In the Media and Entertainment sector, many artists earn income from various revenue streams, and in some cases, those revenues are the result of a collaboration with another party or parties (e.g., a manager, producer, or band member). Also known as "combined royalties," these payments are made by a licensee pursuant to the terms of a separate legal agreement. Rather than receive the entire combined royalty amount from a licensee, artists may prefer to receive only their share in order to avoid the ongoing bookkeeping and processing obligations associated with amounts owed to their collaborators.
A Letter of Direction (LoD) provides an easy solution to facilitate this payment arrangement, ensuring efficiency and transparency for all interested parties. An LoD is a legal document that accompanies payments made by a licensee to a third party, and includes details of the payment obligation and relevant accounting details. This solution not only provides quicker payment to the collaborator, it also allows the artist more time to focus on other revenue generating opportunities.
Even the largest record company in the world utilizes LoDs, providing specific instructions to artists on how to create one. Generally speaking, as with all legal documentation, concision and clarity are paramount to drafting an effective LoD. At a minimum, an LoD generally includes:
- Reference to the original agreement(s) creating the payment obligation owed by the licensee.
- Acknowledgement and signature of the party (artist) authorizing the payment to the third party (collaborator).
- Details regarding the ongoing payment to the third party payment (frequency of payments, bank account details, etc).
Additionally, letters of direction can be used in other situations where specific disbursements of funds are desired, such as bank transfers, executors of estates, business partnerships and the like. If you would like assistance with a letter of direction, or for other general commercial contract needs, please contact Brad Auerbach at bauerbach@outsidegc.com.
Brad Auerbach is a Partner and brings over three decades of senior in-house counsel experience (at Disney, Philips, Qualcomm and HP) in the media, entertainment and technology industries. Brad has been involved in structuring many groundbreaking deals with a diverse range of rights holders, including NFL, NBA, NHL, HBO, MTV, ESPN, Sesame Workshop, Nickelodeon, Live Nation, Marvel Entertainment, International Olympic Committee, English Premier League, Screen Actors Guild, every significant Hollywood studio, each of the major record labels, many major book and news publishers, several world class photographers and Getty Images, among numerous others.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
