April 5, 2024 • 41 mins
There’s a surprising amount of business and leadership lessons that can be learned from the music business. Donald Passman, an attorney and bestselling author of the book All You Need to Know About the Music Business, shares his journey of becoming an expert in negotiating music rights and offers insights into the music industry. Donald discusses the shift from physical sales to digital streaming and the challenges faced by record labels, emphasizing the importance of artists understanding their business and making informed decisions when signing contracts. He also highlights the determination and passion that successful artists possess.
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Episode Transcript
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(00:10):
Hello and welcome back toFranklinCovey's twice weekly podcast,
On Leadership with Scott Miller.That's me, I'm your host now,
coming into close to seven years,we've taped nearly 400 episodes,
released nearly 350 of them, whereeach week on Tuesdays and Fridays,
I'm privileged to sit in this chairfor the world's most trusted leadership
(00:31):
firm, FranklinCovey,
and interview people that haveexpert opinions on leadership,
how to build a high trust culture,how to be a better negotiator,
a more effectivecommunicator, a better parent,
how to recover from a setback or a trauma.
A broad variety of businesstitans, bestselling authors,
researchers, peoplefrom all walks of life.
(00:52):
Sometimes they are insidethe FranklinCovey family, one of our thought leaders,
curators, creators, or authors.And more times than not,
there are people out in the industrywho either wrote a book or did some
research or had a triumphor in some cases a setback,
and they have shown the vulnerability toagree to come on and talk about that so
that you can be better at everyrole in your life. Dr. Covey,
(01:16):
our co-founder, had avery prominent principle,
which was he lived his life throughthe idea of an abundance mindset
versus a scarcity mindset.
And so we like to shine our spotlight onas many people as possible to make you
better at whatever your unique missionis and whatever role or roles you are
playing at this phase of your life. Today,
(01:38):
our guest is an attorney.
He's also a wildly popular author andreally one of the world's experts at
his craft.
His name is Donald Passman and he'sauthored this seminal book called All
You Need to Know About the Music Business.
This is the 11th edition. Thisbook, published by Simon & Schuster,
(01:58):
has sold coming up to closeto a million copies. Now,
you might be wondering why are weinterviewing an attorney about the music
business? I have read most ofthis book. I'm not a musician.
I'm certainly not a vocalist.
I sing kind of chant as aCatholic on Sundays at Mass,
but I found so many greatbusiness principles in this book.
(02:19):
We invited Donald to come on and talktoday because when any book sells almost a
million copies, you know there is greatinsight in it to share. Plus, he's fun,
he's witty, and his writing style isriotously engaging. Donald Passman,
welcome to On Leadership.
Thank you, Scott. Nice to be here.
So Donald, your book is alittle bit of an outlier,
(02:41):
as I mentioned in terms of the generaltypes of authors that we bring onto this
podcast. We're not a book review podcast,
but oftentimes curated creators,
thought leaders have written books.Your book is in the 11th edition,
remarkable success on thatfrom Simon & Schuster.
(03:01):
Would you rewind a couple of decadesand take a few minutes and walk
our listeners and viewersthrough your career?
How did you first get started?You went to Harvard Law School.
Will you talk about how your careerended up either serendipitously or
deliberately as arguably theworld's foremost authority
(03:22):
on negotiating the rightsof music and being a wise
counsel to anyone in the music business?
Okay, well, thank you Scott.I did this on purpose,
but I didn't know it was going to beon purpose until I got to law school.
I always wanted to be a lawyer.
My father was a lawyer and Iliked to argue and I liked logic.
(03:45):
Meanwhile, I always loved musicbecause I was always playing music.
I was listening to music.
My stepfather was a disc jockeyin the day of personality jocks,
so I was kind of aroundthe music business.
I played in a band when I was incollege and law school and I really
enjoyed the process,
but it was pretty clear thatbased on my talent level,
(04:08):
it wasn't going to be a career for me.
And I was planning to be a taxlawyer because I thought tax
was actually fascinating, weirdas that may sound to some. So
my second year of law school,
they had a summer clerkship program andone of the firms said entertainment law.
And I thought, oh, what's that? Inever knew there was such a thing.
(04:32):
So after a little bit of a false start,
I ended up going to an entertainment firm.
I took a class at USC LawSchool on the music business,
a class I later ended upteaching and I thought,
this is like fun. I'm wastingmy time being a tax lawyer.
So I changed firms and I went over tothe firm I've been with ever since,
(04:56):
and I absolutelypassionately love what I do.
It combines the things in mylife that I love the most.
It combines music, it combines law,
it combines the intersectionof commerce and art,
which has always been avery difficult intersection.
And I say that and the example I useis a painting by Rembrandt called The
(05:21):
Night Watch, which is one of themost famous paintings in the world.
It's in the Rijksmuseum inAmsterdam. Takes up a whole wall,
and the way you made a living inRembrandt's time was you had a
patron and the patron paid for yourart and no patron, no you starve.
And so he was hired by the burgersof some city or other to paint their
(05:41):
portraits, and when he painted it,some of 'em were in the foreground,
some of 'em were in thebackground and smaller,
some of their faces were in shadows.They were not pleased. In fact,
he basically lost his careerover it and was devastated.
So I cite that as an example of far back.
It goes to have a differencebetween art and commerce,
(06:02):
and the reality is thatif you're in the business,
you can't make a living withoutart, but if you're an artist,
you can't make a living without monetizingyour art and without having business
people help you. So we live togetherin this sort of Vulcan death match.
Donald, will you take a few minutes andkind of recap over the course of your
multi-decade career,
(06:24):
what have been the bigpivot points in music?
We think about vinyl andthen CDs and now streaming,
but I know it's more extensive than that.
Can you just sort of opineextemporaneously over the last maybe
generation or two or more,
what have been the biggest disruptionsand changes so we can kind of level set
(06:45):
of conversations, we go intoa lot of the business lessons?
Sure. Well,
there was the changefrom vinyl to cassettes,
which was fairly early on.
It was relatively uneventful in thesense that they were both sold at
retail and in record stores.
CDs were a bit more disruptivebecause they were more expensive.
(07:08):
They didn't fit into thebins in record stores,
which caused people to have toretool and set things up differently.
But the biggest issue that firstcame up, which was in the nineties,
was piracy starting actuallyin the 1999 and rolling into
the 2000s
because Napster came along and allof a sudden people could get their
(07:31):
music for free and it's pretty hard tocompete with free if you're a record
company. There were otherthings also, people were,
record companies were stoppedselling single records.
There used to be 45 RPMs and sometimesCD singles, but not seriously.
Then they only sold albums, sopeople wanted one or two cuts,
they were frustrated, they had to paythe full price of an album to get it,
(07:55):
so the time and people perceivedthat records were overpriced.
Sometimes you could buy a DVD of amovie for less than you could buy the
soundtrack album, whichdidn't make any sense.
So what happened was theconsumers were in a sense
revolting and they were lookingfor a way to get what they wanted,
(08:15):
which was single songs,the ones they wanted.
They wanted to make their own playlists,
they wanted to be able to listen tothe music so along comes Napster,
offers it for free,
and the record labels did somethingthat's kind of a classic business school
mindset. If you've readThe Innovator's Dilemma,
that book is exactly what happenedin the music business because when
(08:40):
a new innovation comes alongand threatens the status quo,
the status quo is tendency is to doubledown on what they have in the past.
And for example, one of theexamples in the book is Sears,
who thought people wantedservice, not Costco,
where people wanted cheapprices in a warehouse,
and so Sears doubled down on that andlost the market. In the music business,
(09:00):
it was based on the fact that theretailers controlled 90 some odd
percent of the business and they werevery powerful and the retailers did not
want the record companiesselling music digitally,
and so they were taking astand that if you do that,
you're destroying our business.And the record companies,
because it was so much of their business,
(09:21):
were in this dilemma of how do weget through this? What happened was,
of course, the retailers got devastatedalong the way, something similar,
by the way, happening right now to thetheaters and the motion picture business,
although a very different model. And so
by doubling down on that,it was almost comical.
And then they made themistake of suing consumers,
(09:43):
which was not exactly good press to suesome kid in Kansas who downloaded a song
and retrospect would'vehandled it differently.
