WILL THE 360 DEAL BE THE NEXT VICTIM OF CALIFORNIA’S TALENT AGENCIES ACT

I. INTRODUCTION
It was the summer of 2010 and Manny Steele had just quit his job at one of the remaining ‘big four’ major record labels. Steele spent the last 15 years of his life as an A & R representative, in other words he was a talent scout. His job consisted of keeping his ear to the ground to discover artists with raw talent and huge potential. Steele would then attract the artist to the label by connecting over a shared vision of artistic goals and convincing them that signing a traditional recording contract with the label would be their springboard to success. In recent years, the label had been suffering huge losses due to the massive decline in recorded music sales, so before becoming another casualty of ‘downsizing’ Steele decided to take his leave.

Steele learned from the mistakes of those around him while at the major label. He had witnessed how the rise of illegal file sharing had resulted in massive declines in physical music sales and left the label scrambling for new ways to generate revenue. Steele’s solution was to start his own record label and jump on the new paradigm of signing talent to ‘multiple rights agreements’. Under a multiple rights agreement, better known as a 360 Deal, the label becomes business partners with the artists it signs, investing in their brand on the ground floor to develop the acts into profitable entities by providing business acumen, administrative support and guidance. In return, the company is granted a right to share in the income from all of the artist’s revenue sources including music publishing, merchandising, endorsements and live touring. Steele was hoping to offset the losses he was bound to face in physical music sales with the income from these ancillary rights that his label would be entitled to in 360 Deals.

Steele’s company was enjoying a decent amount of success, until the fall of 2013 when Larry and The Inequitables, the most successful band that the label had signed and developed, decided to stop paying the label pursuant to their contract. The band had decided that they had outgrown the label and wanted to move on to bigger and better things. Steele attempted to work things out with the band, but when all else failed, he sued for breach of contract. Guided by their attorney, the band pulled out the oldest trick in the California artist’s handbook and responded to the action by filing a complaint with the Labor Commissioner. The complaint alleged that shortly after signing the band to the label, Steele had violated the licensing requirement of California’s Talent Agencies Act (TAA), when he had used his old label contacts and leverage to get them the opening slot for a sold out show at the Staples Center. While the concert paid pennies, Steele believed it was worth their time. It was worth it because he could use the concert slot to showcase the band to the Los Angeles music press, as well as to a couple of old associates at a heavyweight talent agency. The show went off without a hitch and the band was signed to the agency, which proceeded to help develop them into a successful international touring act.

Steele’s attorney is now advising him to get ready for a battle because the Labor Commissioner may void the entire 360 Deal if the band can prove that by getting them the show at the Staples Center Steele acted as an unlicensed talent agent. Steele does not understand how merely attempting to further the band’s career, ironically by landing them a concert that led to signing with a licensed talent agent, may result in his 360 Deal being declared void and unenforceable.
This is not a new battle for those representing talent in California; however, historically the contracts being disputed were between artists and their personal managers, rather than their record labels. 

The recent developments in digital distribution and social networking however have resulted in a massive decline in physical album sales, forcing the entire music industry to evolve and create new business models. One of the most notable changes has been in the evolution of the traditional recording contract, which focused on the rights, and exploitation of sound recordings, to the 360 Deal. The 360 Deal essentially forms a partnership between artist and an investing party where that party has an interest in all of the artist’s entertainment related revenue streams. However, the 360 Deal has created the demand for those contracting with artists to act in a more hands on role. While the 360 Deals have provided a glimmer of hope for the crumbling music industry, these deals may also expose parties to liability under California’s notoriously broad and ambiguous TAA if the contracting party becomes involved in the solicitation of employment opportunities on the artist’s behalf.

This comment suggests that the problem with the TAA in its current state is that it does little more than provide artists with a statutory loophole that can be used to avoid their contractual obligations. This is because the TAA fails to recognize the reality that licensed talent agents typically do not work with unknown talent until they show a potential for success. However, in order to show such potential, those working with the talent on the ground floor often must engage in so-called procurement activities by helping to solicit entry-level employment opportunities. Furthermore, as a result of the changing roles of the record label in 360 Deals, those willing to invest in artists through these deals may be the newest addition to the laundry list of parties exposed to liability under the TAA. This potential for liability, may in turn, encourage music companies to do less business in California, thus harming the growth of one of the state’s best known industries. This problem could be remedied by revising the current statutory definition of talent agency to exempt those who choose to waive their fees for engaging in so-called procurement activities, and refocus the statute to target behavior that harms artists.

Section II will examine California’s TAA and outline modern case law interpreting the statute in the context of the traditional claims by artists against their personal managers. Section III will provide the evolution of the recording contract, highlighting the differences between the traditional recording contract and the modern 360 Deals. Section IV will suggest that the changing role of the record labels and concert promoters in 360 Deals may expose them to liability under the overly broad terms of the TAA and argue that becoming licensed as a talent agent is not a viable option to this business model. Lastly, section V will propose that these issues may be remedied by amending the TAA to first provide an exemption to the licensing requirement when commission or participation fees are waived; and secondly target unethical behavior by adjudicating disputes based on whether said unlicensed activities actually harmed or could cause harm to the artist.

II. CALIFORNIA’S TALENT AGENCIES ACT
Hollywood California is recognized as one of the music industry capitals of the world. While the glitz and glamour are what the media portrays, the music industry is a cutthroat business. The competitive nature of the music business has dictated that artists rely on a team of representatives to help them both get their foot in the door and navigate complex deals being offered if they become successful. Recognizing the need for regulation of this industry, the California Legislature and the various unions representing artists have made both public and private law to regulate this industry of talent representation.

