If there is a bible for the music industry, it’s Donald Passman’s book, “All You Need to Know About the Music Business.” Since the first edition came out more than 30 years ago, it has guided countless musicians and executives, and has prevented many of them from making decisions they’d later regret. Considering the deep detail Passman gets into about contracts, royalties and other complicated business arrangements, his tone is remarkably conversational, and he makes sure readers don’t miss the important stuff: The section on business managers begins with him saying “Listen to me!!!” in italics with several exclamation marks.
Passman, of course, is one of the most successful and experienced attorneys in music business history, with a client list that over the years has included Taylor Swift, Paul Simon, Stevie Wonder, Adele and many more, but the book is definitely what he’s best known for. This makes him a rare atuhrotiy on the state of the music industry today, and in the conversation below, he gives concise analysis of multiple aspects of the music busines: AI and the threat it brings to intellectual property, catalog sales, new models for streaming services and lots more.
This conversation, originally published as Variety‘s “Strictly Business” podcast, took place a couple of weeks before the release of YouTube’s AI Music Generator — the first step in legal AI-generated singing using the voices of Demi Lovato, Charlie Puth and others, with many more certain to come — and although he didn’t tip his hand, in retrospect it’s obvious Passman was extremely familiar with the legalities involved in it. Like a true lawyer with his eye on billable hours, he answers the questions thoroughly but concisely, which means we covered a lot of ground in a short amount of time. We will humbly add that it’s a fascinating, insight-filled conversation that is essential for students of the game.
Do you find that young artists and executives in general are more educated and interested in the business than they were 10 or 20 years ago — enormously so, or just a bit more?
I think somewhere between moderately to enormously. I think people realize they have to understand something about the business — particularly in this world where artists have to build their own buzz and get their own thing started before they can have a career. The reality is, though, that most artists are not that interested in business — not that they wouldn’t be good at it, some artists are very interested and quite good at it. But most of them want to spend their time making music, and rightfully so.
Are there any quick bullet-point tips you would give young musicians when choosing an attorney, a manager and other members of their team?
Of course, I have whole chapters on each of those in the book — how to pick a lawyer, an agent, a manager, business manager and so forth. But the basics are, number one, do your homework and find out who’s who, because there are some very charming crooks. And two, don’t be afraid to trust your instincts — if you think you’re meeting with somebody sleazy, you probably are.
OK, let’s talk about AI. You’ve got a better 360-degree view on this than most people. Where do you see it going? Do you think it’ll end up being like treated like sampling, which people initially thought was completely unmanageable but has ended up being reasonably manageable?
I assume you’re talking specifically about music, because AI has the potential to disrupt and affect everything in a much larger way. But in music, I think it will end up being somewhat manageable. See, we can’t put the genie back in the bottle. It’s here, and it’s going to get more sophisticated and better as we go along. But I think the issues around it are fairly straightforward.
One is artists having their voices used on a song they were not directly involved with — like [Ghostwriter’s song “Heart on My Sleeve,” which used AI-generated fascsimiles of Drake and the Weeknd’s voices]. And another one is what happens to music that’s created by AI. There are a lot of issues around it that I go into in the book, but the big picture is, you cannot dilute what the human beings are being paid. Because the way streaming works is that you take your share of the total number of streams [a song or artist accumulated] and you and your label and music publisher get that amount of money. If you put AI in the mix, and they don’t pay anybody for it — because at the moment you can’t get a copyright on material that’s not created by a human, and I think it will stay that way — then the [streaming service] could put that in the fraction and instead of paying out 100% of the money, only pay 90%. Because if 10% was AI, they’d just keep it.
Obviously, that’s going to get negotiated by the labels and the publishers because they’re already all over it, and so I think it comes manageable. A little harder is how do you know whether something AI or not? Because sometimes, and certainly in the future, it’s going to be hard to tell. In theory, it ought to be identified in some way. There’s no requirement to do that now, but I think there should be.