Almost a picture of them standing therewith the front door with a shotgun
saying,
you're not going to steal my music whileeverything's going out the back door
through the piracy. So the idea was,
(10:04):
and in my book, All You Need toKnow About the Music Business,
I actually predicted this in one ofthe additions was that we would go to
a music on demand, that nobodycalled it streaming back then,
model because that's what people wanted.
People wanted to be able to get thesongs they wanted when they wanted it,
they wanted to be able toshare it with their friends.
It was what the pirates were doing,and instead of stopping the piracy,
(10:26):
which proved to be really difficult,expensive, and whack-a-mole,
as soon as you take one songdown, another one pops up.
Then what we did is conscript thepirates. We created a similar experience.
We didn't go directly there.
It went first through Apple's downloadsystem because the business was so
devastated that SteveJobs was able to say,
(10:48):
all your music flying out illegallyhere, you can get paid for it,
and that became a major, if not mainsource of the business for many years.
Then when the technologyfor streaming caught up,
because it wasn't there in the beginning,
you couldn't deliver a good experience.
Then of course we moved to streaming andthat is by far the most profound change
(11:08):
in the history of thebusiness, which if you like,
I can get into the reasons for that.
Donald, will you remind us in 2024,
how does a musical artistmake money? I mean,
we know they have concertsand swag and things like that,
but it's very different now thanit was perhaps, gosh, even 5, 10,
20 years ago in 2024.
(11:29):
How is a musical artistactually earning money?
Well, it of course dependsto some degree on the artist.
The artist that can tour successfullymake a lot of money on it and their record
income tends to be not thebiggest portion of their income.
They also make money as songwritersif they're writing the songs because
(11:55):
those are also paid whenever you sellit and they're paid for other people
recording your music, notjust your own recordings.
So you can make money at that aswell. They made money on endorsements.
In the sixties,
no band would stoop to
having their music associated crasslywith a product and then not that long ago
(12:16):
Led Zeppelin's on a Cadillaccommercial. So you figure it out.
The stigma on that is nomore so artists can make,
not every artist will, some don't,
but the ones that want to can makesubstantial monies from that as well.
And then as you pointed out, there'smerchandise, swag, t-shirts, posters,
things like that. So those arethe main sources of income.
(12:38):
Would you argue that, again,I know it's artist by artist,
but is the recording of a songreally just sort of the loss leader,
it's the marketing aspect for allthe other ways to monetize that song,
tours and endorsementdeals and things like that?
It can be, but it'salso a source of income.
(12:58):
If you're a successful enough recordingartist and you're streamed in sufficient
numbers, you can stillmake good money doing that.
It's just that it's not as big aproportion of your income for a really
successful artist as it used to be.
I'm guessing the majority ofus, maybe I'm dating myself,
I mean listen to music in thecar. In fact, I don't think,
(13:19):
I mean obviously I listened to music onmy iTunes account and on my phone in the
gym,
but historically and even still themajority of my music I'm listening
to on my commute in and out ofthe office or wherever I'm going,
no one's getting paid to havetheir songs played on the radio.
Am I right? FM, AM, Sirius, any of that?
(13:43):
Sirius, they are getting paid and by,when you say no one's getting paid,
the songwriters are getting paid.
The people that wrote the songs getpaid when the music is on the radio.
In the United States, people arenot paid for terrestrial radio,
meaning the over-the-air broadcasts.
They are paid for streaming radio andthey are paid for streaming services like
Spotify. So depending onwhat you're listening to,
(14:04):
if you're listening to anAM or FM station, then the artist isn't getting paid,
but the songwriter is.
Talk to that point for a little more too,
because some songwriters are alsovocalists and some vocalists are
songwriters and there are some vocaliststhat don't write their songs. Again,
I know it's circumstance-based,
but give us a general idea ofwho's making the money and when
(14:29):
and is there kind of a common rule ofhow often someone's writing their own
songs? You hear so many times about, well,
someone wrote this song but somebodyelse sang it and made it popular,
or this artist wrote the song,
recorded it and never took off,
and then some other artistsung it and it took off,
and who's getting paid there?Just tell us how that works.
(14:52):
Is there a default scenario? Takethat wherever you'd like to go.
Yeah,
I mean the songwriter gets paidanytime somebody records their
song and anytime it's performed publicly.
So the songwriter is making moneyeven if they don't know how to sing,
as long as somebody else sings their song.
(15:13):
The recording artist who sings the songis getting paid when their recording's
exploited, whether it's streamedor put in a commercial or
some other way that it's monetized, but
those are the main ways that peopleget paid for streaming or for radio.
(15:33):
Sounds like the business to be in isto be a songwriter and then secondly,
to be a songwriter who also is a vocalist.
That's where the money is by and large.
The second part for sure.
I mean the songwriters don't get paid asmuch as the artists would get paid for
that performance on the record,
but they can be paid well and that gapis narrowing a bit as we get into the
(15:54):
streaming era becausethe music publishers,
the people who control the songwriters,
are very much at the forefront oftrying to get more money out of the pie.
I learned so much in your book about howthis industry works and there were so
many interesting businessideas. By the way,
Clayton Christensen was a member ofFranklinCovey's board of directors for a
long time prior to hispassing a couple years ago.
(16:15):
So we're big fans of his work and he'sa personal friend of our chairman.
One of the insights I learned wasthe unintended disruption with
artists when music movedfrom records to streaming
because of what is it, high tideslift all boats or whatever it is.
Can you talk about the principle of whathappened to a lot of the revenue now
(16:38):
that you could just buy individual songsversus going into a record store are
buying albums and happeningupon other people's music?
Sure.
Are you talking about downloads now orare you talking about streaming or both?
I think probably downloads.
The insight I took from the bookwas that one of the downsides of I
guess downloading is thatother artists weren't
(17:01):
benefiting from you listeningto or buying their song, right?
Right. That's actually more of anissue even in streaming than downloads.
Downloads are pretty muchgoing away. Weirdly enough,
CDs are selling more than downloadsthese days. Nobody's quite sure why.
My theory is that peoplethat are sophisticated enough to download know how to
stream and people who buy CDsdon't want to be bothered,
(17:24):
but that's just my theory. Feelfree to chime in with your own,
but let me talk a bit about howstreaming has radically changed the music
business ecosystem,
and this is really profound sincethe history of music business,
this is by far the biggesttectonic shift we've ever had.
So let me explain. From the verybeginning of the music business,
(17:44):
music was always sold by monetizingsomething. It might've been a piano roll,
it might've been a wax cylinder,it might've been sheet music,
but it was always somethingsold as a way of monetizing it.
So once it sold,
the artist and the songwriter would getpaid for that sale, and then after that,
it didn't matter whether someone playedit a thousand times at home or never
(18:06):
took it out of the shrink wrapand used it for a door stop,
the artist and the songwritergot the same amount of money.
When you get to the streaming era,that's now completely different.
Instead of being based on sales,
it's now based on the number of streamsand let me explain for a minute how the
streaming revenue works.
(18:27):
So what happens is every month thestreaming service pools together all their
income. That would be advertisingmoney, that would be subscription money,
and they would put it into a pot. Solet's say there's a million dollars,
obviously it's far more than that,
but I'm just going to usemoney for an easy example.
Let's suppose then they look at thenumber of streams that happened that month
(18:48):
and they sort it out by artists.
So if you had 10% ofthe streams that month,
10% of that money or a hundredthousand dollars would go to you.
Now it doesn't go directlyto you. Some of it,
it goes to your recordcompany if you have one,
and some of it will go toyour publisher as well,
(19:08):
which is the person who handles yoursongwriting for the song itself. Remember,
that's two separate rights. One isthe artist and one is the songwriter,
and they each get paid separately.They need not be the same person.
So in our example, 10%goes allocated to you.
Then they look at the record companiesand who control or where the money goes,
(19:32):
and then they pay the moneythat's allocated to all the artists on that label to
that record company. Then therecord company takes that money.
They look at how many streams you hadthat month compared to the number of
streams that every otherartist on their label had,
and then you get that percentage allocatedto you and depending on your deal
with the label,
you get a split of that andyou get whatever percentage of it you've negotiated.
(19:55):
That's the basics of it.
But that brings up somethingthat's not necessarily intuitive,
and this is where the radicalchange comes from. In the past,
if I had a big selling album,
it would draw people into record storesand there's a better chance you'll buy.