Traditionally, two of the main representatives on an artist’s team are the personal manager and the talent agent. Simply put, the talent agent is in charge of finding employment opportunities for their artists and the personal manager advises the artist on which opportunities to take.22 One of the main sources of employment opportunities for musicians is live engagements and touring. While talent agents focus on seeking employment opportunities, the role of a personal manager is much broader. Personal managers act as general advisors to their clients on all aspects of their careers and are typically the first to get involved with an artist. Therefore it had traditionally been the role of the personal manager to build their clients into desirable acts in order to gain the interest of record labels and fill out the rest of the team, including attracting the services of a licensed talent agent.

In the entertainment industry the agreements between both talent agents and personal managers and their clients typically provide compensation through a commission based on a percentage of gross income from relevant endeavors. Thus the talent agent will earn a commission on income from employment they secure for the artist, whereas the personal manager will earn a commission on all aspects of an artist’s income, including but not limited to the income from live performances, record sales, endorsement deals, merchandising and music publishing royalties.
 (“As a general rule of thumb, the job of an agent is to find work for his/her clients, whereas the job of a manager is to guide and develop the client’s career.”).

The Labor Commissioner and the unions that represent the artists regulate the commission rates of talent agents to ten percent of gross income. On the other hand personal managers have remained unregulated and typically charge higher rates in the range of ten to twenty percent. Talent agents will generally look to represent a large number of artists because of the restrictions on commission rates as well as the narrow scope of their duties. The California Supreme Court noted that “[t]hese restrictions create incentives to establish a high volume clientele, offer more limited services, and focus on those lower risk artists with established track records who can more readily be marketed to talent buyers.” On the other hand, personal managers tend to take on fewer artists as clients, because of the amount of work and risk involved in developing unknown acts into success stories. While personal managers have traditionally taken on the most risk, they are rewarded by the prospect of a much larger pool of commissionable income and a higher percentage should their clients become successful.

A. Legislative History and Regulatory Scheme
Providing protection for artists from the business practices of their representatives had already become an issue in the early part of the twentieth century as the California legislature became aware of the unscrupulous and generally unethical practices that were occurring on a regular basis by those seeking employment opportunities for artists. One commentator noted that talent agents had become notorious for “sending female artists to houses of prostitution, sending artists to dangerous locations, arranging for minors to work in bars, and splitting fees with owners or managers of the venues that booked their artists.” The Legislature reacted by promulgating a section in the Private Employment Agencies Law of 1913. Over the years and after several amendments, the California Legislature separated these laws into the TAA, found in sections 1700 through 1704 of the California Labor Code. At the present time the TAA has its own chapter in the Labor Code, specifically geared towards regulating “procurement activities” of those seeking to represent artists. In other words, the statute dictates who and how one may seek employment opportunities on behalf of an artist. As one commentator noted “[b]y allowing only [licensed] agents to procure employment and by regulating those agents through the Labor Code, the Legislature ensures that agents (and managers, who are effectively regulated by the Legislature through the prohibition on their procuring employment) do not take advantage of their clients.”
In order to accomplish this goal the TAA requires that any party acting as a talent agent in California become licensed, thus subjecting them to the statute’s many restrictions and regulations including record keeping procedures, fiduciary duties and payment practices. For example, in order to obtain a license an agent must submit their basic contract forms to the Labor Commissioner for approval. While the statute itself does not include express fee restrictions, the Labor Commissioner has the power to withhold approval if the contracts are deemed to be unfair or oppressive. Under this power the Labor Commissioner, acting in accord with the various union franchising agreements, has capped talent agent commission rates at ten percent of gross income from any employment procured. The TAA provides a broad definition of a talent agency as “[any] person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists.” The licensing requirement and broad definition attempts to regulate those who act as agents for artists as well as bar any other party from end-running the statute by completely prohibiting them from acting in a similar capacity.

Furthermore, under the TAA, the Labor Commissioner has original and exclusive jurisdiction over potential violations of the statute. In other words, when a party either files a complaint or asserts an affirmative defense alleging a violation of the TAA, the case must first go before the Labor Commissioner prior to being heard in any other court. If a party is deemed to have violated the TAA, the Labor Commissioner has the power to order a disgorgement of commissions, as well as render any contracts between the parties void and unenforceable. Therefore, it is the Labor Commissioner’s interpretation and enforcement practices of the TAA that are often the beginning and end of disputes between artists and their representatives.

In 1982, the legislature created the California Entertainment Commission (CEC), and charged them with studying the current state of the industry in order to propose any necessary changes to the statute. The CEC was made up of a mixture of industry professionals appointed by the legislature as well as licensed talent agents, personal managers and artists. Based on the recommendations of the CEC, the California Legislature permanently adopted three amendments in 1986. The first amendment created an express exemption to the licensing requirement for procuring recording contracts, recognizing “the business reality that a recording artist could not secure the services of an agent without a recording agreement.” The second amendment made it clear that an unlicensed party could act in conjunction with and under the instruction of a licensed talent agent, because in theory the personal manager and talent agent would be working closely as part of the artist’s overall team of representation. Third, a one-year statute of limitations on claims was instituted. Finally, the CEC reviewed, but expressly declined to recommend an exemption for incidental procurement activities stating “one either is, or is not, licensed as a talent agent [t]here can be no ‘sometimes’ talent agent, just as there can be no ‘sometimes’ professional in any other licensed field of endeavor.” Commentators have suggested that the decision to decline such an exception was based on the ongoing turf war between personal managers and talent agents. Talent agents in California have claimed for years that if an exemption were enacted for any kind of procurement activities, it would allow personal managers to obtain employment opportunities for their clients without the regulatory restrictions.

