are then shared between the label and artiste.

Although, profit sharing rates differ wildly based upon an artiste’s past successes, there’s a general ballpark number for revenue rates that every artiste should know. A good lawyer will ensure that the intellectual property of the artiste is not underpriced or undervalued. Some record labels prey upon unsuspecting artistes by offering relatively large upfront signing bonuses, giving their artists an initial yet fleeting feeling of success. But in return, the contract gives the artist a ridiculously low revenue rate, ensuring that the label, and not the artist, will reap all the long-term rewards of artistic success.

 

Remedies open to a recording artist after execution of a recording contract

Although, this article essentially focuses on what to do before entering into a record label contract, it does not imply that those who are already contracted in unfavorable contracts have no remedy whatsoever. Let’s now examine some of the remedies available for persons who wish to escape such contracts.

  1. Damages for breach of contract

A record deal is a contract and one of the basic objects of the Law of Contract is to ensure that the expectations of the parties to the contract are safeguarded. In view of the fact that our society appreciates the prospective value to be exchanged between consenting parties as something well worth promoting, the law of contract fosters such relationships by giving parties a predictable platform for placing reliance upon and enforcing bargains.

Expectations are at the core of all contracts. Whenever two parties exchange promises, this prompts reciprocal expectations.  Where one side’s expectations are not met, contract law entitles the aggrieved party to respond in a way that, at least, conceptually, restores that party to the position he or she was before committing to the contract. The principle of law established in case law is that the aggrieved party should be placed in a position he or she would have been if the promise had been executed.

Compensating an aggrieved party for a failed expectation on a promise in an entertainment contract ordinarily involves payment of damages by the promisor which is often more significant than what reimbursing the promisee may have required. Likewise, protecting the promisee by requiring the breaching party to disgorge benefits received under a restitution analysis would usually produce a smaller recovery for the victim of a breach.  In providing an opportunity for an aggrieved promisee to recover in the broadest terms, contract law encourages wealth-producing transactions (for instance record deals) and creates a strong incentive for productive dependence on the commitments of the promisor.

Suffice it to say that in a complex credit-oriented economy such as ours, protecting the expectations of parties is a critical factor if investment capital is to be channeled towards entertainment contracts, which is a wealth-producing activity.

II. Vitiating Elements in a contract

Even after a contract has been executed between the parties, certain elements may exist in the formation of the contract, which then renders such a contract void or voidable. There are certain vitiating qualities which, if present in a contract, could operate to invalidate such a contract and then entitle the party at the receiving end to repudiate obligations undertaken.   When a contract is said to be void, it means it is lacking of any legal effect or force, and is unenforceable in the eyes of the law. On the other hand, where a contract is described as voidable, it means that the contract is ordinarily valid and binding unless avoided or declared void by a party to the contract, who, feeling aggrieved, is taking a positive step under the contract to invalidate same.

Some of the vitiating elements that may exist in a contract include fraud, mistake, lack of capacity, duress, misrepresentation, undue influence or abuse of fiduciary relationship. Where any of these vitiating elements exist in a recording contract in respect of which the recording artist is the victim, such a contract is voidable at the instance of an artist, who is then at liberty to take action to render the contractual terms unenforceable. Conversely, an artist who has been a victim may subsequently ratify such a contract by his or her conduct.

Consequently, although a valid contract may have been consummated between the parties to the contract, the features named above, could offer an aggrieved weaker party, which is typically the recording artist, a fresh vista of remediation and a second opportunity to ensure that adequate safeguards are incorporated in a recording contract of his dreams.

 

6.3         Equitable Remedies

6.3.1      Unconscionability

This is an equitable remedy open to an aggrieved party seeking redress in an imbalanced contract. An unconscionable contract is one that is unusually harsh and shocking to the conscience. It is a type of contract that leaves one party with no real, meaningful choice, usually due to major differences in bargaining power between the parties. Unconscionable contracts are very one-sided and drafted to benefit only one party; the drafting party. The basis of reliance on unconscionability in contracts is highlighted in Portman Building Society v Dusangh[3] as impropriety, unfair advantage taken of a disadvantaged position, morally culpable behavior and overreaching or oppressive result. If an artiste can successfully prove these elements are present in his situation, the court would most likely rule in his/her favour.

Where a contract does not contain a remedy clause, it could then be made voidable making use of the equitable remedies in the law. In National Commercial Bank Jamaica Limited v Stephen Hew[4], Lord Millet opined, “One of the grounds on which equity intervenes to give redress where there has been some unconscionable conduct on the part of the defendant… the doctrine involves two elements; One, there must be a relationship giving to the necessary influence and two, the influence generated by the relationship must have been abused”. This principle was reiterated in the Supreme Court case, Alhaja K.F. Ibiyeye v. A.A. Fojule & Ors[5] where it was decided that “It is not every contract that is entered into that a court of equity will carry into execution…”[6] These decisions can be relied upon by an artiste as equitable remedies where such an agreement has, unwittingly, been signed.

