Chapter 1: First Steps 1 First Steps STATE OF THE UNION This tenth edition is the most extensive rewrite of my book since the first edition. That''s because the music industry has changed more radically in the last few years than at any other time in its history. Let me explain: Since the 1890s, music has been monetized by selling something: wax cylinders, piano rolls, shellac records, vinyl records, cassettes, CDs, and cheesy merchandise (well, I guess we''re still doing that). But the business is no longer based primarily on sales. Spotify, Apple Music, Amazon Music, YouTube, and similar services have revolutionized how people consume music, so that streaming is now the dominant revenue source for recorded music. And this change is WAY more drastic than you might think. Consider this: 1. In the past, when record sales were the mainstay of the recorded music business, you could go to a record store and buy two or three records at a time.

Today, you can only stream one song at a time. That may not seem like a big deal, but. 2. In the days of sales, an artist was paid the same money for each record sold, regardless of whether a buyer listened to it a thousand times or never took it out of the shrink wrap and used it as a doorstop. But today, the more listens you have, the more money you make. However. 3. In the old days, if my records sold big numbers, it didn''t make any difference to the number of sales you had.

Your fans would buy your albums, and my fans would buy mine. In fact, if you had a big seller, it would bring a lot of people into record stores, and that increased the chances of selling my records. But in the streaming world, that''s no longer true. For reasons we''ll discuss later, the more listens you get, the less money I make. A truly radical change. The good news is that, after fifteen years of music revenue falling like buckets of rocks, we had our first earnings increase in 2016. And every year after that, we''ve had double-digit growth. All because of streaming.

We still have a ways to go--at the time of this writing, the recorded music business is less than 60 percent of what it was at its peak in 1999. But I predict it''s going to be bigger than it''s ever been in history. Why? In 1999, the historical peak of the music biz, an average CD buyer spent about $40 to $50 per year on CDs; let''s call it $45. Today, with subscriptions priced at $10 per month, the average per-subscriber fee is about $7 (because of student and family discounts). So let''s use $7 per month, which means a music fan spends about $84 per year. That''s almost double the $45 of CD purchases we got from each fan in the good ol'' days. On top of that, the number of subscribers is growing all over the world. But wait.

there''s more! In the heyday of the music biz, the average CD buyer stopped going to record stores (or even listening to much music) in their early twenties. Today, people of all ages subscribe to streaming services (oldsters listen to Lawrence Welk, and youngsters want stuff like "Baby Shark," a song that can mercilessly eat your brain). Which means streaming is not only generating more money per user (the $84 vs. $45 in the above example), but it''s also bringing in a wider range of consumers than ever before. How can the industry not be bigger than ever? Another radical shift in the last few years is how the concept of an "album" is being challenged. What does an "album" mean in the streaming age, when you can listen to just the tracks you like? Why should artists even bother to make albums when they can release individual songs as soon as they''re ready? And if albums go away, what does that mean for recording contracts that have always been based on the delivery and release of albums? For example, if your contract requires you to deliver three albums, but nobody wants albums anymore, how do you ever finish the deal? And that''s just a taste of what''s new in this edition. There''s also an update of all the current industry figures, a new section on the recent copyright infringement cases, an overview of the Music Modernization Act, and much, much more. All waiting for you just inside the tent.

So step right up, folks, and lemme show you how the music business is shifting around like a Rubik''s cube. OPEN UP AND SAY "AHHH" For many years I taught a class on the music business at the University of Southern California Law School''s Advanced Professional Program. The class was for lawyers, accountants, record and film company executives, managers, agents, and bartenders who want to manage groups. Anyway, at the beginning of one of these courses a friend of mine came up to me. She was an executive at a film studio and was taking the class to understand the music biz as it relates to films. She said, "I''m here to open up the top of my head and have you pour in the music business." I loved that mental picture (because there''s a lot of stuff I''d love to absorb that way), and it spurred me to develop a painless way of infusing you with the extensive materials in this book. So if you''ll sit back, relax, and open up your mind, I''ll pour in all you need to know about the music business (and a little more for good measure).

HOW I GOT STARTED I really love what I do. I''ve been practicing music law for over thirty years, and I represent recording artists, songwriters, producers, music publishers, film music composers, industry executives, record companies, film companies, managers, agents, business managers, and other assorted mutants that populate the biz. I got into this gig on purpose, because I''ve always loved creative arts. My first showbiz experience was in grade school, performing magic tricks for assemblies. I also started playing accordion in grade school. (I used to play a mean accordion; everyone applauded when I shook the bellows on "Lady of Spain." I gave it up because I found it impossible to romance a girl while wearing an accordion.) In high school, I graduated from accordion to guitar, and in college at the University of Texas, I played lead guitar in a band called Oedipus and the Mothers.

While I was with Oedipus, we recorded a demo that I tried to sell to our family friend, Snuff Garrett (more about him later). Snuff, a powerful record producer, very kindly took the time to meet with me. That meeting was a major turning point in my life. Snuff listened to the record, smiled, and said, "Don. go to law school." So I took Snuff''s advice and went to Harvard Law School. While I was there, I played lead guitar with a band called the Rhythm Method. But it was quickly becoming clear that my ability to be in the music business and eat regularly lay along the business path.

When I graduated, I first did tax planning for entertainers. Tax law, like intricate puzzles, was a lot of fun, but when I discovered there was such a thing as music law, the electricity really turned on. In fact, I took the USC class that I later taught, and it got me so excited that I left the tax practice for my current firm. Doing music law was so much fun that it wasn''t even like working (I''m still not over that feeling), and I enjoyed it so much that I felt guilty getting paid (I got over that). My first entertainment law experience was representing a gorgeous, six-foot model, referred to me by my dentist. (I promised him I would return the favor, since most of my clients had teeth.) The model was being pursued (I suspect in every way) by a manager who wanted a contract for 50% of her gross earnings for ten years. (You''ll see how absurd this is when you get to Chapter 3.

) Even then, I knew this wasn''t right, so I nervously called up the guy to negotiate. I still remember my voice cracking as I said his proposal was over the industry standard, since most managers took only 15% (which was true). He retorted with "Oh yeah? Who?" Well, he had me. I wasn''t really sure what managers did, much less who they were. So I learned my first lesson in the art of humility. As I began to really understand how the music business worked, I found that my love of both creative arts and business allowed me to move between the two worlds and help them relate to each other. The marriage of art and commerce has always fascinated me--they can''t exist without each other--yet the concept of creative freedom, and the need to control costs in order to have a business, are eternally locked in a Vulcan death match. Which means the music business will always need lawyers.

Anyway, I now channel my creative energies into innovative business deals, and I satisfy my need to perform by teaching, lecturing, and playing guitar. Just to be sure I don''t get too straight, however, I cycle through my weird assortment of hobbies: magic, ham radio, weight lifting, guitar, dog training, five-string banjo, karate, chess, poker, backgammon, and real estate investment. I also write novels, which you are all required to buy. BRAIN SURGERY Speaking of marrying creativity and business, I''ve discovered that a rock star and a brain surgeon have something in common. It''s not that either one would be particularly good at the other''s job (and I''m not sure which crossover would produce the more disastrous results), but rather that each one is capable of performing his craft brilliantly, and generating huge sums of money, without the need for any financial skills. In most businesses, before you can start earning big bucks, you have to be pretty well schooled in how the business works. For example, if you open up a shoe store, you have to work up a budget, negotiate a.