While many critics contend that the TAA was intended to apply only to those individuals whose main role is to procure employment, the Labor Commissioner has firmly stated that the Act applies to anyone who engages in procurement activities for an artist, even if such procurement is incidental to the central nature of the contractual relationship. Both the Labor Commissioner and California Courts upholding the Commissioner’s decisions have cited the TAA’s remedial nature to justify such a broad application. In other words, the TAA is meant to provide a remedy for artists who are at risk of being harmed by the unethical practices of their representatives. Therefore the TAA should apply in a broad fashion to anyone who is representing talent. It is this broad application of the statute that is now threatening to expose record labels, like Steele’s described in the introduction, and concert promoters to liability because the 360 Deal now puts these parties in the business of developing all of their artist’s revenue streams including performance based income.

As the case law below suggests, there is a disturbing pattern that has been seen time and time again that has put the TAA to questionable use. When an artist decides they do not want to pay their personal managers (and more recently lawyers ), or when these representatives file suit to collect unpaid fees or commissions, the artist simply files a complaint with the Labor Commissioner alleging that their representative acted illegally as an unlicensed talent agent.

B. California Case Law
In 1990, four years after the permanent adoption of the three amendments recommended by the CEC, the TAA’s new language would be tested. In Waisbren v. Peppercorn Productions, Inc, Brad Waisbren a personal manager sued his former clients Peppercorn Productions for breach of contract when they ceased to pay the management commissions due under their agreement. Peppercorn’s sole defense was that during their six year relationship Waisbren had occasionally procured employment for them without being licensed. The lower court dismissed the action holding that the contract was void,68 notwithstanding the fact that they acknowledged that Waisbren’s procurement activities were incidental to his role as personal manager, taking up only a small portion of his overall time and duties. The appellate court affirmed the decision of the lower court relying heavily on the Labor Commissioner’s past decisions and the fact that the CEC had spent time exploring the option to include an exemption for incidental procurement activities, but ultimately declined to include such an exemption in their recommendations. In doing so, the court held that “a person can hold a particular ‘occupation’ even if it is not his principal line of work.” This holding expressly rejected Waisbren’s argument that the statute applies only to those whose principal duties include seeking employment for artists.

Once again in the 1999 case, Park v. Deftones, personal manager Dave Park sued former clients The Deftones for breach of contract when the band unilaterally terminated his management contract and refused to pay commissions he claimed to be owed. In 1992, Park had entered into a management agreement with the band under which he was entitled to a twenty percent commission from all of the band’s income. Four years later, after Park had secured the band a recording contract with Maverick records , the Deftones terminated the contract and refused to pay outstanding commissions. When Park filed his claim for breach of contract, the band responded by filing a complaint with the Labor Commissioner, referring to some eighty-four engagements that they alleged Park negotiated for them without a license. The Labor Commissioner deemed that Park had acted as an unlicensed talent agent and declared that all contracts between the parties were void and unenforceable.

On appeal, Park argued his procurement activities fell within the safe harbor provision of the 1982 amendments as he claimed that as they were “were undertaken in order to obtain a record agreement.” To further this argument he noted that he waived any commissions due under his contract for these engagements. Notwithstanding the fact that the commissions sought were in connection with the recording contract, not from the engagements procured without a license, the court affirmed the Labor Commissioner’s decision to void Park’s management contract. The court affirmed the Labor Commissioner’s interpretation that any act of procurement without a license, even in furtherance of obtaining a record contract, is a violation of the statute, thus reducing the 1986 amendment to a vague standard. As one commentator noted, “[t]he question thus becomes how many showcases constitute a violation of the Act. While it is probably more than one, but certainly less than eighty, courts have provided no guidance that would help personal managers work within the [TAA] and avoid the risk of losing all commissions.” It also seems that the court rejected the notion that a live engagement is not an activity sufficiently related to a recording contract to fall within the safe harbor provision. Finally, relying on the CEC report, the court held that because Park’s contract expressly granted him the right to commission off of all revenue streams, the fact that Park waived commissions from the live performances is irrelevant and could not be used as a defense.

In 2008, the California Supreme Court handed down a potentially landmark decision in Marathon Entm’t Inc., v. Blasi. The case relayed the story heard over and over again of a personal manager, in this case Marathon Entertainment, suing to collect unpaid commissions due to them under their contract with actress Rosa Blasi for the lead role that she had played on the television show Strong Medicine. Marathon’s relationship with Blasi had been plagued by challenges by the behavior of the actress. In 2001, after landing that lead role, Blasi unilaterally reduced Marathon’s commission from fifteen to ten percent. Later that year she ceased to pay any commissions and then walked away from her contract claiming that she wanted her licensed talent agent, John Kelly, to take over as personal manager. Blasi proceeded to obtain a stay of the action and file a complaint with the Labor Commissioner alleging that Marathon had acted as an unlicensed talent agency. The Labor Commissioner agreed with Blasi and voided the entire contract between the parties thus barring Marathon from any recovery. On appeal the court reversed in part, holding that the doctrine of severability, as found in California Civil Code §1599, was applicable as a remedy. Therefore, because Blasi failed to provide any evidence or even argue that Marathon had acted illegally with regards to the particular role in Strong Medicine, the court was within its power to hold that this portion of the contract was valid and enforceable.

