2-9) Define "cross-collateralization."

Imagine this: you are a struggling songwriter who finally gets a music publisher interested in your work. Your song, "She Not Only Bangs, She Bongs", is accepted for publication by the Dewey, Cheatham, and Howe (DeCheHo) music executives. They spend $50,000 on recording a demo of the tune, and another $25,000 on promoting it to major artists. William Hung, expressing an interest to follow up on his phenomenal success, agrees to record the tune. You--as well as the DecheHo execs--envision a huge return on your investment and start mentally counting the soon-to-be riches.

Unfortunately, William Hung’s "15 Minutes of Fame" is up and his recording career hits bottom. The only way Hung is making money now is through his concert performances. They are free to attend, but you have to pay $15 to leave!( Hung has so far earned $500, 000 this way.)

In the meantime, "She Not Only Bangs, She Bongs" dies an ignoble death and languishes on a shelf in DeCheHo’s office.

When the DeCheHo executives call you up one day and request another song, you feel as if your career has been given a reprieve and, vowing not to repeat the disastrous results as before, you pour every ounce of your creative juices into writing the best song you can. This song, "Detroit Gotcha Rockin’" is accepted by DeCheHo and rushed through production, a production which costs in excess of $75,000. Unlike before, the new song garners immediate attention. Aretha Franklin records the tune and almost overnight the song goes platinum. Her version is so powerful, funky, and soulful the Detroit Pistons use it as their theme song as they sweep their way past the Los Angeles Lakers to win the championship. Fans of both Arteha Franklin and the Pistons help the song stay at the number 1 spot on BILLBOARD for nearly 16 consecutive weeks. Your mentally tally of the money coming in tells you that the initial $75,000 to produce the song has been made a long time ago, and now the song is earning pure profit. You then dust off the Lexus catalog and start selecting your color.

When your royalty payment arrives, your are nearly floored when there is no check and the attached statement reads that you still owe DeCheHo money! It seems that DeCheHo has deducted the production, marketing, and promotion costs associated with "She Not Only Bangs..."from money due you from the success of "Detroit...". You get no money, no fame, and no Lexus.

This, you now realize, is what the "cross-collateralization" clause in your contract meant. Not only was DeCheHo allowed to deduct or "recoup" money owed them from bankrolling your current success, the clause allows them to apply money you currently earn to ANY production you may have done with them in the past that they lost money on. With such a clause, even with the massive success of songs like the example given above, songwriters may have to wait years to see any money from their songs. This is especially true if the writer is a non-exclusive writer for a publishing firm. Each song they submit for publication as a non-exclusive writer should stand on its own; Song A should have no bearing whatsoever on Song B, and vice versa.

An exclusive writer, however, signs a contract with the understanding that each song is inter-related, BUT the writer is supposed to receive an advance for EVERY song submitted to offset the possibility that recoupment could eat into his profits (the advances, by the way, are considered part of the expense of producing and promoting the tune).

If you are a singer/songwriter cross-collateralization could have even more of a devastating impact. If your recording career is floundering with one flop after another, but your writing career is skyrocketing because other artists are covering your tunes, record companies could take the money your are owed as a songwriter to pay off debts you incur as a recording artist.

As a songwriter or artist, it is very possible that you may never see a cent of your earnings with a cross-collateralization clause left in. It is therefore imperative that your attorney have this clause removed IMMEDIATELY from any contract you are considering.

Safeguard all possible avenues of profit your work may take so as not to end up seeing everybody but you receiving proper financial compensation. Failing to heed this sage advice, however, should not make you sweat too much: you can always join William Hung on tour.