BY:Neil J. Rosini, Michael I. Rudell
(Originally published in the Entertainment Law column in the New York Law Journal on Friday, June 24, 2011)
The cast recording for the Broadway show “The Book of Mormon” ranked as number three on the Billboard album chart the week after the Tony Awards. Although this achievement shows that the possibility of commercial success in producing and exploiting cast albums still exists (even taking into account that Amazon had a four-day sale of the album at $1.99), there have not been many successful cast albums in recent years. This article will discuss how, in the wake of changing economic and industry conditions, new business structures have evolved to bolster the production and exploitation of cast albums while shifting the risk and reward from large labels to the authors, investors and producers of the shows themselves.
The Industry Has Changed
For almost eight decades there have been recordings of Broadway and London musical plays and during some of that time, cast albums were enormously successful. In the 1940’s and 50’s Columbia had great success with recordings of musicals such as “Show Boat, ” “South Pacific,” “My Fair Lady,” “West Side Story” and “Camelot. ” Some of these albums reached the number one position on the aforementioned Billboard chart. Many also received significant radio airplay.
The substantial diminution in the commercial success of cast albums in recent years is due to a change in the way the public consumes music, the economic downturn, and the changing nature of original Broadway musicals, among other reasons. In years past — although sales expectations may have been comparably less than for top-selling rock, pop, rap and R&B artists — blockbuster musicals have produced high-selling and profitable albums. However, the basic costs of recording remains the same and more marginal results have accentuated the differences.
And unlike other musical genres, in the case of cast albums, the reception given a Broadway show in New York by critics and audiences as well as the extent to which the musical is advertised and promoted, are major factors that lie beyond the control of a record label. These factors effectively determine whether or not the show (and its compositions) will last long enough to become familiar outside the metropolitan area through ticket sales to tourists, performances by touring companies of the show, and other performances beyond Manhattan. If a show closes quickly, its music will not become well-known to that broader audience and its cast album won’t have as much of a chance to recoup the money invested in making it.
In an era of digital reproduction and piracy, traditional record companies are under stress to allocate their cash and efforts more judiciously. Given the comparatively limited returns they would expect to make on their investments, those companies have become reluctant to pay the cost of producing cast albums.
On the other hand, there remain strong incentives for theatrical show producers, investors and authors to strive to have a cast album recorded. Unlike record companies, they are willing in some instances to lose money, and certainly settle for breaking even, just to get the album into the marketplace. In addition to offering at least some chance of making a profit, the album provides promotional value for the play itself. Even non-buyers, who are made aware of the existence of the album, are reminded that the show is running, which provides a potential economic benefit from ticket sales that record companies would not enjoy. Also, the composer and lyricist are motivated by potential rewards that are particular to them (more on this below). There also is the personal satisfaction for producers, investors and authors alike in documenting the production with its original cast for posterity.
As a result, new business structures have been developed to create these albums with financial participation by some or all of the show’s producers, original investors, and the authors of the book, music and lyrics. To understand these new structures and why producers, investors and creators might choose to tread where record labels won’t, it is helpful to describe how the traditional cast album deal was constructed.
The traditional recording agreement offered by a label for a cast album is similar to that for recording artists (at least before the current “360” era, which involves record labels’ investing and participating not just in an artist’s recordings but touring, merchandising, publishing and other aspects of artist creativity). That traditional agreement provides for the label to pay the costs of recording, manufacturing, artwork, marketing, advertising and promotion. Artists receive a royalty from the label against which recording costs (and perhaps portions of other costs) are charged. The royalty is calculated on each unit sold as a percentage of the retail or wholesale price with adjustments made in categories such as non-normal retail sales and licensing.
The royalties so earned are divided between the show producers and what we will refer to as the “author group” consisting of the composer, lyricist, book writer and any underlying rights holder whose consent is needed to produce the show if it were based upon a novel or movie or other pre-existing work. The split traditionally is 40% to the producers and 60% to the author group. There are also separate fees paid by the record company for the use of the compositions, which benefit the composers and lyricists. These so-called “mechanical” copyright royalties are not shared with the show producers or other participants.
In the newly-developed structures, producers, investors in the show and the show’s authors opt to invest in the production of a cast album, make the recording, and even self-distribute it to a degree. These “album investors” must agree among themselves as to how to allocate the costs, division of proceeds, and responsibilities for decision making. In many aspects, they assume duties and enter into contractual arrangements as if they were the record label:
(a) The album investors establish an entity that, like a record label, pays a royalty following recoupment of recording costs. When there’s a duality of roles because members of the group investing in the album are also in the group of royalty participants, no obstacle is presented. The situation is no different from an arrangement in which members of a play’s producing partnership are also owners of the theater and collect rent from the partnership.
(b) The album investors configure the arrangement to resemble a limited partnership or limited liability company, following the standard theatrical form of investment in which third party expenses (including costs of production, manufacturing, distribution, and artwork) are recouped and then the album investors’ capital contributions are repaid. Once they recoup their investment, they allocate a portion of the net profits to themselves and the other portion to show’s producers and authors. For example, if net profits were divided on a 50/50 basis, the investor group will receive 50% of net profits and the other 50% will go to the combination of show’s producers and authors (who ordinarily will divide their half of total net profits with 60% going to the author group and 40% to the producer group).
There can be variations on these themes.
Whatever business structure is chosen, the composer and lyricist (or their publisher) will receive a separate payment for mechanical copyright royalties from sales of cast albums that is treated as a third party expense. This is one reason in particular why composers and lyricists have more incentive to proceed with a cast album than a record company. Their mechanical copyright royalties will be paid whether the album is profitable or not. The composer and lyricist also benefit from further exploitation of the compositions beyond their use in the show itself – so called “small rights,” including phonorecord uses and licenses of the songs for other parties to re-record. These uses – which include use in the cast album itself — require a separately negotiated agreement with the composer and lyricist.
A cast album also can help attract new productions of the play after the Broadway run is over such as stock and amateur productions and first class revivals. The composer, lyricist, book writer and – for at least a period of time, the investors and producers of a musical play–will receive payments from those productions. A cast album can help keep the music of a show in the public’s consciousness and offer a ready reference with first-rate performances to those who select plays to produce.
The album investors might also gain other ancillary benefits from making and distributing a cast album compared to dealing with a record label. For one thing, they will save themselves the cost of providing the record company with house seats. Also, a record label might insist on having the recording mentioned in any substantial advertisement for ticket sales; but in making their own record, the album investors can plan advertising strategies for both tickets and records – separately or together — with more flexibility. In general, deal terms might be more simply negotiated or decided in a more collaborative effort among the album investors themselves. And the album investors can better control the faithfulness of a recording of a particular production than by consigning the process to a record label.
Of course, if a record company is so impressed by the earning potential of a cast album that it is willing to pay for album production costs and to commit to significant advertising, promotion and publicity, that’s still an extremely enticing opportunity for producers and authors.
The cast album recording usually offers the best replication of the musical component of a live theatrical presentation, provides a keepsake from a memorable performance for the audience, and still can result in a profitable enterprise for author groups, play investors, producers and, at least in the limited role of a distributor, record labels. For these and other reasons, creative approaches to extending the long heritage of cast album recordings are likely to continue.
The authors gratefully acknowledge the assistance of their partner, Nick Gordon, in the preparation of this article.
 See our Entertainment Law column entitled “The ‘360’ Agreement Emerges in the Music Business” published on August 22, 2008.