The California Supreme Court granted review and took the opportunity to provide some further clarification. First, the Court took the opportunity to remind the Labor Commissioner that in many cases the doctrine of severability was available as a remedy and if applicable would avoid the inequities of voiding an entire contractual relationship. However, as many critics have pointed out, without making severability mandatory, it is unlikely that the Labor Commissioner will put the doctrine to use based on a history of rulings that have been hard on personal managers voiding entire contractual relationships. Second, the Court held that the TAA “regulates conduct, not labels; it is the act of procurement (or soliciting), not the title of one’s business, that qualifies one as a talent agency and subjects one to the [TAA]’s licensure and related requirements.” This essentially broadened the scope of liability to anyone working directly with talent, which theoretically includes a concert promoter, record label or lawyer.

Most recently in the case of Solis v. Blancarte the Labor Commissioner yet again expanded its broad interpretation of the definition of what it means to “procure” or “attempt to procure” employment. In 2002 Mario Solis, a broadcast journalist, was approached by a television station who expressed interest in offering him a contract to be an on-air sports reporter. Shortly thereafter Solis approached James E. Blancarte, an entertainment attorney, who agreed to handle the contract negotiations with the station in return for a commission of five percent of the net monies paid to Solis from the television station. These terms of representation were consummated in an engagement contract between Solis and Blancarte. In 2011 Blancarte sued Solis for unpaid commissions due under the engagement contract between them. After filing an answer to the complaint, Solis filed an action with the Labor Commissioner seeking to void the engagement contract alleging that Blancarte had acted as an unlicensed talent agent when he negotiated the television contract.

In its decision the Labor Commissioner voided the entire engagement contract holding that Blancarte had engaged in illegal procurement activities by negotiating the Solis’ employment contract without a talent agent license. In doing so the Labor Commissioner made two watershed, and somewhat disturbing, rulings. First, the Labor Commissioner expressly stated that attorneys are not exempt from the licensure requirements of the TAA. Further, the Labor Commission stated that “[b]y negotiating the KNBC agreements on petitioner’s behalf, respondent attempted to procure and procured employment for petitioner. As a consequence, respondent engaged in and carried out the occupation of a talent agency.”

This ruling essentially expands the definition of “procuring” to any type of negotiations regardless of whether the opportunity had been previously presented to the talent directly.

III. THE EVOLUTION OF THE RECORDING CONTRACT
A. The Traditional Recording Contract
The traditional recording contract was an agreement between a record label and an artist or musical group focusing on the ownership and profit sharing from the sale and exploitation of the artist or group musical recordings. Plainly stated, under a traditional record contract the artist sold its rights to the physical recordings of their music, in return for funding and a royalty rate. As with most contractual relationships, all of the major provisions would be subject to negotiations affected by the leverage of each party, with more established artists being able to come out with more favorable terms. In return for the rights to the physical recordings, the label would typically pay a cash advance to the artist as well as pay recording, manufacturing, distribution, marketing and publicity costs. All of these expenditures would go into the artist’s ledger and be held as a debt until recouped from the sales of said recordings, at which point the label would then pay out the agreed upon royalty rate to the artist. In addition to the advance and royalty rate, the contracts would typically have a “term” provision that dictated the length of the relationship. As opposed to a set number of years, the number of albums that the artist was committed to record and deliver to the label calculated the length of a traditional recording contract. Delivery commitments were anywhere between six to eight albums, with a specific number that the company guaranteed to release. Further, the record company retained the right to terminate the contract if the artist did not become profitable after the guaranteed albums were released. In theory, this structure of advancing costs in return for the perpetual right to exploit the physical recordings and a fairly low royalty rate was supposed to allow the record companies to see huge profits.123 As one commentator has noted “the general business model of the industry . . . permit[ted] record labels to invest enormous sums of money in unproven artists and capitalize on the successful ones.” However, with the advent of online music piracy in the late 1990s resulting in a sharp drop in physical music sales, this business model started to crumble.

B. Multiple Rights Agreements – “The 360 Deal”
To compensate for the decrease in physical music sales, record labels began to ask for rights to other revenue streams in order to justify making substantial investments in artists giving birth to the concept of the 360 Deal. One attorney summarizes the 360 Deal as “allow[ing] the labels to either own or share in the profits from all areas of [an] artists’ career, including: music publishing, live touring, merchandising, sponsorships, endorsements, websites, fan clubs and their associated ads, literary rights and acting.” Essentially the label asks for either an ownership share or the right to participate in 360 degrees of an artist’s ancillary rights. Similar to the traditional recording contract, the terms and royalty rates depend largely on the bargaining power and previous success of a particular artist. While opinions of 360 Deals vary widely, they have become a new and perhaps non-negotiable reality throughout the recording industry, allowing record labels to become less dependent on the sales of its artists’ recordings by granting access to revenue streams that have been “traditionally reserved exclusively for the artist.”

