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Music Attorney Don Passman on Contracts, AI and What Makes Superstars Different

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When music attorney Don Passman was starting his career five decades ago, he talked his first client out of signing a 15-year contract that would have paid her manager half her earnings. Today, that same artist could get the same career-saving advice from Passman’s revered guide, All You Need to Know About the Music Business, for just $35 retail.

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A partner at Los Angeles-based Gang, Tyre, Ramer, Brown & Passman, Inc., Passman is hesitant to discuss his high-wattage clients — he is said to represent Taylor Swift and Adele, among others — but is always eager to share the lessons he has learned from five decades of representing them. The 11th edition of All You Need to Know About the Music Business, to be released by Simon & Schuster on Oct. 24, arrives at a critical time for many musicians. Increasingly, artists are deciding to remain independent and use the high-powered tools at their disposal — everything from recording applications to digital distribution to social media apps like TikTok — to build a fan base. Both opportunity and the ability to make poor decisions have never been greater.

To Passman — who doesn’t take major record labels as clients, although his firm “occasionally” represents an independent label, he says — the proliferation of do-it-yourself marketing tools has brought equity to a business long marred by power imbalances. Unlike the early years in Passman’s career, when record labels, retailers and radio stations acted as powerful gatekeepers, today’s artists go directly to fans using digital distributors and powerful tools such as TikTok and YouTube. With such low barriers to entry, more than 100,000 tracks are uploaded to digital service providers every day. Being a professional musician is easy. Being a successful professional musician is far more difficult.

“Now the game has become [about] how do you break through the noise?” says Passman in a recent Zoom call. “The record labels have made a conscious decision to wait and see what artists can get traction on their own. And then when they get enough heat, the record company starts to chase them.”

As the tools of the trade have changed, so too has the path to success. With the exception of K-pop labels, companies rarely pluck unknown artists from obscurity and spend years developing their careers. Artists are expected to build their own careers and develop enough momentum to warrant a record label’s commitment. That often requires building a team — manager, agent, attorney and an army of consultants — and taking more of a CEO role. For a generation of aspiring artists, Passman’s advice has never been more important.

This interview has been edited and condensed for length and clarity.

In the new version of All You Need to Know About the Music Business, you write that the music business has become far more democratic since the last edition of your book. What do you mean by that?

Now it’s about how you connect with your fans. I have a section that I’ve expanded this time about how to go about doing that. Whether you want to do it yourself completely, or whether you want to go to a label, you’ve got to start a buzz on your own and you’ve got to make things happen. The companies get the same data, they’re all chasing the same artists and you’re getting bidding wars. And artists are able to get deals that in history they could have never gotten for their first record deal.

The downside is that you get people who have a billion streams but have never played in front of a live audience. I’m exaggerating, but they don’t have years on the road of developing their chops and don’t have a show. Maybe they’ve only got a few songs. If you look at the statistics from Billboard, there are less new artists in the top 100 over the last few years. It’s been declining. And there’s a concern that we’re in we’re in the hip-building business rather than the career-building business and no one’s quite sure why or what to do about it other than feed the short attention span and the virality of some of these things. But it’s challenging in that sense to build a long-term career.

From where you sit as an attorney, are things working out for these artists that have some do-it-yourself success and then get signed? How’s that next step going for them?

The reality is I don’t do a lot of those kinds of deals, just because we’re a small firm and I don’t take a lot of business. And so, I don’t take as many shots with brand new artists. I do here and there, but not a lot.

It also depends on the smartness of your manager and the innate talent of the artists to follow it up. But the ones that are real artists, and the ones that are well managed, can launch a good career off of it. The ones that are one-shot wonders don’t do so well. They can’t follow it up. I don’t know what the statistics are on the ones that get these massive deals, but I’m going to guess there’s a pretty good rate of failure beyond the first record.

But the companies have gotten more sophisticated. They’re not just looking for something that’s got hundreds of millions of streams. They’re also looking for fan engagement. They’re looking to see whether there’s a real connection with the artists because today it’s all about connecting with fans. And the artists that do that well and maintain it and build their connections and their image and their buzz, are going to have much healthier careers than the ones who just happen to catch a moment.

The front of the new edition of your book says artists have more power than ever in the history of the business. Where’s that power coming from?

From what we’ve discussed about how the labels are chasing people who already have a buzz. What happens is that two or three labels start to chase the same artist and if the artist is trending upward during the fox hunt, the numbers get bigger and bigger, and the labels are bidding against each other out of FOMO. And so, the artists now have a lot of power to demand things that they’ve never gotten before in history, like a share of the profits, like ownership of their masters that revert after a period of time. It used to be that you had had to be massive to get those things, but not anymore.