People will buy your album whilethey're there. You can buy 2, 3,
(20:16):
4 CDs at a time. In astreaming age, however,
you can only listen to one song at a time,
and the allocation of the moneyis based on the number of listens.
So for the first time,
every listen that I get takesaway money that you would get,
and every listen you get takes away moneythat I would get because we're dealing
with a finite pool of moneyin the sales days in theory,
(20:39):
there's not a finite pool that's as bigas the number of fans that want to buy
it, but now there is.
It's however much money the streamingservice collected that month,
and that's all that's going to get paid.
How it gets whacked up thoughis based on who listens.
So the competition now is forlistens, it's not for sales,
and that completely changedthe way that music is marketed.
(21:00):
It changed how people wantto promote and know about it.
The goal is to get you ontosomething we call lean back.
There's two forms oflistening on streaming.
Lean in is where I'm going in and I wantto find something new and I'm looking
for interesting artists and I'mchecking this out and checking that out.
Lean back is I'm tired for the day,
just entertain me and I will put oneither my playlist or someone else's,
(21:23):
and you want to get on those people'splaylists because then when they're
leaning back, you're making moneybecause they're streaming your song.
So the ecosystem is very,very, very different.
In the heyday of CDs,
the average consumer spent somewherebetween $40 to $50 bucks a month on CDs
In a streaming age, theaverage subscription is about $7 with student discounts,
(21:48):
family discounts per month,so somebody's spending $84.
Understand there's an inflationadjustment for that, but even so,
we're ahead and the potentialfor growth is substantial.
Donald, I have a very naive question toask you. So recognize going into this,
I admit this is pretty pedantic,
(22:08):
why are there such epic battles between
artists and studios? I mean,
I could name two or threethat we know are very public,
people who had to change their names orwouldn't refer to themselves or didn't
tape music for a decade orretaped all their songs or had to
basically declare bankruptcy or selltheir soul to stay in or stay out.
(22:30):
It seems to me thatthe industry would have
sort of level set on a level oftrust and transparency and mutual
respect that these recordinghouses, if you will,
whatever they are, and these artistswould go into it eyes wide open.
You'd be very clear that thestudio, if you want to call it that,
(22:51):
has the artist's best interest at heart.
You see so many stories of boy bandsand other artists that have these
calamitous relationship breakdowns. Why?
And why is it not changingand why is it not cleaned up?
It just seems so old schoolto me when every corporate
business that I know of is now allabout transparency and trust and
(23:14):
treating their vendors and stakeholderswell for long-term success.
It seems like thosebusiness principles haven't
hit the music business.
Well, they've hit it morethan you might think.
The stories you're talking about, a lotof them are from a number of years ago,
because record labels used to tie upartists for a very long period of time
(23:35):
under long-term contracts,
and that may have been reasonable whenthe artist was nobody or just getting
started, but with massive success, itturned out to be not quite so reasonable.
And yes, they get renegotiated andthe labels are good about that,
but they could end upcertainly in the old days,
having artists tied up for many,many, many years. Interestingly,
(23:58):
it's changed radically inthe last number of years,
and it's changed for the following reason.
The record companies now havedata geeks that are combing
the internet looking for any kindof music that's breaking out,
starting to get traction,starting to attract fans,
starting to stream and moveand progressing, and then,
(24:21):
but they all have the same data,
so they're all chasing these artistsonce they start to get some kind of a
breakout.
And what that resulted in is that thenew artists have bargaining power way
beyond anything in history because theynow have a track record before they were
ever signed to a label.That never used to happen.
So that means the new artistsare making shorter deals,
(24:43):
they're making better deals. They mayend up actually owning the recordings,
which was something reservedfor superstars in the past and licensing it to the
company and getting the actualrecordings back after a number of years.
They make it a share of profits alsoreserved for superstars in the older days.
They are becoming more transparent.
They are becoming betterdeals along the way.
(25:04):
But going back to my rent brand example,
there's always going to be differencesbetween artists and the record
labels who are theirpatrons in this example,
because that's the nature of it,particularly if things aren't going right,
they can get upset with each other,
or if things are going really well andthey're still tied up for a long period
(25:24):
of time or there's all kindsof things they can fight about.
The record deals have a lot ofexclusivity and that may get in the way of
something the artist wants to do. Sothere's always some kind of a squabble,
but the playing field has gotten much,
much better than it was back in the daysof Prince writing "Slave" on his face.
I warned you it was a naive question.
(25:44):
Thank you for letting medown gently on that one. Hey,
a big portion of your book you callpart one is your team of advisors.
Who doesn't need thisprinciple in their life?
You actually call it How to Pick a Teamand you generally say there is five
components of your team (25:58):
your personal manager, your attorney,
your business manager, your agency,
and then your groupies and youacknowledge you can't help them on their
groupies. Good luck with that,
but would you take a few minutes andwalk us through the first four components
and how they're different (26:12):
personal manager, attorney, business manager,
and agency?
Sure. The personal manageris the COO of the enterprise.
That's the person that everything filtersthrough on the business and often the
creative side as well.
They really are the onerunning your enterprise,
(26:33):
and so they're in that sense,
probably the most important person onyour team because they've got to be the
generalist, they've got toshield you from the world,
they've got to help you with strategicdecisions, and so they're very,
very important and they need to understandall the aspects of the business in
order to be able to do that.The lawyers, of course,
(26:54):
are the second mostimportant. That's my joke,
but the lawyers in the musicbusiness are very much involved in
a lot of deals across allareas. So unlike other areas,
the lawyers, we actually have expertise.We have relationships with labels,
we have relationships with managers,agents, most everyone in the business,
(27:16):
and we have a lot more information.Managers, by nature of their work,
unless they're a huge management company,
can't do that as many clientsas lawyers can because our time
is not as intense for eachclient as it is for a manager.
So in that situation, the lawyershave a lot of information.
We know a lot of deals, we know who'sdoing what, we know who likes to do what,
(27:38):
and we're very muchinvolved in the process.
The business manager handles the money.
They're often the last person onboard because they're expensive and
legitimately so they have a staff,they have to be able to service people,
and until you're making a certainamount of money, it may not be worth it.
You can get by with an accountant todo your taxes and keep track of things,
(28:02):
but as soon as you get really successful,
they also have a lot of informationbecause they do a lot of tours,
they do a lot of deals. They'revery well versed financially,
so they're in chargeof your financial life.
They will help you findadvisors for your investments.
They will help you manage yourselfso that you come out of it in
(28:22):
the days if things start to fadethat you're set up for life.
And then the agents are very important,
but they're limited for the most partto touring and sometimes to endorsements
in this business.
Unlike the film business where they'reacross all the major aspects, here,
they're mostly involved in live touringand to some degree and with some artists
(28:44):
involved in endorsements as well.
Donald,
this episode won't appeal to everyone of our millions of listeners and
viewers around the world,
but I do think it will appealto someone also in their life,
whether it's a daughter or ason or a cousin or a nephew.
Everybody knows someone who'sa budding vocalist and artist.
Will you talk to all those peoplethat have someone in their life,
(29:08):
they're not quite sure how to get started.
They can sing and they want to makea career out of it. Can you explain?
Do you need a record label?Do you do it yourself in 2024?
What's a pretty centralizedpath where someone could get
started and what questions andanswers should they be asking and
(29:29):
finding solutions to?
Really good question, Scott and actually,
one of the reasons I wrote All You Needto Know About the Music Business is
because I got asked a lot of people thatwanted to understand the business and
just didn't know how to get started.
It's different today than when I put outthe first edition of the book in a long
way, and it's kind ofwhat I alluded to earlier.
(29:49):
You need to do a lot of it yourself,
and there's some pretty good DIYbooks out there on how to do that.
I recommend one by Amy Thomsonin my book, and it's free online,
but basically you needto build a following.
You need to get on the internet and youneed to build fans. If you perform live,
(30:10):
that's a good way to get started as well.
And then there's a whole bunch oftips in the book about how to do that,
although it's not a DIY book,that's just a section of it.
So that's the first step. Whether youwant to get signed to a label, as many do,
or whether you want to go it by yourself,that's also a section I discuss it.
The criteria there is basicallywho do you want to be?
