Important Provisions in Creative Contracts Part 3 — Compensation and Remedies

Important Provisions to Look For When Making a Deal

When entering into a contract covering creative content, the provisions below are some of the most important to look for and make sure that you understand before signing. Knowing the terms and conditions surrounding Content (form, delivery, expectations), Ownership and Use, Compensation and Remedies are vital in being informed about your decision to sell your creation.

• *Note: The titles will likely not be the same as listed here in most contracts (they are loosely grouped by subject matter here), but what is important are the key terms and the details of the provisions, which are generally similar.

Compensation Provisions

Rates — Standard, negotiated, flat, escalating, geographical, performance based? How are you going to get paid for your content? Spell it out! In some industries there are standards or negotiating windows in which creators work within when making deals. These may be different from creator to creator or from per your contracting partner. They may also change based on how successful you are (you may hear stories of certain movie stars being able to get a percentage of the revenues from the movies they star in or musicians keeping a large amount of their royalties). This can be a place where success metrics can be leveraged to your benefit. If you can negotiate it, being able to receive a higher royalty/payment rate after a certain number of sales (ie a gold or platinum album), an important listing (ie NY Times Bestseller List) or an industry award (ie Grammy, National Book Award, PEN/Faulkner, etc) can lead to a more substantial payout once your work has proved itself.

Payment Terms — This is the who, what, where, when, and how of how you actually get your money! Mistakes here can cause delays in payments or in extreme circumstances, nonpayment. It is very important that you have all of these provisions set up properly so that you know who is paying you, where the money is going and based on the Rates, how your money is coming in. Important provisions here are the calculations and cutoffs of Rate accumulations, if any deductions or expenses are being taken from revenues before you get your compensation, and terms relating to the status of payments that come to you, particularly whether your pre-delivery payment(s) are an advance, a fund, or a flat fee payment.

Rate and Payment Term Distinctions — Have separations and differentiations spelled out if necessary. Will all of your rates be the same or will there be different rates for different uses or media? Will all rate types will be calculated and payed together or separately? These issues can be particularly important for musicians and authors. For example, if you are an author, will you get the same royalty for hardbacks and paperbacks? What about audio book sales? How will you get paid if someone makes a movie out of your work? As we move further and further into a multimedia world and with new technologies being created at the speed of light, it is vital in creative contracts not only to have provisions detailing payment options for different media (hardback/paperback/audio, records/streaming/radio, editions/international/re-releases, sequels/derivative works/adaptations, etc), but also different formats. For instance, say your music recording contract mentions rates for record sales, downloads, and streaming, but a new type of service emerges that becomes the new standard. What are your rights in your content in this new format and how would you get paid for your content on it? This type of technological disruption can cause confusion, and terms created to catch up with the times may be arbitrary or otherwise unfair to the creators (this is basically what happened in the early days of streaming). Having a contractual option for renegotiation for new format rates prior to any distribution on such a format or an “industry standard” plan could help protect your interests in a situation like this. If you did have to sue, generally a court wouldn’t leave you high and dry on the issue, but its generally best to not leave that type of decision to someone else.

Example Rate and Payment Provision (Book Publishing Agreement):
1. Publisher shall pay to the Author the following royalties on all copies of the Work sold through normal business channels, now known or later developed, less returned products and reasonable reserves of funds for potential returns:
(a) On the first 25,000 hardback copies: 5% of the Suggested Retail Price sold without sale or club discount;
(b) On all hardback copies thereafter: 6.5% of the Suggested Retail Price sold without sale or club discount;
(c) On all paperback copies: 3% of the Suggested Retail Price sold without sale or club discount;
(d) All royalties shall be reduced by 1% for Spanish language editions not first published in Spanish;
(e) On all copies of any edition sold in Canada: 2/3 of the prevailing US royalty rate;
(f) On any copies sold outside of normal business channels: Author shall recieve 10% of the Amount Received;
(g) On all copies sold digitally or in any new media subsequently discovered or utilized by the Publisher to distribute works: 25% of the Amount Received.
2. An accounting of copies sold through all available channels shall be made quarterly and royalty payments shall be calculated and paid within 15 days of the end of each accounting period. All payments due to the Author shall be placed in the Author’s Royalty Account and no amount shall be drawn from such Royalty Account by the Author until the Advance Against Royalties has been recouped. After such time, the Author may draw upon any available funds in the Royalty Account upon proper notice to the Finance Department at his/her discretion.

Don’t forget to get some free copies for yourself! 😁

Remedies

Especially in circumstances where the finished product isn’t created or finished (recording contracts, commissioned works, idea-phase book deals, etc.) what are the consequences if you don’t deliver? On the other hand, what are their consequences if you do deliver and the other party doesn’t compensate or distribute your content properly? Remember, protect your rights and don’t give up more than you want!

Remedies for the Artist — As the content creator, you want to be absolutely certain that if the you deliver and the record label, publisher, buyer, what have you, doesn’t accept (or unreasonably rejects) the delivery or doesn’t properly compensate you that you have safeguards in place. The most important is that there is a reversion of IP rights, meaning you get back all the rights you transferred or licensed under the agreement. Another useful creator-side remedy is retaining of paid sums up to the point of conflict. For example, if you agree to create a sculpture for a particular buyer and he refuses to accept it on some unreasonable grounds, you would not want to be responsible for repaying or otherwise compensating the buyer for the materials and work you have already put into the work. A stipulation that certain sums once paid are final and nonreturnable can be very useful. These provisions in your contract help to protect the work you have put in to creating the content as well as a warning to the other party that they will not be able to keep the content in the event they do something wrong.

Remedies for the Other Party — In the event that you as the content creator don’t deliver the finished product, or don’t deliver it on time, or deliver a product that is not up to the specifications of the agreement, there are generally several remedies that the other party will try to enforce against you. In some cases, particularly in some older recording contracts, failure to deliver would often trigger an obligation for the artist to repay the full amount of the advance or prepayment that was given. This is quite a harsh situation, but options like structuring payments into segments so that only the “completion payment” is withheld or attempting to negotiate out of such a penalty all together could help to alleviate the financial impact of a situation where you are unable to deliver. Finally, in opposition to what we discussed in the artists remedies above, the other party may try to keep the rights in whatever work is submitted or delivered. As the content creator, it is in your best interest to limit or prevent this type of remedy, especially in a rejection situation.

I hope you have enjoyed this series of posts and that you are a little more prepared the next time you are considering selling your content!