If you can’t copyright the sound of a person’s voice, what is the legal basis artists and rights-holders are using to have AI-generated songs taken down? Is it the copyrighted recordings that are being used to train AI — is that where the violation is taking place?
That is accurate in the sense that it’s ongoing litigation. [Photo agency] Getty Images filed exactly that case, both in the U.S. and the U.K., claiming that it was an infringement to use their material. There are also other rights under state law, for example, that you can’t use somebody else’s name, likeness or arguably their voice without their consent. That’s another way it could be approached, but that’s under state law. I think there’s some talk of making it a federal law, but I don’t know the status of that.
That’s only the law in certain states?
Correct. And they’re not all consistent, either. I think the European Union has a privacy act as well.
When do you think we might be at a functional point where some could release a song legally with, say, a fake Mick Jagger singing? Six months? A year?
Well, I think we’re already at the point where people could do it. But as for whether there will be a mechanism in place to do it, I think you’d have to go to [the artist in question], and if they want to endorse it, you’d probably have to pay them. But I don’t think I see a blanket [license] happening, because artists want to control how their voice is used and how it’s presented. I think it would be [case by case], and it would work just like sampling. I think that contributes to the potential solution, but the other part is the creative aspect: They may not like how their voice is being used.
In your book, you’re quite bullish about streaming. There’s no question that it’s almost singlehandedly saved the music business, but it’s no mystery that artists and especially songwriters feel the streaming payment model isn’t fair. On top of that, streaming’s growth is definitely leveling off. What’s going to keep the music industry growing?
Well, it is leveling off in some territories, but not all, and subscription prices are going to go up, which will be a huge boon to everybody. There’s no question that you’d get paid better if you were selling an equivalent number of CDs, but those days are gone and we’re in the new reality.
In the heyday of CDs, the average buyer spent 40 to 50 bucks per year on CDs, but if you think about what you pay for subscriptions, even adjusting for inflation, it’s much more than that. And also, we’re monetizing people who would have never gone to a record store — most people stopped going when they were in their early 20s. Now you’re selling streaming to little kids and preteens and older people who want to listen to Frank Sinatra. So we have a much broader [audience] pool and I am optimistic about it.
So do you think it will keep growing in major markets? The record companies always talk about the vast growth potential in countries in Asia and Africa, but a streaming subscription there costs a fraction of what it costs in the Western world.
Once you reach maturity in streaming and you’ve sort of hit saturation, like what’s happened in Scandinavia, it definitely goes flat in terms of the money, assuming you don’t lose people. But I do think that prices are going to go up — they already have.
And is it going to be significant in terms of how much more money comes in?
Yeah, and I think studies have proven that people are not only willing to pay a dollar more [per month, the recent price hike for most services], they’ll pay significantly more than that for a good streaming subscription.
In the new models that are being tested, like Universal’s “artist-centric” model, do you feel songwriters will be better compensated? They’re really at the bottom of the financial model in streaming — and you’ve got nothing without a song.
Well, songwriters recently got a very good increase, thanks to a [July 2022] ruling by the Copyright Royalty Board, and it’s going to go up even more over the next few years. I don’t have the numbers so don’t quote me directly on this, but I think it’s proportionate to what they were getting on CDs. So depending on how the calculations work, you’re actually getting paid pretty well — to my understanding, because I don’t have the exact figures.
But I still hear from artists all the time that they just don’t make money from streaming and recorded music, and they’ve kind of accepted, “OK, I’m gonna make this album and not make any money from it, but it will bring people to shows” where they’ll be paid for tickets and merch sales. Do you think that’s the model going forward?
First of all, with any new technologies — and there’s a section in my book on this — the artists are always paid less than they should be when it first comes on board. And then as time goes on and their deals expire and they negotiate, they get bigger and bigger pieces of it. So that’s one part of the equation that artists will do better. It is not as big a piece of their income as it was historically, and may not be in the future, although that depends on the artist. A touring artist is going to make far more on touring and merchandise, and well-known artists will make a lot on endorsements and branding — and that will be much more than they can make on recorded music, even the most successful people. So it isn’t the same big percentage of their income stream that it was before, but it is something that drives the marketing and awareness and consumer interest and fandom.