(30:32):
If you're a niche kind of obscuremusic and you have a very dedicated but
small fan base, you're probablybetter off doing it yourself.
You'll make more money. You won't haveto pay the record company a piece of it.
If you want to be a worldwideinternational superstar, so far,
the people who have done ithave had labels behind them.
They may get very far before they goto the label and be able to make an
(30:53):
excellent deal,
but they've had some kind of labelinvolvement to get it there because the
labels have a lot of data. They haveboots on the ground around the world.
They have expertise.
They can be helpful whenyou get to that stage.
This again probably is a naive question,
but I would love to knowwhere does the money go?
(31:14):
So I'm guessing you can still downloada song on iTunes or something for 99
cents. We have asubscription in our house,
but I'm guessing you can still downloadindividual songs and pay for them,
right?
Yes, you can.
Okay, so let's just go withthat theory. Let's just say,
and I apologize to all of our youngerviewers that think I'm a dinosaur,
I haven't downloaded anindividual song in 10 years,
(31:35):
and I just see the Apple bill.Actually, I don't even see the bill,
but it's so big. My wife hides me from it.
But let's just saythere's a dollar download.
Where does all that money go? I'mguessing the artist, the recording,
the vocalist gets the smallest percent,but maybe use that as an example.
If you had 99 cents to work with,where is it generally all going out?
(31:59):
Okay, well, 30% of it goes toApple. That's their platform fee.
So about 70 cents goes back tothe record label and out of that
70 cents,
they're going to pay thesongwriter for that about 14 cents.
The rest of it then becomes their,but then based on the 70 cents,
(32:22):
they're going to pay the artistwhatever royalty they negotiated.
So if they had a 20% royalty,they would get 14 cents.
And then from that 14 cents,
the artist is paying theirmanager and their attorney and
everybody else out ofthat money, in essence.
Yeah, that's right. And ifthere's a producer on the record,
(32:43):
the producer may get a piece ofthat. If there's a guest artist,
they would get a piece of it and thenwhatever's left over after all that.
And also the record label chargesback recording costs in advances.
So once you earn that,
if you haven't earned back fromyour 14 cents in our example,
if you haven't earnedback your full advance,
(33:04):
then they don't pay you anythinguntil you do. Once you do,
then you start getting paid and yourmanager and so forth get paid on that.
Donald,
I'm going to guess that some portionof the nearly million people that have
bought this book are like me thataren't in the music business,
but they just found it's sovaluable in terms of negotiation and
licensing and all the questions to ask.
(33:27):
Will you just spend the last coupleof minutes kind of free forming,
what are some of the general businessprinciples in this book that you think
creators and artists,
not specific to the music business shouldbe thinking about as you're watching
your industry and others evolveand change? What AI is doing,
(33:48):
what TikTok and the Metaverse,
all that changing variouslevels of our life
are looking like?
What are some questions and principlespeople should be thinking about in their
own businesses?
Okay. Well,
the music business has been the canaryin the coal mine for a lot of technology
(34:09):
changes. We were way,
our piracy was way aheadof the film business piracy
because at the time it wastoo cumbersome to download a
film and nobody wants just part of afilm, whereas people did want one song.
So we are ahead of the curve on alot of different things, ed ahead,
(34:30):
a curve on the positive side with thestreaming, which has been substantial.
And so I think the principlesare that you want to
understand where it's going.
You want to maximizeyour involvement with it.
I mean, I think it's thesame as any other business.
You need to be sensible about what you'redoing. You need to look at your costs,
(34:52):
you need to look at your expenses. Italk about artists being a business.
Most of them aren'tinterested in business,
but they need to understand the basicprinciple because nobody takes as good a
care of your business as you do.They don't have the same stake in it,
understandably so,
to the extent that peopleare watching it themselves,
they need to pay attention. Andparticularly with creative artists,
(35:16):
and I guess this applies to anyproduct with a limited lifecycle,
you need to be realistic aboutthe fact that this stream line
of earnings may not goon forever. It might,
and then you'll be happily surprised.
But I like to plan asif it's not going to,
and so it's just like anyother piece of business.
(35:39):
You need to have a budget. You need tounderstand your income and your earnings.
You need to put some moneyaside for investment because if you just sort of wait
to see what's left over,there may not be any,
and it's really important thatyou take care of your business.
Donald, what's the biggest mistake,
regret that artists have that hadthey known this going into it,
(36:02):
they may have been able to negotiatetheir deal, but they were so grateful,
they were so honored they were caught upin the early wave that they just signed
because they were so excited.
Are there one or two really valuableprinciples that guardians and
parents and friends should bereminding their future star
vocalist about?
(36:23):
Yes, there absolutely are.
The biggest mistake I see is peoplewho've signed a very long-term deal with
someone and no ability to getout of it without any success.
That tends to be more like a managerwho got in early and signed them to a
long-term deal and then wants tohang on to a percentage of 'em,
even if they're not capable of helpingthe artists the way that they promised
(36:45):
they would.
I think also it's important to checkout the people you're dealing with.
I have a whole section in Alll You Needto Know About the Music Business on
checking references,
how to figure out who you'retalking to and using your instinct.
If you think you're talking tosomeone slimy, you probably are.
If you think you're talking tosomeone really slick who sounds great,
(37:06):
check 'em out anyway.
Some of the worst thievesare under this shiny veneer.
So it's really about being cautiouswho you get in business with.
And it's also about making sure thatthe deal, for example, with a manager,
you could set it up that if you haven'tearned a certain dollar amount within a
couple of years, you can getout of the deal. Otherwise,
(37:26):
you might find yourself tied up fora long time. You're very successful.
They have little or nothing to do with it,
and they're just getting a percentage.
Last question, which is theflip side of that question.
I want you to think about maybe notthe most successful recording artist in
history, but someone eitheryou've worked with or know of,
what did they do well beyond their talent?
(37:49):
What did they do well thatcould be replicated by others
now that you're going to share it with us?
Yes. It was something I actuallymade a study of early in my career.
I was fascinated with what made peoplereally successful actually in any
business. And I think theone denominator is a absolute
(38:10):
determination that they're going to makeit no matter what gets thrown in the
way of obstacles. I mean,
there are artists that spent yearsdeveloping before they were overnight
sensations.
And so in a day when you can orderyour latte with a half foam and a
shot of vanilla,
people expect to get things exactlythe way they want them right away.
(38:32):
But it doesn't always work likethat. And in fact, if it does,
sometimes that's a detriment.You get there. In other words,
you have a big success and you haven'tbuilt up the skills and the long-term
work that you need to do to sustain it.
So I think that the main thingis passion drive and also the
superstars know exactly who they are.
(38:56):
They want to be true to their image.
They're not just selling out toanything that throws money at them.
They've got a vision andthey've got persistence,
and they've got the drive to seeit through no matter what the cost.
I lied. One more question.
You sometimes hear this conflictbetween an artist and his or
her recording company, her label,
(39:17):
and the label wants them to sing thiskind of music or do this and they want to
do this,
and then they end up fighting or divorcingor selling out or whatever it is.
Again, I know that it's circumstantial,
but how much credibility would you put
in the instinct of the artist versus and
(39:38):
listening to the label with their datascientist and all their understanding of
consumer preferences and whereit's going? Is it a nice balance?
Would you say nine times outof a 10 the artist was right,
or their ego and their hubris got thebest of them and they should have listened
to the experts at the label?Where would you take that?
Well, I've seen all of the above,
(40:00):
and I've seen artists that absolutelyhated a song that was the biggest hit of
their career.
And I've seen companies try to force asong on an artist that was a complete dud
and probably hurt their career.That's where the personal manager,
particularly if it's a creativemanager, gets involved.
They will have opinions on this and theywill mediate between the two of 'em,
(40:22):
and they will help get to aplace where everybody's a bit
compromised and a sign of a compromiseis nobody's a hundred percent happy,
but that's where the managerwould navigate through it.
Donald Passman, Harvard Law School,
a trained attorney frequently citedas one of the most influential
wisest sages in theentertainment industry.
(40:44):
Your book is All You Need toKnow About the Music Business:
Why Artists Have More Power Than Everin History, Artificial Intelligence,
TikTok, and the Metaverse'simpact on music,
The Mega Million Dollar Sales of ArtistSongs and Record Catalogs with updated
numbers, trends on the business,the 11th edition. Donald,
(41:04):
thanks for joining us today.Fascinating conversation.
