Lawyers find it is murder on the dancefloor

Amid a global slump, Philip Hoult finds music specialists confident a beautiful day will arrive

These are tough times both for the music industry and for music lawyers.

Sales of music worldwide fell by 5% in 2001 to 23.4 billion, according to the International Federation of the Phonographic Industry (IFPI).

The slump has been blamed squarely on mass copying and piracy on the Internet, with millions of consumers - particularly in the US - downloading music for free.

Napster, the best-known Web site to offer people the opportunity to download free, may have been stymied, but the trend has continued.

Even though IFPI members closed 1,000 Web sites last year and have introduced their own downloading services, the problem just refuses to go away.

Charles Law, a partner at City firm Denton Wilde Sapte whose clients include Pop Idol winner Will Young and the other nine finalists, says: 'Illegal sites will mushroom like spores in a field - if you close down one, another ten will spring up.

They are feeding the demand of people who want something free.'

Another worrying sign for the UK industry came last month when, for the first time in decades, there was not a single record by a UK artist in the Billboard top 100 in the US.

Andrew Sharland, a music litigation partner at London specialist firm Clintons - advisers to U2, the Stereophonics and Daft Punk - says this lack of success will have a significant impact.

'Those profits [made on US sales] do not come back to rest in the UK,' he says.

The problem, Mr Sharland argues, is not solely a result of mass copyright piracy on the Internet but also the fact that the record labels have been pursuing a short-sighted policy.

'Their sole investment has been in marketing whereas in the past people have stuck their necks out when signing talent,' he says.

'If all we get is "son of Pop Idol", genius though that is at bringing in consumers who would not normally buy a record, it just will not last.'

He predicts that the one area of music to have real growth potential is dance music, although the challenge for UK and European acts to break into the US remains a stiff one.

The upshot of this gloomy business climate is that the major record companies are entering into fewer substantial deals.

And fewer deals mean fewer instructions for lawyers.

Such a downturn in the music industry - with the majors going into their shells - usually presents an opportunity for the independent record labels, allowing them to sign talent that would not normally have been within their reach.

But, according to Mr Law, their financial position is increasingly uncertain.

They also conspicuously lack the enormous resources needed to promote acts on a global scale.

'Backing for the more substantial independent labels, the so-called major minors, that may have been secure two years ago is not that secure now,' he says.

'The independent sector is not healthy - it is hard to back new acts.'

Much of the deal-making that is going on at the moment is on the entrepreneurial side of the business, with low-value seed investments to the fore.

The problem for music lawyers is that most of these deals are for such small advances that it makes it hard for them to charge an appropriate fee for doing a proper job.

With some practices already burned by the shares-for-fees mania during the dot-com era, it is a tough decision to make whether to operate on a more speculative basis.

'People are nevertheless becoming more imaginative on the fees side, offering to delay fees and take a percentage of the deal the artist wants to take,' says one senior music lawyer who prefers not to be named.

'Lawyers are also turning quite often into commercial advisers, which I am all for as long as we do not lose sight of what we are principally trying to do.'

As with many practice areas, the onset of a downturn sees firms rely more heavily on their litigation departments.

According to Clintons' Mr Sharland, litigation in the music industry is burgeoning.

One of the principal reasons for this, he says, is the continuing steady stream of disputes arising out of audit work, where licensers investigate whether parties are receiving the right amount of earnings.

Trademark and name disputes are also on the increase following the recent case involving Liberty, the band made up of the five losing contestants in the Popstars final who did not go on to form Hear'Say.

The band was successfully sued for passing off by another group called Liberty, which had enjoyed limited success in the early 1990s.

'In the Liberty decision, the court appeared to say that you only need a low level of reputation to give you the right to sue for passing off,' says Mr Sharland.

'It was an interesting decision of which there has been a lot of critical comment.'

Another reason for the continued need for litigation services, he points out, is that 'people in the industry are still happy to sue each other', for example if a band drops a manager without giving sufficient notice.

These avenues have more than made up for the failure of the expected boom in restraint of trade cases to materialise.

It was thought that after first Frankie Goes To Hollywood singer Holly Johnson in 1988 and then the Stone Roses in 1991 successfully managed to extricate themselves from long-term record deals, this would lead to a string of cases.

However, the subsequent failure of George Michael to extract himself from his deal with Sony and the fact that the record companies are now much more alive to the issue seems to have put paid to that.

Whether it is in providing litigation or commercial advice, one of the key issues faced by music lawyers is the need to provide clients with a wide array of legal expertise.

Although extremely complex deals such as securitisations against copyright income remain rare because only a small number of elite artists have the royalty stream to do such a deal, a lot of music law advice now requires skills across disciplines such as corporate, tax and employment.

Over the past couple of years, this has driven some of the well-regarded niche players into the arms of bigger organisations.

It has also prompted a number of highly-rated individuals to move practice.

For example Eatons, whose clients include the likes of the Bee Gees, Fatboy Slim and Craig David, merged with London-based Mishcon de Reya in October 2000.

In June 2001, Collyer-Bristow swallowed up niche music firm Kanaar & Co, with Nick Kanaar joining as a consultant.

Soon after, in October, Statham Gill Davies, whose clients included Oasis, was snapped up by accountancy consolidator Tenon in a deal which netted the firm's five equity partners more than 750,000 each.

Apart from the financial benefits, the firm's partners said at the time that the deal would give them greater access to development capital.

This process is set to continue, even with those firms who are more likely to act for artists than corporates.

Mark Krais, one of the three partners at niche London firm Bray & Krais, agrees that having the wider skills base is now essential.

'It is recognised that, if you have a niche practice, in order to provide a wider range of services you sometimes have to link up with another corporate firm.

'However the firms involved have to be careful not to affect their independence and the personal touch they can bring to their own client relationships,' adds Mr Krais, whose firm's clients include Blur, Gorillaz, the Chemical Brothers and Sophie Ellis Bextor on the artists side, and Sony Music Publishing and Telstar on the company side.

Mr Krais says the trend is being driven in particular by the increasing number of joint ventures in the industry.

'There is a lot of work with the majors trying to outsource the artists and repertoire side of the business,' he says.

For music lawyers generally, meanwhile, it is now a case of being patient and waiting for the business environment to pick up.

Already, according to Theodore Goddard partner Alexander Ross, there are signs of improvement.

'We were all complaining at the beginning of the year that things were very slow but spring has come and there has been a surge of activity and optimism.'

So maybe the lawyers will not be singing the blues for much longer.

Philip Hoult is a freelance journalist