The following is a brief overview of the different entities that are currently signing artists to 360 Deals:

i. Major Labels
Since 2005 four large companies, Warner Music Group, EMI, Sony BMG and Universal, who control the majority of the market share for music sales, have dominated the recording industry. These companies are known as “major labels” as they are the largest in the industry. 360 Deals are now the standard deal used by all of the major labels.134 These labels, who have become increasingly criticized for their excessive overhead and high paid executives, justify the demand for additional revenue streams by asserting that since “[the] labels invest the most in the risky and expensive process of developing talent, so why shouldn’t they get a bigger share of the talent’s success?” Critics have argued that major labels use 360 Deals as a money grab in order to maintain their huge overhead and the overall illogical business model of investing hundreds of thousands of dollars into several artists who have a small shot at success. 

 ii. Independent Labels
Outside the world of the “big four” exists a large number of smaller labels, typically referred to as “independents.” Some of these labels remain truly independent by having no ties to any of the major labels or their distributors, while others have been acquired, supported or distributed by the majors. Historically, independent labels have succeeded by signing acts outside of the mainstream or in a specific niche. Independent labels also typically offer less money up front, but can attract artists for different reasons such as their credibility within a particular genre or simply because they seem to be more artist-friendly. Some independent labels have been in the business of obtaining multiple rights from their artists for some time now. These labels have typically partnered with their artists and provided in house services in return for the access to revenue outside of strictly record sales. Other independent labels originally stayed away from 360 Deals, as they were viewed as another attempt by the major labels to overreach into the pockets of bands. However, with the Wall Street breakdown of 2008, many independent labels lost their funding from venture capitalists, motivating more of them to begin to go after 360 Deals in order to stay afloat. Aside from shrinking profits from declining physical sales, 360 Deals make sense for many independent labels who sign acts outside of the mainstream, as these acts typically make the majority of their income from touring and endorsements as opposed to record sales.

 iii. Concert Promoters
Along with record labels, major concert promoters such as Live Nation have also begun to sign artists to 360 Deals. Traditionally a concert promoter was the party who contracted with an artist for their live engagements. These agreements vary from deal to deal, but would generally include a fee guaranteed to the artist as well as a breakdown of expenses needed in order to organize and advertise the show. The promoter who would be paid back by ticket sales would typically pay these costs up front. Any profits would then be split between the artist and promoter as per the percentages agreed to in the contract.

As record labels continue to target touring revenue in their deals, major concert promoters have been able to persuade many top grossing touring acts that the concert promoter may be a better business partner. A prime example is Madonna, who left her record label Warner Music Group in 2007 for a 360 Deal with Live Nation worth around $120 million dollars. Live Nation has also signed 360 deals with U2, Nickelback and Jay-Z, and in recent months has shown an interest in entering into the business of artist management by beginning negotiations to acquire the management companies that represent U2 and Madonna. These deals are not likely to expose Live Nation to a claim that they have violated the TAA. This is because an artist at the superstar level will already be represented by a major licensed talent agency, therefore it would not be likely that Live Nation would be attempting to procure ‘opportunities’ on their behalf without the agency being involved. Further, with regards to live performances and touring, Live Nation is likely to directly engage the services of the talent it has signed. To that end the Labor Commissioner has held that one does not engage in “procurement activities” by directly engaging the services of an artist.

Nonetheless major concert promoters such as Live Nation could unquestionably become a heavyweight party in favor of amending California’s TAA if they decided that they wanted to follow record labels and get in on the ground floor with new unknown artists or if they wished to not expose themselves to liability for soliciting opportunities with third parties such as endorsement deals that involved personal appearances. This may become especially relevant if the large deals with superstars like Madonna are not able to yield healthy profits because of the millions advanced up front.

C. The New Roles in 360 Deals
The 360 Deal has created a new dynamic between artists and their record labels. As a result of the demanding financial nature of these deals, artists and their attorneys have begun to expect that the other party provide some added value in return for the access to all of the revenue streams. Superstar rapper and record label executive Shawn ‘Jay-Z’ Carter echoed these sentiments in an interview with Billboard Magazine:
I believe that 360 becomes a bad deal unless you’re doing artist development. Being an artist, I’m an artist-friendly executive as well. You can’t take someone’s rights, profess to be an expert in that field and then not do anything for it. If you’re sharing and partnering with an artist, you better build an artist. Or the record company is going to lose out. You could make a 360 deal with an artist and maybe you don’t have that artist two years from now. We can’t – as record executives – expect to take someone’s rights and not add value. If we’re adding value, it’s a partnership. If we’re not, then we’re just trying to find another way to make up for the money being lost on the Internet. And that’s not cool.

Some labels have responded to this demand for added value by providing more in-house services for their artists, others have responded by making investment commitments into various aspects of their artists’ endeavors such as merchandising or touring. Either way labels are now contractually committing more money, time, or both to keep their artists satisfied and maintain maximum control over the investments of time and money. This means that the role of working with artists from the ground up and maximizing all potential opportunities, historically that of the personal manager, has in many cases been encompassed within the duties of the investing party in a 360 Deal. Even if the artist does have independent third party management, the investing party to a 360 Deal, whether it be a record label or concert promoter, will likely still be more hands-on in developing the artists to better the chances of seeing a return on their investment. As discussed in section IV below, this new role seems to have set any party in a 360 Deal that either works in, or deals with a California artist on a crash course with the current reading of the TAA.