Thank you, Scott.
And we'll see you back here next weekfor a new conversation On Music, I mean,
Leadership.
Hello and welcome back toFranklinCovey's twice weekly podcast,
On Leadership with Scott Miller.That's me, I'm your host now,
coming into close to seven years,we've taped nearly 400 episodes,
released nearly 350 of them, whereeach week on Tuesdays and Fridays,
I'm privileged to sit in this chairfor the world's most trusted leadership
(00:31):
firm, FranklinCovey,
and interview people that haveexpert opinions on leadership,
how to build a high trust culture,how to be a better negotiator,
a more effectivecommunicator, a better parent,
how to recover from a setback or a trauma.
A broad variety of businesstitans, bestselling authors,
researchers, peoplefrom all walks of life.
(00:52):
Sometimes they are insidethe FranklinCovey family, one of our thought leaders,
curators, creators, or authors.And more times than not,
there are people out in the industrywho either wrote a book or did some
research or had a triumphor in some cases a setback,
and they have shown the vulnerability toagree to come on and talk about that so
that you can be better at everyrole in your life. Dr. Covey,
(01:16):
our co-founder, had avery prominent principle,
which was he lived his life throughthe idea of an abundance mindset
versus a scarcity mindset.
And so we like to shine our spotlight onas many people as possible to make you
better at whatever your unique missionis and whatever role or roles you are
playing at this phase of your life. Today,
(01:38):
our guest is an attorney.
He's also a wildly popular author andreally one of the world's experts at
his craft.
His name is Donald Passman and he'sauthored this seminal book called All
You Need to Know About the Music Business.
This is the 11th edition. Thisbook, published by Simon & Schuster,
(01:58):
has sold coming up to closeto a million copies. Now,
you might be wondering why are weinterviewing an attorney about the music
business? I have read most ofthis book. I'm not a musician.
I'm certainly not a vocalist.
I sing kind of chant as aCatholic on Sundays at Mass,
but I found so many greatbusiness principles in this book.
(02:19):
We invited Donald to come on and talktoday because when any book sells almost a
million copies, you know there is greatinsight in it to share. Plus, he's fun,
he's witty, and his writing style isriotously engaging. Donald Passman,
welcome to On Leadership.
Thank you, Scott. Nice to be here.
So Donald, your book is alittle bit of an outlier,
(02:41):
as I mentioned in terms of the generaltypes of authors that we bring onto this
podcast. We're not a book review podcast,
but oftentimes curated creators,
thought leaders have written books.Your book is in the 11th edition,
remarkable success on thatfrom Simon & Schuster.
(03:01):
Would you rewind a couple of decadesand take a few minutes and walk
our listeners and viewersthrough your career?
How did you first get started?You went to Harvard Law School.
Will you talk about how your careerended up either serendipitously or
deliberately as arguably theworld's foremost authority
(03:22):
on negotiating the rightsof music and being a wise
counsel to anyone in the music business?
Okay, well, thank you Scott.I did this on purpose,
but I didn't know it was going to beon purpose until I got to law school.
I always wanted to be a lawyer.
My father was a lawyer and Iliked to argue and I liked logic.
(03:45):
Meanwhile, I always loved musicbecause I was always playing music.
I was listening to music.
My stepfather was a disc jockeyin the day of personality jocks,
so I was kind of aroundthe music business.
I played in a band when I was incollege and law school and I really
enjoyed the process,
but it was pretty clear thatbased on my talent level,
(04:08):
it wasn't going to be a career for me.
And I was planning to be a taxlawyer because I thought tax
was actually fascinating, weirdas that may sound to some. So
my second year of law school,
they had a summer clerkship program andone of the firms said entertainment law.
And I thought, oh, what's that? Inever knew there was such a thing.
(04:32):
So after a little bit of a false start,
I ended up going to an entertainment firm.
I took a class at USC LawSchool on the music business,
a class I later ended upteaching and I thought,
this is like fun. I'm wastingmy time being a tax lawyer.
So I changed firms and I went over tothe firm I've been with ever since,
(04:56):
and I absolutelypassionately love what I do.
It combines the things in mylife that I love the most.
It combines music, it combines law,
it combines the intersectionof commerce and art,
which has always been avery difficult intersection.
And I say that and the example I useis a painting by Rembrandt called The
(05:21):
Night Watch, which is one of themost famous paintings in the world.
It's in the Rijksmuseum inAmsterdam. Takes up a whole wall,
and the way you made a living inRembrandt's time was you had a
patron and the patron paid for yourart and no patron, no you starve.
And so he was hired by the burgersof some city or other to paint their
(05:41):
portraits, and when he painted it,some of 'em were in the foreground,
some of 'em were in thebackground and smaller,
some of their faces were in shadows.They were not pleased. In fact,
he basically lost his careerover it and was devastated.
So I cite that as an example of far back.
It goes to have a differencebetween art and commerce,
(06:02):
and the reality is thatif you're in the business,
you can't make a living withoutart, but if you're an artist,
you can't make a living without monetizingyour art and without having business
people help you. So we live togetherin this sort of Vulcan death match.
Donald, will you take a few minutes andkind of recap over the course of your
multi-decade career,
(06:24):
what have been the bigpivot points in music?
We think about vinyl andthen CDs and now streaming,
but I know it's more extensive than that.
Can you just sort of opineextemporaneously over the last maybe
generation or two or more,
what have been the biggest disruptionsand changes so we can kind of level set
(06:45):
of conversations, we go intoa lot of the business lessons?
Sure. Well,
there was the changefrom vinyl to cassettes,
which was fairly early on.
It was relatively uneventful in thesense that they were both sold at
retail and in record stores.
CDs were a bit more disruptivebecause they were more expensive.
(07:08):
They didn't fit into thebins in record stores,
which caused people to have toretool and set things up differently.
But the biggest issue that firstcame up, which was in the nineties,
was piracy starting actuallyin the 1999 and rolling into
the 2000s
because Napster came along and allof a sudden people could get their
(07:31):
music for free and it's pretty hard tocompete with free if you're a record
company. There were otherthings also, people were,
record companies were stoppedselling single records.
There used to be 45 RPMs and sometimesCD singles, but not seriously.
Then they only sold albums, sopeople wanted one or two cuts,
they were frustrated, they had to paythe full price of an album to get it,
(07:55):
so the time and people perceivedthat records were overpriced.
Sometimes you could buy a DVD of amovie for less than you could buy the
soundtrack album, whichdidn't make any sense.
So what happened was theconsumers were in a sense
revolting and they were lookingfor a way to get what they wanted,
(08:15):
which was single songs,the ones they wanted.
They wanted to make their own playlists,
they wanted to be able to listen tothe music so along comes Napster,
offers it for free,
and the record labels did somethingthat's kind of a classic business school
mindset. If you've readThe Innovator's Dilemma,
that book is exactly what happenedin the music business because when
(08:40):
a new innovation comes alongand threatens the status quo,
the status quo is tendency is to doubledown on what they have in the past.
And for example, one of theexamples in the book is Sears,
who thought people wantedservice, not Costco,
where people wanted cheapprices in a warehouse,
and so Sears doubled down on that andlost the market. In the music business,
(09:00):
it was based on the fact that theretailers controlled 90 some odd
percent of the business and they werevery powerful and the retailers did not
want the record companiesselling music digitally,
and so they were taking astand that if you do that,
you're destroying our business.And the record companies,
because it was so much of their business,
(09:21):
were in this dilemma of how do weget through this? What happened was,
of course, the retailers got devastatedalong the way, something similar,
by the way, happening right now to thetheaters and the motion picture business,
although a very different model. And so
by doubling down on that,it was almost comical.
And then they made themistake of suing consumers,
(09:43):
which was not exactly good press to suesome kid in Kansas who downloaded a song
and retrospect would'vehandled it differently.
Almost a picture of them standing therewith the front door with a shotgun
saying,
you're not going to steal my music whileeverything's going out the back door
through the piracy. So the idea was,
(10:04):
and in my book, All You Need toKnow About the Music Business,
I actually predicted this in one ofthe additions was that we would go to
a music on demand, that nobodycalled it streaming back then,
model because that's what people wanted.
