The entertainment industry exists in a state of economic uncertainty. Entertainment companies continually form, merge, re-form, and dissolve. Furthermore, consumer tastes in artistic products can change quickly, thrusting certain artists or artistic movements to the heights of popularity and reducing others to obscurity. Because of this instability, the entertainment industry relies on complex contracts, which usually are drafted to protect entertainment companies against economic risk.
Personal Service Agreements The PERSONAL SERVICE agreement is a primary legal instrument in the entertainment industry. It is negotiated between an artist and a company that manufactures, promotes, and distributes the artist's goods or services. The agreement often binds the artist to produce for one company for a certain period of time. Personal service agreements are often governed by statutes and are often the subject of litigation because they restrict the rights of artists to perform or create for any entity except for the company with whom they have contracted.
Artists generally do not have the resources necessary to manufacture, market, and distribute their goods or services. Instead, they must find an appropriate entertainment company to do so. Entertainment producers (e.g., book publishers, record companies, movie studios, and theaters) often invest large amounts of time and money in promoting and selling artists' talents or products to consumers. Most artists will fail to earn a profit for their producer. A few, however, will earn enormous sums. To ensure that artists who generate a profit will remain with the company, producers use personal service agreements to bind artists for a certain time, during which the producers attempt to recover their investment in the artist, make a profit, and cover losses from less successful artists.
In some entertainment industries, personal service agreements are structured using options. Options give a producer the right to extend an agreement for several time periods. For example, a record company may contract with a musician to provide one album during the first year of the agreement, with an option to extend the contract. After one year, if the record company feels that it would be economically wise to release a second album by the musician, the record company may exercise its option and require the musician to provide the second album. Under option contracts such as this, producers can keep artists on their roster for many years, or as long as the artists remain profitable.
Some option contracts can be disastrous for the artist. For example, musicians sometimes sign an option agreement without a provision that they may break the agreement if the record company fails to release their works. Many recording artists have been held in professional limbo by record companies that refuse to release their music and also refuse to allow them to record for another company. This practice, known as shelving, is used by some record companies to prevent economically risky artists from becoming valuable assets to other record companies.
Other entertainment industries use short-term personal service agreements rather than option agreements. For example, film studios often contract with actors, directors, screenwriters, and other creative artists on a one-film basis. Short-term agreements allow studios to avoid paying guaranteed fees to artists whose market might dissipate overnight. In the early days of the film industry, studios bound stars to long-term agreements. That system changed in the 1940s, when certain stars demanded fees that were higher than studios were willing to pay. Those stars then demanded, and received, one-film contracts for their services, which became the standard. The television industry, on the other hand, still uses long-term agreements for its talent in many areas.
Litigation over personal service agreements is common in the entertainment industry. Often, an artist who is relatively unknown is willing to enter into an agreement that drastically favors the company with which he or she is signing. Once the artist achieves success and sees the profits that the company is making from his or her services, the artist may demand higher fees or ROYALTIES, or to be released from the contract. Conflicts such as this often end up in court, where companies often demand that the court order that the artist not perform for anyone else while the contract is in dispute. (This type of order is known as a negative injunction.) Whether the contract will be enforced and the artist required to perform under the agreement is usually determined by whether the contract meets certain legal requirements based on the state laws that govern it.
Contract for Rights Another primary type of contract in the entertainment industry is the contract for rights. This contract often involves a transfer of COPYRIGHT ownership or a license to use certain creative property (e.g., a song or photo).
Many times, a contract for rights is combined with a personal service agreement. The agreement often will state that any work created by the artist during the term of the agreement is considered a work for hire. The company with whom the artist has contracted often receives automatic ownership of the copyright to a work for hire. For a work for hire to exist, the artist must either be an employee of the company or create the work pursuant to a valid written
agreement—and even then, the work must fall within a few specific categories defined by copyright law.
A license is a contract through which the artist or copyright holder grants certain rights to another party and promises not to sue them for certain activities. For instance, a novelist might grant a license to a film studio to create a screenplay based on a novel. A license specifies the fee or royalty to be paid to the artist, the exact scope of use of the copyrighted material, and the time period for which the company may use the material, as well as any other conditions that the parties agree to attach to the license.
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