IV. IS THERE LIABILITY UNDER THE TAA IN 360 DEALS?
The reality that exists in the modern music business is that the role for of the record label or concert promoter in a 360 Deal will likely include being more hands-on in obtaining opportunities for its artists in the areas of touring, merchandising, endorsements and sponsorships because of the ability to share in the profits from these revenue streams. As discussed below, it is very likely that this new hands-on approach could be considered procurement activity creating liability under the TAA.

Historically, touring revenue has been a healthy income stream for artists, and has even seen an increase as physical record sales continue to plummet. Edwin F. McPherson, an entertainment litigator and TAA expert witness notes “more than ever, bands need to tour to develop a significant following . . . without a solid record deal or at least a large following, it is highly unlikely that a band will ever secure an agent.” In the past recording contracts may have involved giving artists loans to help cover touring expenses called “tour support.” Traditionally, record labels viewed touring as a promotional tool that could help spread awareness of a new artist, generating record sales. These loans would then be paid back through taking the artists’ royalty from record sales until the debt was fully recouped. The major difference in a 360 Deal is that the record label as the investing party is given direct participation in a percentage of their artists’ touring revenue streams as opposed to the right to recoup tour support loan from record royalties.

Record labels and concert promoters alike agree that aside from social media, touring and live performances are still a vital way to build awareness for their artists. Opportunities such as promotional concerts, talent showcases and support slots on the tours of larger headlining acts are some examples of how a label or promoter can begin to develop such potential. Therefore it is very likely that the touring revenue stream will be one of the key terms in many 360 Deals. The fact that all touring activities include personal service obligations from the artist places these activities squarely within the scope of the TAA’s definition of a talent agency.

In addition to live performances, merchandising and endorsement deals are also great ways for an artist to gain increased publicity and can turn into lucrative revenue streams if the artist becomes successful. In many instances a record label or concert promoter can leverage a new artist into these types of deals with companies that do business with the more successful artists on its roster. As discussed below, the issue with merchandising and endorsement deals is that they often include personal service obligations of the artist, such as autograph signing sessions, photo shoots and filming commercials, that can be construed as employment opportunities under the TAA.

Based on the case law discussed above, if a 360 Deal grants a right to participate in the profits from any of the above opportunities, any act of solicitation or negotiation by a label or concert promoter likely falls within the definition of so-called “procurement activities” and is arguably illegal if not done in conjunction with, and at the instruction of, a licensed talent agent. This creates a great potential for artists wishing to remove themselves from a 360 Deal to invoke the TAA in order to void, or at least sever, some of the undesirable portions of a 360 Deal.

Under Marathon Entm’t Inc. v. Blasi, it would seem that a record label or concert promoter might fall within the definition of a talent agency under the TAA if they engage in procurement activities of any kind regardless of their title or contractual duties. Solis v. Blancarte adds the potential for liability if the label engages in any kind of negotiations surrounding these opportunities, unless they are specifically done at the request of a licensed talent agent. Additionally, under Weisbren v. Peppercorn Prod., Inc., the label or promoter would still be liable even if such activities were incidental to the principal nature of their duties. Finally, under Park v. Deftones if the 360 Deal allows for participation in the artist’s touring income, then any procurement activities could lead to the Labor Commissioner rendering the entire contract void, even if such participation is waived. Therefore, it seems like it is just a matter of time before the 360 Deal is tested in front of the Labor Commissioner.

With the possibility of liability looming, the TAA puts record labels (and concert promoters) offering 360 Deals in an untenable position with respect to their artists. Similar to the personal manager, the label or promoter must see a return on their investment in order to survive, but the TAA makes it illegal for them to act in accordance with industry standard activities that would help them attract the services of a licensed talent agent.

A. Why Not Become a Licensed Talent Agent?
What would seem like the most logical way to avoid the looming threat of liability under the TAA is for the record label or concert promoter to become a licensed talent agent. However, in addition to the regulation of the TAA, the unions that represent artists place further restrictions on licensed talent agents that combine to make this an unfeasible alternative.

For example, unions such as the American Federation of Musicians (“AFM”) place restrictions on the commission and duration terms of contracts between artists and licensed talent agents. The unions have been successful in enforcing these restrictions by having their members agree to only work with union certified agents. It is these same restrictions that if applied to the 360 Deal, would make it an unviable business model.

i. Profitability
In order for 360 Deals to make business sense, the artists usually must give up between five and fifty percent of their revenue streams. As previously discussed, record labels and promoters have viewed 360 Deals as a business partnership between them and the artist because of the extent to which they are often involved financially in return for their percentages, therefore a fifty percent partnership is desirable. However the AFM, the union representing musicians, restricts licensed talent agents to a maximum commission rate of fifteen percent (or twenty percent if they are also acting as personal manager). Restricting the percentage that a party to a 360 deal can access on one of the most lucrative revenue streams is certainly not desirable for the investing party. Furthermore, this restriction could be fatal to the profitability of a deal, because unlike merely acting as a talent agent, the investing party must take these profits and then use them to offset investments in the recording, promotion, marketing and overall development of the artist.

ii. Limits on Contract Duration
The AFM also restricts the duration of a talent agency agreement with an artist to between five and seven years. This is in contrast to the recording contract that measures duration by the number of records as opposed to years. Much like the traditional recording contract, the length of 360 Deals is typically determined by the number of records the artist is committed to deliver to the label. Typically record labels will demand between four and seven albums and will generally include provisions that allow them to take a minimum of two years between album release dates in order to take full advantage of their marketing and promotional campaigns. Following the release of an album, the artist is expected to tour in order to maximize exposure and increase sales. Therefore, it is virtually impossible for an artist to release more than three albums within the seven year maximum. Additionally, record labels have historically claimed that they do not see profits until at least an artist’s fourth album.