People wanted to be able to get thesongs they wanted when they wanted it,
they wanted to be able toshare it with their friends.
It was what the pirates were doing,and instead of stopping the piracy,
(10:26):
which proved to be really difficult,expensive, and whack-a-mole,
as soon as you take one songdown, another one pops up.
Then what we did is conscript thepirates. We created a similar experience.
We didn't go directly there.
It went first through Apple's downloadsystem because the business was so
devastated that SteveJobs was able to say,
(10:48):
all your music flying out illegallyhere, you can get paid for it,
and that became a major, if not mainsource of the business for many years.
Then when the technologyfor streaming caught up,
because it wasn't there in the beginning,
you couldn't deliver a good experience.
Then of course we moved to streaming andthat is by far the most profound change
(11:08):
in the history of thebusiness, which if you like,
I can get into the reasons for that.
Donald, will you remind us in 2024,
how does a musical artistmake money? I mean,
we know they have concertsand swag and things like that,
but it's very different now thanit was perhaps, gosh, even 5, 10,
20 years ago in 2024.
(11:29):
How is a musical artistactually earning money?
Well, it of course dependsto some degree on the artist.
The artist that can tour successfullymake a lot of money on it and their record
income tends to be not thebiggest portion of their income.
They also make money as songwritersif they're writing the songs because
(11:55):
those are also paid whenever you sellit and they're paid for other people
recording your music, notjust your own recordings.
So you can make money at that aswell. They made money on endorsements.
In the sixties,
no band would stoop to
having their music associated crasslywith a product and then not that long ago
(12:16):
Led Zeppelin's on a Cadillaccommercial. So you figure it out.
The stigma on that is nomore so artists can make,
not every artist will, some don't,
but the ones that want to can makesubstantial monies from that as well.
And then as you pointed out, there'smerchandise, swag, t-shirts, posters,
things like that. So those arethe main sources of income.
(12:38):
Would you argue that, again,I know it's artist by artist,
but is the recording of a songreally just sort of the loss leader,
it's the marketing aspect for allthe other ways to monetize that song,
tours and endorsementdeals and things like that?
It can be, but it'salso a source of income.
(12:58):
If you're a successful enough recordingartist and you're streamed in sufficient
numbers, you can stillmake good money doing that.
It's just that it's not as big aproportion of your income for a really
successful artist as it used to be.
I'm guessing the majority ofus, maybe I'm dating myself,
I mean listen to music in thecar. In fact, I don't think,
(13:19):
I mean obviously I listened to music onmy iTunes account and on my phone in the
gym,
but historically and even still themajority of my music I'm listening
to on my commute in and out ofthe office or wherever I'm going,
no one's getting paid to havetheir songs played on the radio.
Am I right? FM, AM, Sirius, any of that?
(13:43):
Sirius, they are getting paid and by,when you say no one's getting paid,
the songwriters are getting paid.
The people that wrote the songs getpaid when the music is on the radio.
In the United States, people arenot paid for terrestrial radio,
meaning the over-the-air broadcasts.
They are paid for streaming radio andthey are paid for streaming services like
Spotify. So depending onwhat you're listening to,
(14:04):
if you're listening to anAM or FM station, then the artist isn't getting paid,
but the songwriter is.
Talk to that point for a little more too,
because some songwriters are alsovocalists and some vocalists are
songwriters and there are some vocaliststhat don't write their songs. Again,
I know it's circumstance-based,
but give us a general idea ofwho's making the money and when
(14:29):
and is there kind of a common rule ofhow often someone's writing their own
songs? You hear so many times about, well,
someone wrote this song but somebodyelse sang it and made it popular,
or this artist wrote the song,
recorded it and never took off,
and then some other artistsung it and it took off,
and who's getting paid there?Just tell us how that works.
(14:52):
Is there a default scenario? Takethat wherever you'd like to go.
Yeah,
I mean the songwriter gets paidanytime somebody records their
song and anytime it's performed publicly.
So the songwriter is making moneyeven if they don't know how to sing,
as long as somebody else sings their song.
(15:13):
The recording artist who sings the songis getting paid when their recording's
exploited, whether it's streamedor put in a commercial or
some other way that it's monetized, but
those are the main ways that peopleget paid for streaming or for radio.
(15:33):
Sounds like the business to be in isto be a songwriter and then secondly,
to be a songwriter who also is a vocalist.
That's where the money is by and large.
The second part for sure.
I mean the songwriters don't get paid asmuch as the artists would get paid for
that performance on the record,
but they can be paid well and that gapis narrowing a bit as we get into the
(15:54):
streaming era becausethe music publishers,
the people who control the songwriters,
are very much at the forefront oftrying to get more money out of the pie.
I learned so much in your book about howthis industry works and there were so
many interesting businessideas. By the way,
Clayton Christensen was a member ofFranklinCovey's board of directors for a
long time prior to hispassing a couple years ago.
(16:15):
So we're big fans of his work and he'sa personal friend of our chairman.
One of the insights I learned wasthe unintended disruption with
artists when music movedfrom records to streaming
because of what is it, high tideslift all boats or whatever it is.
Can you talk about the principle of whathappened to a lot of the revenue now
(16:38):
that you could just buy individual songsversus going into a record store are
buying albums and happeningupon other people's music?
Sure.
Are you talking about downloads now orare you talking about streaming or both?
I think probably downloads.
The insight I took from the bookwas that one of the downsides of I
guess downloading is thatother artists weren't
(17:01):
benefiting from you listeningto or buying their song, right?
Right. That's actually more of anissue even in streaming than downloads.
Downloads are pretty muchgoing away. Weirdly enough,
CDs are selling more than downloadsthese days. Nobody's quite sure why.
My theory is that peoplethat are sophisticated enough to download know how to
stream and people who buy CDsdon't want to be bothered,
(17:24):
but that's just my theory. Feelfree to chime in with your own,
but let me talk a bit about howstreaming has radically changed the music
business ecosystem,
and this is really profound sincethe history of music business,
this is by far the biggesttectonic shift we've ever had.
So let me explain. From the verybeginning of the music business,
(17:44):
music was always sold by monetizingsomething. It might've been a piano roll,
it might've been a wax cylinder,it might've been sheet music,
but it was always somethingsold as a way of monetizing it.
So once it sold,
the artist and the songwriter would getpaid for that sale, and then after that,
it didn't matter whether someone playedit a thousand times at home or never
(18:06):
took it out of the shrink wrapand used it for a door stop,
the artist and the songwritergot the same amount of money.
When you get to the streaming era,that's now completely different.
Instead of being based on sales,
it's now based on the number of streamsand let me explain for a minute how the
streaming revenue works.
(18:27):
So what happens is every month thestreaming service pools together all their
income. That would be advertisingmoney, that would be subscription money,
and they would put it into a pot. Solet's say there's a million dollars,
obviously it's far more than that,
but I'm just going to usemoney for an easy example.
Let's suppose then they look at thenumber of streams that happened that month
(18:48):
and they sort it out by artists.
So if you had 10% ofthe streams that month,
10% of that money or a hundredthousand dollars would go to you.
Now it doesn't go directlyto you. Some of it,
it goes to your recordcompany if you have one,
and some of it will go toyour publisher as well,
(19:08):
which is the person who handles yoursongwriting for the song itself. Remember,
that's two separate rights. One isthe artist and one is the songwriter,
and they each get paid separately.They need not be the same person.
So in our example, 10%goes allocated to you.
Then they look at the record companiesand who control or where the money goes,
(19:32):
and then they pay the moneythat's allocated to all the artists on that label to
that record company. Then therecord company takes that money.
They look at how many streams you hadthat month compared to the number of
streams that every otherartist on their label had,
and then you get that percentage allocatedto you and depending on your deal
with the label,
you get a split of that andyou get whatever percentage of it you've negotiated.
(19:55):
That's the basics of it.
But that brings up somethingthat's not necessarily intuitive,
and this is where the radicalchange comes from. In the past,
if I had a big selling album,
it would draw people into record storesand there's a better chance you'll buy.
People will buy your album whilethey're there. You can buy 2, 3,
(20:16):
4 CDs at a time. In astreaming age, however,
you can only listen to one song at a time,
and the allocation of the moneyis based on the number of listens.