What about artists who are already established? Do they have more power? Is there a ceiling to how powerful a Taylor Swift or somebody can be in her negotiations?

Well, there’s a ceiling. But the ceiling in any negotiation is just simply the pain tolerance of the other side. My personal philosophy is that you there’s such a thing as making too good a deal — if you leave the other side so battered that they have no incentive to do anything, in particular with the artist if something goes wrong, because they just can’t make enough of a return on it. I think there’s such a thing as going over the line. Now, I’m happy to go up to the line and maybe an inch or two over. In fact, I’m probably not doing my job if I don’t. But when you get to the massive superstars, you get to figure out where the lines are, and you get to do something that’s never been done before. And that, to me, is the most fun part of the business.

The 360-degree multi-rights contract was dominant for a time. Artists pushed back. They didn’t want to share other revenue streams other than recorded music. And is that still a starting point for contracts is the 360 and then you carve out exceptions?

Yes, and yes. Most of all, labels will ask for something. If there’s any kind of bidding war, it goes away pretty quickly. A few labels are stubborn and think they’re entitled to it no matter what. But most labels, if there’s any kind of bidding, it’ll go away. Or at worst, it gets reduced radically to relatively small amounts.

So that’s a sign of artists having more power is getting better terms in these recording contracts.

Correct.

What things still exist in recording contracts that have had a bad reputation? I’m thinking of reserves for returns or control composition clauses or ways that labels would keep a little money for themselves at the expense of artists. Do these things still exist?

They do but they’re becoming much less relevant. Certainly, the returns reserve if the item is physical goods still applies. Although vinyl is surging, it’s still less than 10% of the business. So, it applies to that. And the same thing with the control composition clause. It doesn’t really apply to digital. It only applies to physical product in any relatively recent deals. And so, it’s become less relevant and easier for the artists to get better terms on it.

What would you like to completely rid from contracts?

The contracts have gotten reasonably artist-friendly over time. I mean, obviously, they’re still going to want to take an edge and a corner. I will tell you that re-recording restrictions have gotten tougher in recent years for reasons you can probably figure out. And those used to be much broader than they are now.

What’s a typical restriction?

They don’t want you to duplicate your recordings — like ever — and then they will limit the other types of recordings you can do. So, it’s gotten tougher as the labels get more concerned about artists re-recording or catalogs.

There’s a lot of concern about artificial intelligence these days — about properly harnessing the technology, concerns about getting paid, concerns about unauthorized use of artists, voice or songwriters’ compositions from a legal perspective. How challenging is this new generation of AI technologies?

We’re not going to put AI back in the bottle. It’s here. The real problem with AI, apart from the fact that artists may not like it, is that it can dilute the money that’s paid out to real artists. If I got 1,000 plays, and there’s 10,000 in a month, I’m gonna get 10% of the money, right? The problem is that if part of those plays are AI, and the streamer isn’t paying anybody, because there’s no copyright in AI, and there’s no ability to get paid for it, then they’re taking a chunk of money that’s not going out to the real artists. So, the challenge is to make sure that they can’t use AI to dilute what’s going to the record companies and artists. And obviously, the companies are all over this and I think will be successful if they aren’t already — it’s not public — in making sure that doesn’t happen. But that’s a major concern coming out of AI that we need to be careful about.

But there’s also potential, too. I can imagine estates using AI to bring to life deceased artists.

Yes, of course, all of those things are possible. Interestingly, there’s no copyright in AI. So, if you use it to create something, it may be that anything you create, anybody else can use for free, and you can’t necessarily get paid for it. So, I do think AI has a place in helping artists and helping enhance materials and so forth, but the law gets a little tricky because you can only get a copyright on what’s created by a human is pretty well settled. And so, the part created by the AI doesn’t have a copyright, so you don’t end up owning 100% of your material.

If something is created with AI, would part of that be copyrighted and then some portion would not, based on whatever the AI created?

Yes, that’s correct.

And then how is the split determined?

It depends on how much creativity the human put into it. If I go to an AI machine, and I say, “Write spa music,” and it knocks out a bunch of spa-sounding music, I haven’t done anything creative. I’ve just said, “Go make spa music”. If, on the other hand, I say, “Draw a picture of Kim Jong Un and Abraham Lincoln in a wrestling match on a roof in Mumbai,” maybe I’ve got enough creativity to get something of the copyright — but not in the drawing.