To further illustrate, if an artist signed a deal, delivered the first record in month six and were to release an album every eighteen months thereafter, the five year restriction would cut the deal off at record number four, which would theoretically be when the artist had just begun to turn a profit. In fact, when an unknown band does become successful it is not uncommon for them to tour for more than a year supporting the successful album in order to not only generate profits, but to allow the label to work the record to its maximum potential. Therefore, if the artist becomes successful, the label would be working against the clock to have the act record and release the next few albums before they would have to renegotiate a new contract. If the artist was in fact successful, the record label would have to renegotiate with a much stronger party, whose success they helped create. In fact record labels in California have gone to great lengths to ensure that the duration of their contracts are not restricted to seven years. In 1987, the Recording Industry Academy of America (RIAA) was successful in petitioning the California Legislature on behalf of the recording industry to carve out an exception for recording contracts to the “7 year rule” statute that limits the duration of employment contracts to seven years.

Therefore not only is the seven year limitation out of line with the business model of 360 Deals, it is also highly unlikely that record labels would voluntarily subject themselves to the same restriction that they are exempted from under state law.

V. LOOKING FORWARD: SUGGESTIONS TO REFOCUS THE AIM OF THE TAA
Despite the original intentions of the TAA to protect artists from unethical acts on the part of their representatives, the reality is that the 1982 amendments and subsequent case law have broadened the scope of a loophole artists have been using for years to get out of contracts to potentially include 360 Deals. As discussed in the previous sections, many artists have successfully used the statute’s licensing requirement as a way to void undesirable contracts and as an affirmative defense when personal managers bring suit to collect unpaid commissions. This questionable use of the statute has enabled these artists to avoid paying millions in commissions to those who helped them achieve initial success.

The new business model of 360 Deals adds to the argument that the TAA is out of date with the current business practices of the music industry and produces inequitable results for those in the business of artist representation. However, the Labor Commissioner has responded to these suggestions by claiming that solutions such as applying the doctrine of severability or an incidental procurement exception are not an efficient use of time, as both would take an in depth factual analysis on a case-by-case basis.

All of these issues could be remedied by amending the statute to target unethical behavior and provide an express exemption to the licensing requirement when a party expressly waives their fees for any employment successfully solicited without the involvement of a licensed talent agent. This fix would work to serve the complaints raised over the years by personal managers as well as shut down the possibility of an artist using the statute to walk away from a 360 Deal. Furthermore, the proposed amendment would provide the Labor Commissioner with a workable standard that would be efficient to employ.

A. Target Unethical Behavior
Based on the legislative history of the TAA it seems apparent that it is in fact supposed to protect the artist from unethical behavior by their representatives. To serve this original purpose the Labor Commissioner should be analyzing disputes alleging unlicensed procurement based on whether the actions of the unlicensed parties harmed or had the potential to harm the artists, not whether or not a license has been obtained. However, as the case law suggests, the majority of cases invoking the TAA involve allegations of unlicensed procurement and activities that actually helped the artist’s career. By adjudicating a violation of the TAA’s licensing requirement based on whether activities were harmful to the artist, the Labor Commissioner and the courts would in fact be following the suggestion of the Supreme Court of California by regulating behavior not labels, as opposed to simply labeling those who are not licensed as behaving unethically no matter what the underlying motivation or end result of that behavior was.

To achieve this goal the California Legislature should put together a new Entertainment Commission in order to survey the current state of the industry and its new business models. Based on the massive changes that the music business has undergone in recent years, a new Entertainment Commission is warranted. If the new commission is to come to their conclusions based on a majority vote, it should be comprised of an equal number of licensed talent agents, personal managers, entertainment lawyers, companies issuing 360 Deals, and, most importantly, artists. The new commission should review the current business practices that have become generally accepted in the industry and point out those which are believed to be harmful to the artist. Included in this non-exhaustive list could be:
(i) those actually providing talent agency services for a fee, but contracting out under the guise of a management company or record label deal; as well as
(ii) those practices previously found to be undesirable or dangerous in other sections of the Labor Code. Any party found to be in violation of the statute by engaging in such activities would be subject to the various remedies afforded to artists under the TAA, including the voiding of the relevant contracts. By doing this, the TAA could regulate the talent agency industry in California, as well as those who engage in unethical procurement practices, no matter whether the party is licensed or not.

B. Exempt Licensing When Fees are Waived
On top of targeting unethical behavior, the California Legislature should close the loophole provided to artists and ease the burden on the Labor Commissioner by providing an exemption to the licensing requirement when commissions or participation fees due under an agreement are expressly waived in the contract between an artist and an unlicensed party. In other words allow an artist’s unlicensed representatives to engage in procurement activities when they expressly agree to not commission any income from these opportunities. This would hold such representatives to the argument brought forth by personal managers which is that when they work with unknown artists, they must engage in so-called procurement activities out of necessity, not out of a desire to cut out the services of a licensed talent agent. These activities are simply done in order to expedite the involvement of a licensed talent agent as opposed to an attempt to end-run the licensing requirement of the TAA. This same reasoning would apply to both concert promoters and record labels in the context of a 360 Deal. If this argument accurately reflects the modern business realities then both the offerors of 360 Deals and personal managers do not want to add the additional work of booking concerts to their list of duties. Rather they want to develop their artists into profitable entities that can attract a licensed talent agent as quickly as possible so that these parties can focus on their areas of expertise.