So for the first time,
every listen that I get takesaway money that you would get,
and every listen you get takes away moneythat I would get because we're dealing
with a finite pool of moneyin the sales days in theory,
(20:39):
there's not a finite pool that's as bigas the number of fans that want to buy
it, but now there is.
It's however much money the streamingservice collected that month,
and that's all that's going to get paid.
How it gets whacked up thoughis based on who listens.
So the competition now is forlistens, it's not for sales,
and that completely changedthe way that music is marketed.
(21:00):
It changed how people wantto promote and know about it.
The goal is to get you ontosomething we call lean back.
There's two forms oflistening on streaming.
Lean in is where I'm going in and I wantto find something new and I'm looking
for interesting artists and I'mchecking this out and checking that out.
Lean back is I'm tired for the day,
just entertain me and I will put oneither my playlist or someone else's,
(21:23):
and you want to get on those people'splaylists because then when they're
leaning back, you're making moneybecause they're streaming your song.
So the ecosystem is very,very, very different.
In the heyday of CDs,
the average consumer spent somewherebetween $40 to $50 bucks a month on CDs
In a streaming age, theaverage subscription is about $7 with student discounts,
(21:48):
family discounts per month,so somebody's spending $84.
Understand there's an inflationadjustment for that, but even so,
we're ahead and the potentialfor growth is substantial.
Donald, I have a very naive question toask you. So recognize going into this,
I admit this is pretty pedantic,
(22:08):
why are there such epic battles between
artists and studios? I mean,
I could name two or threethat we know are very public,
people who had to change their names orwouldn't refer to themselves or didn't
tape music for a decade orretaped all their songs or had to
basically declare bankruptcy or selltheir soul to stay in or stay out.
(22:30):
It seems to me thatthe industry would have
sort of level set on a level oftrust and transparency and mutual
respect that these recordinghouses, if you will,
whatever they are, and these artistswould go into it eyes wide open.
You'd be very clear that thestudio, if you want to call it that,
(22:51):
has the artist's best interest at heart.
You see so many stories of boy bandsand other artists that have these
calamitous relationship breakdowns. Why?
And why is it not changingand why is it not cleaned up?
It just seems so old schoolto me when every corporate
business that I know of is now allabout transparency and trust and
(23:14):
treating their vendors and stakeholderswell for long-term success.
It seems like thosebusiness principles haven't
hit the music business.
Well, they've hit it morethan you might think.
The stories you're talking about, a lotof them are from a number of years ago,
because record labels used to tie upartists for a very long period of time
(23:35):
under long-term contracts,
and that may have been reasonable whenthe artist was nobody or just getting
started, but with massive success, itturned out to be not quite so reasonable.
And yes, they get renegotiated andthe labels are good about that,
but they could end upcertainly in the old days,
having artists tied up for many,many, many years. Interestingly,
(23:58):
it's changed radically inthe last number of years,
and it's changed for the following reason.
The record companies now havedata geeks that are combing
the internet looking for any kindof music that's breaking out,
starting to get traction,starting to attract fans,
starting to stream and moveand progressing, and then,
(24:21):
but they all have the same data,
so they're all chasing these artistsonce they start to get some kind of a
breakout.
And what that resulted in is that thenew artists have bargaining power way
beyond anything in history because theynow have a track record before they were
ever signed to a label.That never used to happen.
So that means the new artistsare making shorter deals,
(24:43):
they're making better deals. They mayend up actually owning the recordings,
which was something reservedfor superstars in the past and licensing it to the
company and getting the actualrecordings back after a number of years.
They make it a share of profits alsoreserved for superstars in the older days.
They are becoming more transparent.
They are becoming betterdeals along the way.
(25:04):
But going back to my rent brand example,
there's always going to be differencesbetween artists and the record
labels who are theirpatrons in this example,
because that's the nature of it,particularly if things aren't going right,
they can get upset with each other,
or if things are going really well andthey're still tied up for a long period
(25:24):
of time or there's all kindsof things they can fight about.
The record deals have a lot ofexclusivity and that may get in the way of
something the artist wants to do. Sothere's always some kind of a squabble,
but the playing field has gotten much,
much better than it was back in the daysof Prince writing "Slave" on his face.
I warned you it was a naive question.
(25:44):
Thank you for letting medown gently on that one. Hey,
a big portion of your book you callpart one is your team of advisors.
Who doesn't need thisprinciple in their life?
You actually call it How to Pick a Teamand you generally say there is five
components of your team (25:58):
your personal manager, your attorney,
your business manager, your agency,
and then your groupies and youacknowledge you can't help them on their
groupies. Good luck with that,
but would you take a few minutes andwalk us through the first four components
and how they're different (26:12):
personal manager, attorney, business manager,
and agency?
Sure. The personal manageris the COO of the enterprise.
That's the person that everything filtersthrough on the business and often the
creative side as well.
They really are the onerunning your enterprise,
(26:33):
and so they're in that sense,
probably the most important person onyour team because they've got to be the
generalist, they've got toshield you from the world,
they've got to help you with strategicdecisions, and so they're very,
very important and they need to understandall the aspects of the business in
order to be able to do that.The lawyers, of course,
(26:54):
are the second mostimportant. That's my joke,
but the lawyers in the musicbusiness are very much involved in
a lot of deals across allareas. So unlike other areas,
the lawyers, we actually have expertise.We have relationships with labels,
we have relationships with managers,agents, most everyone in the business,
(27:16):
and we have a lot more information.Managers, by nature of their work,
unless they're a huge management company,
can't do that as many clientsas lawyers can because our time
is not as intense for eachclient as it is for a manager.
So in that situation, the lawyershave a lot of information.
We know a lot of deals, we know who'sdoing what, we know who likes to do what,
(27:38):
and we're very muchinvolved in the process.
The business manager handles the money.
They're often the last person onboard because they're expensive and
legitimately so they have a staff,they have to be able to service people,
and until you're making a certainamount of money, it may not be worth it.
You can get by with an accountant todo your taxes and keep track of things,
(28:02):
but as soon as you get really successful,
they also have a lot of informationbecause they do a lot of tours,
they do a lot of deals. They'revery well versed financially,
so they're in chargeof your financial life.
They will help you findadvisors for your investments.
They will help you manage yourselfso that you come out of it in
(28:22):
the days if things start to fadethat you're set up for life.
And then the agents are very important,
but they're limited for the most partto touring and sometimes to endorsements
in this business.
Unlike the film business where they'reacross all the major aspects, here,
they're mostly involved in live touringand to some degree and with some artists
(28:44):
involved in endorsements as well.
Donald,
this episode won't appeal to everyone of our millions of listeners and
viewers around the world,
but I do think it will appealto someone also in their life,
whether it's a daughter or ason or a cousin or a nephew.
Everybody knows someone who'sa budding vocalist and artist.
Will you talk to all those peoplethat have someone in their life,
(29:08):
they're not quite sure how to get started.
They can sing and they want to makea career out of it. Can you explain?
Do you need a record label?Do you do it yourself in 2024?
What's a pretty centralizedpath where someone could get
started and what questions andanswers should they be asking and
(29:29):
finding solutions to?
Really good question, Scott and actually,
one of the reasons I wrote All You Needto Know About the Music Business is
because I got asked a lot of people thatwanted to understand the business and
just didn't know how to get started.
It's different today than when I put outthe first edition of the book in a long
way, and it's kind ofwhat I alluded to earlier.
(29:49):
You need to do a lot of it yourself,
and there's some pretty good DIYbooks out there on how to do that.
I recommend one by Amy Thomsonin my book, and it's free online,
but basically you needto build a following.
You need to get on the internet and youneed to build fans. If you perform live,
(30:10):
that's a good way to get started as well.
And then there's a whole bunch oftips in the book about how to do that,
although it's not a DIY book,that's just a section of it.
So that's the first step. Whether youwant to get signed to a label, as many do,
or whether you want to go it by yourself,that's also a section I discuss it.
The criteria there is basicallywho do you want to be?
(30:32):
If you're a niche kind of obscuremusic and you have a very dedicated but
small fan base, you're probablybetter off doing it yourself.
You'll make more money. You won't haveto pay the record company a piece of it.
If you want to be a worldwideinternational superstar, so far,
the people who have done ithave had labels behind them.