There’s a recent case with the Copyright Office about Zarya of the Dawn, where the author wrote a story and then had AI create the pictures for a graphic novel. The copyright office said there’s no copyright in the individual images. There is [copyright] on the story. But there’s interestingly what’s called a compilation copyright in the novel, meaning the way you arrange the pictures. The law in copyright says if I arrange un-copyrighted material in a particular way, I can get a copyright in the arrangement even though the underlying materials aren’t copyrighted, like a phone book, for example, the names aren’t copyrightable, but you can get a copyright in the way they’re arranged in the phonebook. And so that same principle applies here when you’ve got a number of copyrightable drawings in a particular way. But anybody could copy one of the drawings separately.

In your book, you give artists some advice: “All the superstars I’ve known have a clear vision of who they are and what their music is.” But there are also countless stories of artists, perhaps with clear visions, running into record labels’ A&R teams and sometimes that vision changes. What separates the superstar artists that you’ve known from the artists that didn’t reach that status?

I think the simple answer is their drive and their passion. The superstars have an unlimited amount of drive and are willing to walk through walls and they don’t get discouraged, and they keep getting up when they get knocked down and they just keep going. I think that’s what separates them. I think it could arguably be more important than talent. I mean, you and I could both name some moderately talented superstars just as we can name amazingly talented people who’ve never had much of a career. And the difference, I think, is their drive and their ability to want to do the work. It’s just a lot of work to have to have a serious career in any field really, but particularly in entertainment when you there’s no set path to get on. You just have to do it yourself.

Are the superstars equally demanding of their attorneys? Do they have high expectations for you as well?

I hope so. You know, it depends on the artist, and it depends on the situation. A lot of them are not that interested in business, or they may be interested but they want to spend their time being creative, which is a smart decision. So, they have people around them. But I think they deserve the utmost time and attention.

Your book details quite well how the music business can get really complicated and have a lot of pitfalls. What are some mistakes you see artists and their attorneys still making that they shouldn’t?

Well, in the early stages, the biggest mistakes artists make are signing long-term deals and not having any kind of an out if things aren’t working and they can get hung up with a manager that can really impact your career. They can get hung up on a record deal that’s not very good or a publishing deal that’s not very good, and no ability to ever get out of it. I think those are the things to watch for in the beginning.

That recalls your first client. I believe a manager was trying to get 50% out of your first entertainment client?

Yeah, for 15 years.

So, there would have been an out at some point, but 15 years is a long time.

Yeah, it was a completely stupid deal, but I was so young I was scared to death. But I did talk her out of it.

Artists and songwriters can sell their catalogs for pretty large sums these days. It seems to me that those deals haven’t changed the balance of power much because they go to artists who are already the most successful. Would you agree or disagree with that?

Catalog sales are happening at every level; the ones who get the headlines are the most successful. At almost every level somebody is selling their catalogs. I’ll give you my philosophy on it: For most people, I think it’s a mistake, and I try to talk them out of it. And I can give you the reasons if you’re interested. There’s a section in the book on this as well.

Yes, please do.

Historically, everybody who sold their catalog has regretted it. The Beatles catalog sold a Michael Jackson for $47 million; it’s probably worth $1 billion today. There’s people over the years who have sold their royalty stream and with the changes in technology, they now make almost as much every year it would have made them as what they sold it for, or at least two or three years’ worth. And the other exercise is a pretty simple one: Take the money that you get from the sale, deduct your expenses of selling, pay your taxes, and when you look at what’s leftover can you invest it and get the same amount of money you were getting before? And do you have the same upside potential your catalogue has? A lot of time the answer is no. And prices are definitely at a historic high. I’ve never seen them this high.

On the other hand, these are pretty smart financial people on the other side, and they’re betting that the market is going to grow and subscription prices will go up and there’ll be more people subscribing as an industry matures, and they think that the income is going to go up.

So, now having said all that, I do think it makes sense in the following circumstance: If you’re an older artist, if your heirs don’t know how to handle your catalog, or will kill each other trying to handle it, it could make sense to sell it. It could also make sense if you don’t have enough cash to pay estate tax on the value of your catalog when it comes around, and they have to do a fire sale, and you’re worried about that for your heirs. Or if you desperately need money at any level. I think it should be one of the last assets to go. It’s a place to get money, but you could also borrow against it to some degree depending on what you’re looking to do. I’ve obviously done a number of these because not everybody agrees with me and a lot of them are in the circumstances I’ve described. But for the most part, and certainly for younger artists, I think it’s something to be very careful about

How often are you able to dissuade people of selling? Do you make a convincing argument?

I have a pretty good track record of it, yeah. By the way, it’s not in my personal interest. I’d love to get it large fee for selling a catalog, but I always try and do what’s best for the artists.

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