We all know that owning, controlling and trading in intellectual property (IP) can create wealth. Losing ownership and control, or not trading IP, can lose wealth.

Industry case studies bring these truths to life. One for the music industry was in BusinessWeek last week. It reports US census data showing one in four U.S. record stores around in 2002 was gone by 2005, a net loss of 1,900 stores. It points at digital retailer, iTunes, which boasts 6 million songs.

Personal case studies make the truths register. We did it in Music business entrepreneurship: eulogy for James Brown. We do it now for Brown’s predecessor, and fellow Georgian, Ray Charles (1930-2004).

"ray_charles_lydon" Charles knew the importance of copyright ownership. He appreciated the revenue streams that can be earned from both ownership of his songs and ownership of his studio recordings.

Under copyright law, songs and recordings are separate copyright assets. They can be separately owned, controlled and traded. Hence recording artists who write their own songs can have a better shot at survival.

Charles was directly involved in negotiations to secure the ownership of his copyrights.

The year was 1959. Creativity and money were on Charles’ mind. It was the year in which he released “What’d I Say”  and crossed over from the R&B/soul/gospel charts to the pop top 40 charts, peaking at no. 6 in the United States.

The specific moment was in a room, as depicted in the biopic, Ray. Charles was talking to one of his advisers/managers about his recording contract with Atlantic Records.

The conversation turned to a possible deal if Charles switched record companies. His contract was with Atlantic Records. The possibility arose to switch to ABC-Paramount, headed by its President, Sam Clark.

The Ray script tells the story in the following scene. The facts are confirmed by a Charles biography and other sources.

[Manager]You know, Ray, your contract with Atlantic is expiring in four months.
CHARLES:Yeah. Yeah, I’ve got the contract with me. They’re going to double my royalties.
[Manager]Before we jump back in that pond, I thought I’d find out what else was out there. I had a very productive chat with ABC-Paramount yesterday.
CHARLES:ABC? Who told you to do that, huh? And you know, Atlantic is family, just like the Shaw Agency.
[Manager]Ray, my job is to get you the best deal possible. ABC is very interested.
CHARLES:No. How interested?
[Manager]How about a $50,000 advance each year for three years? You produce your own records. They’ll deduct recording costs and give you 75%. Ahmet and Jerry are flying in tonight, so will you put them off until I can talk things out with ABC?
CHARLES:Well, my mama said, ain’t nothing wrong with talking.

In 1959 Charles did switch record companies. He signed with ABC-Paramount, but only after he added an additional deal point – ownership of the masters created in recording studios.

Decades later he said in an interview that he would have signed even without the masters thrown in. It’s a lesson in contract negotiation. Here’s how Charles tells that part of the story:

Then in 1959, I signed a contract with ABC. I went to Sam Clark, who was the president at the time. We were negotiating the contract. My mom always told me, “Ask people. They can only give you two answers – yes and no. You respect both of them.”

I said to Sam, “I’d like to own my own masters.” He said, “Oh my God, Ray, I don’t know about that. We’ve never done that before. I’m going to have to go upstairs and talk to Mr. Goldstein.”

I said, “OK, you go and talk to him and see what he says.” What they didn’t know was I was going to sign the contract anyway because it was very lucrative. Seventy-five cents out of every dollar? That ain’t bad! But he called me back in about three days and he said, “Man, you’re the luckiest person in the world. I talked to Mr. Goldstein and he told me whatever Ray Charles wants, give it to him.”

I got lucky and that’s one of my mainstays even today. I own all my old masters. Record companies don’t give that up today. That’s a no-no.

As the film and Charles biography tell it, Charles negotiated a deal which was better than what Sinatra was getting.  (From the early 1960s onwards James Brown too owned his music masters, negotiating it in a contract resigning with King Records. Brown said: “After I went back to King, every time I recorded a bunch of sides I got the masters and put them in a bag I had. I carried it with me everywhere.“)

Today the man in control of the Charles estate seems to be his former manager, Joe Adams. You can read his self-congratulatory profile at www.raycharles.com.

Currently the Adams-managed estate (Ray Charles Enterprises, Inc) is involved in litigation with 10 of Charles’ 12 children. According to the Los Angeles Times the 10 are making legal claims that they are entitled to more than they have received or been offered so far.

The Times report puts a figure of US$75 million on the Charles estate: “Professional estimates put the value of Charles’s original masters at US$25 million – on top of the US$50 million he held in securities, real estate and other assets.”

As controller of the estate, Adams knows a lot about copyright control and the revenue streams that can come from it. He backed Ray, which was a simple Hollywood-style biopic sustained by the brilliance of Charles’ music. Adams was maintaining the Charles tradition, trading in copyright ownership and control.

Credit: Graphic of US dollar bills is a photograph by Lars Christensen, taken from Flickr

Sources: Ray script and Ray Charles: Man and Music by Michael Lydon (Routledge,  New York 1998, 2004).

Noric Dilanchian