As digital business models continue to evolve, compensating music creators continues to be a hot button topic and the recently released guidelines for artist contracts, "Principles for Musician Compensation in New Business Models," from the Future of Music Coalition attempts to address the major concerns facing artists in the marketplace. But, while the report raises important issues, it fails to acknowledge some realities of the record industry.

The most substantive portions of the not-for-profit research and advocacy group’s guidelines deal with the aspect of transparency: unattributable income, accurate tracking and the right to audit. In the age of multi-million-dollar lawsuit settlements and shared advertising revenue, the value of each artist's contribution to the label's non-sale revenue should be passed on to artists, according to the report. The high cost of auditing a record label's books is prohibitive. A lack of transparency prevents artists from gathering a clear picture of revenues and expenses. As a result, an artist has little recourse against improper accounting statements and a label has too few incentives to offer transparency.

But when subjective terms like "fairness" and "equitable" and used, the guidelines fail. "Revenues must be equitably shared between copyright owner and original creator(s)," reads the first bullet point. What constitutes a fair artist contract? Assuming the right to transparency has been granted, the definition of fair is determined by the marketplace. Artists, by their aggregate actions, tell record labels what does and does not constitute a good contract. In a quest for fair contracts, artists have the right not to sign any deal they deem to be unfair and inequitable. When artists collectively stop signing unfair contracts with record labels, the deals offered will become fairer and more equitable. If record labels continue not to offer fair contracts, new businesses and new models will step in to offer better contracts.

Further eroding the FMC's definition of fairness is the common tendency to ignore the artist's advance and determine a contract's fairness only on royalties received. If that's the case, no contract is going to appear fair when sales are horrible. An artist will probably not recoup and receive royalties even on a fair contract in that instance. But the advance has value to an artist, and because of the time value of money (inflation) an advance is worth more than an equivalent amount of royalties received in the future. To the contrary of the FMC's logic, it may be extremely favorable to the artist that the record label was the only party taking the financial loss. After all, being unrecouped is not the same as being in debt with a typical creditor.

This dynamic is reflected in the guidelines' call for direct payment to the original creators. When a recording does not recoup, the artist will not see royalties or monies from the sale or licensing of that music. The FMC wants payments for the creator's share of revenue to be paid either directly to the creator or to a collection agent. Too few artists see revenue from their recordings, argues the FMC. Considering the ugly reality that not all recordings will be popular and sell well, this is a poor addition to the guidelines. There is no way to take all risk out of the record business.

Future contracts would negate for these payments by simply adjusting down advances and royalty rates. Another flaw with this point of the guidelines is operational: Setting up another administrative level to collect and disburse revenue would create unnecessary costs and inconveniences.

The FMC is right to bring these guidelines to the public, and its reports tend to attract modest attention and create some discourse within the industry, but not all guidelines should be addressed. Concentrating on just a few of them will help solve many of the problems with the contracts of today and the future. If transparency and the right to audit exist, there would be no need for many of the FMC’s recommendations.