In the past commentators have suggested that California should adopt an incidental procurement exemption similar to New York’s equivalent to the TAA. New York’s General Business Law §§ 170-190 requires that any person who, in return for a fee, procures or attempts to procure employment must become licensed. However, the statute expressly excludes from the definition of a theatrical employment agency those whose procurement activities are incidental to their main role of management. While New York has not had any major difficulties applying this standard to find exempted behavior, it does require an in depth analysis of the overall relationship of the parties in order reach a determination of whether the behavior was truly incidental. This case-by-case analysis is a task that California’s Labor Commissioner has claimed he does not have the time or interest in doing. Furthermore, this model was reviewed by the CEC in 1982 and rejected. Therefore, continuing to suggest that the TAA be amended to copy New York’s statute is not a realistic solution for California.

Instead of copying New York’s statute, California could get around this time-consuming analysis and actually ease the burden on the Labor Commissioner by revising the definition of a talent agency to read:

[A] person or corporation who, in return for a fee, engages in procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists, except that the activities of (i) procuring, offering, or promising to procure employment or engagements for an artist or artists when all fees are expressly waived and; (ii) procuring, offering, or promising to procure recording contracts for an artist or artists, shall not of itself subject a person or corporation to regulation and licensing under this chapter. Talent agencies may, in addition, counsel or direct artists in the development of their professional careers.

By removing the term ‘occupation’ and adding the language ‘for a fee’ to the definition of a talent agency, the waiver of such fees could be used as a workable standard to determine if a license is required. Simply put, if a party wishes to solicit employment for their artists without a license, they must waive any compensation stemming from such activities. Once the unlicensed party has developed the artist to the point where a licensed talent agent is willing to become involved they would then be allowed to commission on the employment income.

For example, had a waiver provision been in the statute at the time of Park v. Deftones, Dave Park would not have been barred from recovering the unpaid commissions owed to him for the four years of work that he did on behalf of the Deftones because he did in fact waive fees from all of the shows that he had booked the band himself. This would have produced an equitable result in that the band may have been able terminate their contract but not without paying for their breach of the payment terms.

In the context of a 360 Deal, a party such as Manny Steele described in Section I, would be able to evaluate specific opportunities, whether they be showcases, auditions, or support slots, and make a determination on their value to the artists career. With the knowledge that Steele would have to waive any fees from such opportunities, he could make an objective decision to pursue such opportunities. Furthermore, by waiving any commissions due under their contracts, the statute would encourage unlicensed parties to only engage in procurement activities when absolutely necessary or risk focusing too much time and energy into services that do not generate any income. Finally, this provision would ensure that any unlicensed procurement that takes place would actually be for the long-term development of an artist’s career, as opposed to a short-term boost in commissions.

If these recommendations were incorporated into a new version of the TAA, the Labor Commissioner’s job would be made much simpler in these types of disputes, doing away with the task of defining ambiguous terms such as occupation or incidental. Assuming that the dispute is alleging a violation of the licensing requirement, the Labor Commissioner would simply employ a two-part test. First, the Labor Commissioner would determine whether there were any fees collected directly from employment procured by an unlicensed party. If fees were waived, the only inquiry left to be determined would be whether the procurement activities harmed the artist or involved the use of practices deemed unethical by other sections of the statute.

By employing this two-part test, there would be no need to apply the doctrine of severability to balance the inequities of voiding an entire contract. This is because the statute would provide a clear way for those wishing to act without a license to avoid liability, all while enabling them to take advantage of every opportunity to develop their artists’ careers. If the claims that these types of procurement activities are essential to the development of an unknown artist are true, then personal managers, concert promoters and record labels alike should be willing waive any fees for the short term in order to generate long-term success. This is especially true in the case of a 360 Deal, where the access to multiple revenue streams only increases the amount that such party may be able to realize if the artist is in fact a success. A party who violates the statute by charging commissions or collecting fees for unlicensed procurement would not be able to argue that they acted out of necessity. On the other hand, artists would not be able to use the licensing requirement as a way to avoid the payment of fees once they attained success that their representatives helped develop. Both parties would be left to their negotiating skills in order to generate deals where the commitment to such development work is clear and precise.

VI. CONCLUSION
The advent of 360 Deals has changed the business model of the music industry and placed those involved with artists at a label level in a more hands on role. The ambiguous language and overbroad interpretation of the TAA ignores the reality of the everyday necessary practices of those involved in a 360 Deal. Furthermore, the TAA exposes those engaging in activities that in reality assist an artist’s career, to the risk of having their contracts voided by the Labor Commissioner. This liability certainly does not do anything to further the goal of protecting artists from unscrupulous procurement practices. Rather, the overbroad application of the statute gives the artists an avenue to avoid not only their management contracts, but also now their contracts with their supposed business partners in a 360 Deal. As a remedial statute, the TAA should work to punish those who engage in unethical or harmful practices, not those who attempt to do for an artist what they cannot or simply are unwilling to do for themselves in the beginning of their careers. In light of the evolution of the entire music industry over the past decade, it is time for the California Legislature to take another look at the TAA and amend the statute in order to help rebuild one of California’s most well known industries, not destroy it.