On a related topic, do you feel like the music catalog boom of the last few years is over? Prices seem to have topped off.
Yes, and I think rising interest rates have something to do with that too, and a lot of the premiere catalogs that have already been sold. So to some degree that that affects the marketplace, and I’m starting to see a softening in the market in terms of multiples. But there’s still a lot of money chasing catalogs, and with really good ones, you can still get a an extremely good price. It’ll continue, but not the rate that it has been.
Have you done any of those deals?
I have, although I mostly try to talk people out of them because — again, I have a section in the book on this — historically, nearly everybody who sold their catalogue has regretted it. [Before making that decision], do an exercise that goes like this: Take the amount of money you’re getting, pay your expenses, pay your taxes, and look at what you have left and invest it — can you make as much as the catalog was making? And if you can, you have that plus the upside of what the catalog [will make]. For younger people, I’ve been pretty successful in talking them out of it. I do think it makes sense for older people if, for example, their heirs don’t know what to do with the catalog, or they’ll kill each other trying to deal with it, or if you have an estate tax problem: You’re going to have to pay an estate tax on the value of the catalog, and you may not have the cash to do it and be forced into a fire sale. And obviously, there’s always the issue of someone who desperately needs money and may have to sell all or part of it. This is not particularly in my self interest, by the way — I’d like to make a large fee for selling a catalog. But I think [not selling] is the right thing for most people.
You say in your book that when choosing a manager, young artists should assess between the powerful manager at the high end who you might get some advantage from their superstar artists, or the young and hungry manager who will kill for you. What are the factors that would help determine one or the other?
Look, if you can get a powerful manager who really is committed to you and really believes in you, that’s a great thing. But a lot of times, that’s not the case: They just don’t have the time for you and they’re not going to put any energy or effort into you unless they have somebody young in their company that happens to be excited about you. It’s good to have the clout of a powerful manager. But if that’s not an option, or if you can work with somebody young and hungry who’s going to spend every waking hour worrying about you, that’s a really good alternative. Every manager started out like that: They all started out brand new, with no clout, and then got an artist and worked themselves to death to make the artist successful. Then all of a sudden, they’re a powerful manager.
Also in the book, I was surprised at how many of the deals you talked about, management in particular, are actually handshake deals. Aren’t they potentially hazardous?
The artist is far better off without a written contract, because it’s not clear what the terms are. And by the way, “handshake” doesn’t necessarily mean you don’t negotiate the terms, it just means that you can leave anytime you want. We usually at least do an email exchange saying what the terms of the deal mean, but the term is such that we can leave anytime we want.
OK, so it’s not like nothing is written down.
Sometimes, but not usually.
Is that email legally binding?
Yes.
Would you advise young people to get into music law? Is it too crowded a field, or is it full of opportunities?
Well, I think it’s both. Like any other aspect of what you’re going to do in life, I wouldn’t be daunted by the fact that there are people already doing it. My advice to anybody in any field is to follow your passion, and if you’re passionate about being a lawyer and doing music, please come on down, we want you. We want people who are enthusiastic and excited about it, because that’s the way the whole thing continues. It’s good for all of us — it elevates the whole industry.
Here’s probably the biggest question: What’s the biggest threat to the music industry right now?
Oh… interesting… I probably have to go with the AI and how that’s going to play out. I don’t think it’s an existential threat — I think it’s something that we’re going to work out and manage. So overall, I think we’re in pretty good shape.
Actually, let me answer it a slightly different way. The biggest problem in the industry is, how do you break through the noise? There’s over 100,000 tracks uploaded every day — every day — so how do you ever get heard? How do you ever get above the noise?
And weirdly, that’s to the artists’ advantage. Because the ones who figure out how to break through suddenly have multiple companies chasing them, and they get deals they could have never gotten in the past, such as ownership of their masters or a share of profits, and huge advances. That’s the reason why artists now have more bargaining power than they’ve ever had before.