6.3.2      Quantum Meruit

Quantum meruit means “the amount he deserves” or “as much as he has earned”. It is an equitable remedy that is available under Nigerian law. The principle was explained in Alfotrin Ltd v. A.G, Fed[7], “The law is settled that where a plaintiff can prove the rendering of services under an unenforceable contract, the contract is admissible as evidence of the value of the services rendered and he may recover on a quantum meruit basis. Put differently, where work is done or services are rendered by the plaintiff at the request of the defendant and of which the defendant has had the benefit, the plaintiff can recover the value of the work done or services rendered on a quantum meruit. The law provides remedies for cases of unjust enrichment and thus to prevent one from retaining some benefit derived from another which it is unconscionable that he should keep. Such remedies, strictly speaking, are different from remedies in contract or tort and are recognised to fall within the common law remedy of quasi contract”[8]. In Olaopa v. O.A.U. Ile-Ife,[9]  Honourable Justice Wali reiterated that the basis for a claim of payment on a quantum meruit is a contract.[10]

By virtue of this principle, a signed artiste would be awarded monetary compensation for services rendered if the scale of remuneration was not fixed or agreed upon in the contract. The law imposes the obligation to pay a reasonable sum to the plaintiff on the basis of quantum meruit.

6.3.3    Unfair Contract Terms

“Generally, a Court of law will not interfere with terms of contract freely entered into by parties; the attitude of the courts towards contracts is that parties are bound by the terms contained in their contract agreement without any subdivision or addition. The court has no power to rewrite for them their contract. That being said, a Court of law will look into such terms if they appear unfair”.[11] There are certain voidable elements of contracts, one of which is concensus ad idem (a meeting of the minds), thus where it is shown that both parties were not operating on the same wavelength, the courts may choose not to enforce such contracts.

In determining such contracts that could be considered unfair, the principle of a contract of adhesion was stipulated by Honorable Justice Eso in Sonnar Limited v Nordwind[12], “The contracts of adhesion referred to by Mr. Mbanefo are usually contracts where the parties are not equal. They are usually contained in standard forms of contract – a ‘take it or leave it’ sort of transaction. These contracts are concentrated in relatively few hands and the terms are usually not negotiated between the parties thereto. The party with the bargaining power dictates the terms. The weaker party is presented with a form and asked to ‘sign here’. He does of course. Nothing happens until trouble arises… In England, the Law Commission has looked into the matter and taken care of it. In Gillespee Bros. and Co. Ltd v. Roy Bowles Transport Limited 1973 Q.B. 400, Lord Denning suggested the reasonableness test. An objective test of reasonableness could easily be an answer to the problem posed by contracts of the nature that imports inequality in the parties”[13].

In most cases, the label has all the cards; the recording artiste, who is the weaker party and desperate to launch himself/herself into the music world for fame and commercial success, is typically faced with the  ‘take it or leave it’ scenario described by the Honourable Justice of the Supreme Court above. Clearly, this constitutes the lot of a lot of budding artists and characterizes the relationship with their record labels. More specifically on the point, ample comfort for recording artists to escape such contracts was provided in the English contract law decision of Macauley v Schroeder Music Publishing Co Ltd[14] where a 21 year old music artiste was adjudged to have been trapped in a disproportionate record label contract or deal, and the court decided to release him from it.

 

CONCLUSION

Suffice it to mention that there is a current buzz of creative talents in the music and entertainment industry in Nigeria. Consequently, the need to enter into recording contracts would expectedly experience an upsurge. Both parties to a recording contract need to recognize the value of negotiating balanced and fair clauses that protect each other’s interests. Professional expertise in this area is readily available and the parties are well advised to take advantage of them. It serves no useful long term purpose for either party to seek to exploit the order as those scenarios merely breed distrust, discontent and ultimate termination of a relationship which may otherwise have proven considerably beneficial to all sides.

Music artists, being traditionally the weaker party, must internalize the imperative of not allowing their desperate pursuit for success get in the way of reasoned and impassioned pre-contractual negotiations leading up to contract execution. It is hoped that this piece would help provide useful guidance to recording labels, budding and more established artists as they all embark upon the honest pursuit of their dreams.

 

Written by:

Onye Rumuna & Simeon Okoduwa

REFERENCES:

[1] Culled from vanguardngr.com and assessed on 1st Nov. 2018; Excerpts of a speech made by the Vice President of the FRN at the re-launch of the Dome, an entertainment and recreational facility in Abuja.

[2] Ibid

[3] Portman Building Society v Dusangh [2000] 2 All ER (Comm) 221

[4] National Commercial Bank Jamaica Limited v Stephen Hew C.L. 1996/N-049

[5] Ibiyeye v. Fojule (2006) 3 NWLR (Pt.968) 640

[6] Ibid

[7] Alfotrin Ltd v. A.G, Fed (1996) 9 NWLR (Pt. 475) 634

[8] PER IGUH, J.S.C (P. 35 Paras. C-G)

[9] 1997, 7 NWLR (Pt. 512)

[10] PER WALI, J.S.C. (P.24, Paras. B-C)

[11] Afrotech v MIA & Sons Ltd (2000) 12 sc (Pt. 11) 1 at page 13

[12] Sonnar Limited v Nordwind, (1987) NWLR (Pt.66)520

[13] PER ESO, J.S.C (1987) NWLR (Pt.66)520

[14] Macauley v Schroeder Music Publishing Co Ltd (1974) 1 WLR 1308

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