They may get very far before they goto the label and be able to make an
(30:53):
excellent deal,
but they've had some kind of labelinvolvement to get it there because the
labels have a lot of data. They haveboots on the ground around the world.
They have expertise.
They can be helpful whenyou get to that stage.
This again probably is a naive question,
but I would love to knowwhere does the money go?
(31:14):
So I'm guessing you can still downloada song on iTunes or something for 99
cents. We have asubscription in our house,
but I'm guessing you can still downloadindividual songs and pay for them,
right?
Yes, you can.
Okay, so let's just go withthat theory. Let's just say,
and I apologize to all of our youngerviewers that think I'm a dinosaur,
I haven't downloaded anindividual song in 10 years,
(31:35):
and I just see the Apple bill.Actually, I don't even see the bill,
but it's so big. My wife hides me from it.
But let's just saythere's a dollar download.
Where does all that money go? I'mguessing the artist, the recording,
the vocalist gets the smallest percent,but maybe use that as an example.
If you had 99 cents to work with,where is it generally all going out?
(31:59):
Okay, well, 30% of it goes toApple. That's their platform fee.
So about 70 cents goes back tothe record label and out of that
70 cents,
they're going to pay thesongwriter for that about 14 cents.
The rest of it then becomes their,but then based on the 70 cents,
(32:22):
they're going to pay the artistwhatever royalty they negotiated.
So if they had a 20% royalty,they would get 14 cents.
And then from that 14 cents,
the artist is paying theirmanager and their attorney and
everybody else out ofthat money, in essence.
Yeah, that's right. And ifthere's a producer on the record,
(32:43):
the producer may get a piece ofthat. If there's a guest artist,
they would get a piece of it and thenwhatever's left over after all that.
And also the record label chargesback recording costs in advances.
So once you earn that,
if you haven't earned back fromyour 14 cents in our example,
if you haven't earnedback your full advance,
(33:04):
then they don't pay you anythinguntil you do. Once you do,
then you start getting paid and yourmanager and so forth get paid on that.
Donald,
I'm going to guess that some portionof the nearly million people that have
bought this book are like me thataren't in the music business,
but they just found it's sovaluable in terms of negotiation and
licensing and all the questions to ask.
(33:27):
Will you just spend the last coupleof minutes kind of free forming,
what are some of the general businessprinciples in this book that you think
creators and artists,
not specific to the music business shouldbe thinking about as you're watching
your industry and others evolveand change? What AI is doing,
(33:48):
what TikTok and the Metaverse,
all that changing variouslevels of our life
are looking like?
What are some questions and principlespeople should be thinking about in their
own businesses?
Okay. Well,
the music business has been the canaryin the coal mine for a lot of technology
(34:09):
changes. We were way,
our piracy was way aheadof the film business piracy
because at the time it wastoo cumbersome to download a
film and nobody wants just part of afilm, whereas people did want one song.
So we are ahead of the curve on alot of different things, ed ahead,
(34:30):
a curve on the positive side with thestreaming, which has been substantial.
And so I think the principlesare that you want to
understand where it's going.
You want to maximizeyour involvement with it.
I mean, I think it's thesame as any other business.
You need to be sensible about what you'redoing. You need to look at your costs,
(34:52):
you need to look at your expenses. Italk about artists being a business.
Most of them aren'tinterested in business,
but they need to understand the basicprinciple because nobody takes as good a
care of your business as you do.They don't have the same stake in it,
understandably so,
to the extent that peopleare watching it themselves,
they need to pay attention. Andparticularly with creative artists,
(35:16):
and I guess this applies to anyproduct with a limited lifecycle,
you need to be realistic aboutthe fact that this stream line
of earnings may not goon forever. It might,
and then you'll be happily surprised.
But I like to plan asif it's not going to,
and so it's just like anyother piece of business.
(35:39):
You need to have a budget. You need tounderstand your income and your earnings.
You need to put some moneyaside for investment because if you just sort of wait
to see what's left over,there may not be any,
and it's really important thatyou take care of your business.
Donald, what's the biggest mistake,
regret that artists have that hadthey known this going into it,
(36:02):
they may have been able to negotiatetheir deal, but they were so grateful,
they were so honored they were caught upin the early wave that they just signed
because they were so excited.
Are there one or two really valuableprinciples that guardians and
parents and friends should bereminding their future star
vocalist about?
(36:23):
Yes, there absolutely are.
The biggest mistake I see is peoplewho've signed a very long-term deal with
someone and no ability to getout of it without any success.
That tends to be more like a managerwho got in early and signed them to a
long-term deal and then wants tohang on to a percentage of 'em,
even if they're not capable of helpingthe artists the way that they promised
(36:45):
they would.
I think also it's important to checkout the people you're dealing with.
I have a whole section in Alll You Needto Know About the Music Business on
checking references,
how to figure out who you'retalking to and using your instinct.
If you think you're talking tosomeone slimy, you probably are.
If you think you're talking tosomeone really slick who sounds great,
(37:06):
check 'em out anyway.
Some of the worst thievesare under this shiny veneer.
So it's really about being cautiouswho you get in business with.
And it's also about making sure thatthe deal, for example, with a manager,
you could set it up that if you haven'tearned a certain dollar amount within a
couple of years, you can getout of the deal. Otherwise,
(37:26):
you might find yourself tied up fora long time. You're very successful.
They have little or nothing to do with it,
and they're just getting a percentage.
Last question, which is theflip side of that question.
I want you to think about maybe notthe most successful recording artist in
history, but someone eitheryou've worked with or know of,
what did they do well beyond their talent?
(37:49):
What did they do well thatcould be replicated by others
now that you're going to share it with us?
Yes. It was something I actuallymade a study of early in my career.
I was fascinated with what made peoplereally successful actually in any
business. And I think theone denominator is a absolute
(38:10):
determination that they're going to makeit no matter what gets thrown in the
way of obstacles. I mean,
there are artists that spent yearsdeveloping before they were overnight
sensations.
And so in a day when you can orderyour latte with a half foam and a
shot of vanilla,
people expect to get things exactlythe way they want them right away.
(38:32):
But it doesn't always work likethat. And in fact, if it does,
sometimes that's a detriment.You get there. In other words,
you have a big success and you haven'tbuilt up the skills and the long-term
work that you need to do to sustain it.
So I think that the main thingis passion drive and also the
superstars know exactly who they are.
(38:56):
They want to be true to their image.
They're not just selling out toanything that throws money at them.
They've got a vision andthey've got persistence,
and they've got the drive to seeit through no matter what the cost.
I lied. One more question.
You sometimes hear this conflictbetween an artist and his or
her recording company, her label,
(39:17):
and the label wants them to sing thiskind of music or do this and they want to
do this,
and then they end up fighting or divorcingor selling out or whatever it is.
Again, I know that it's circumstantial,
but how much credibility would you put
in the instinct of the artist versus and
(39:38):
listening to the label with their datascientist and all their understanding of
consumer preferences and whereit's going? Is it a nice balance?
Would you say nine times outof a 10 the artist was right,
or their ego and their hubris got thebest of them and they should have listened
to the experts at the label?Where would you take that?
Well, I've seen all of the above,
(40:00):
and I've seen artists that absolutelyhated a song that was the biggest hit of
their career.
And I've seen companies try to force asong on an artist that was a complete dud
and probably hurt their career.That's where the personal manager,
particularly if it's a creativemanager, gets involved.
They will have opinions on this and theywill mediate between the two of 'em,
(40:22):
and they will help get to aplace where everybody's a bit
compromised and a sign of a compromiseis nobody's a hundred percent happy,
but that's where the managerwould navigate through it.
Donald Passman, Harvard Law School,
a trained attorney frequently citedas one of the most influential
wisest sages in theentertainment industry.
(40:44):
Your book is All You Need toKnow About the Music Business:
Why Artists Have More Power Than Everin History, Artificial Intelligence,
TikTok, and the Metaverse'simpact on music,
The Mega Million Dollar Sales of ArtistSongs and Record Catalogs with updated
numbers, trends on the business,the 11th edition. Donald,
(41:04):
thanks for joining us today.Fascinating conversation.
Thank you, Scott.
And we'll see you back here next weekfor a new conversation On Music, I mean,
Leadership.
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