A record contract enables a record label to sell license and distribute and
artist's recordings in return for granting these rights. The artist's music is
promoted. And the artist is paid a percentage of the sales revenue for many
musicians. A record contract is a symbol of success. Finally, the world will
hear their music, but in all the excitement about Landing a record contract
artist. Sometimes don't realize how much Risk is involved. They may be giving up
rights to an important recording and end up receiving little in return record
companies because of their Superior bargaining position. Typically have much
less at risk.
For example, it's not uncommon for a record label to make a profit
on recording while at the same time, the artist who made the recording remains
in debt to the company because the balance of power can be skewed. So, heavily
in favour of the Abel and artists, May wonder whether it's even worth reviewing
a record contract, why not just sign it and accept the consequences.
First, an artist, who is serious about his, or her career should never blindly
sign any document to do. So would be to disrespect the music and may tie up a
musician's finest recordings forever, or at least for a long, long time. This
just too much at stake in a record deal, not to understand the terms s. Many
labels. Eager for an act will consider making reasonable changes to their
agreement. Particularly if there's a compromise of some sort.
So for example, a
label may agree to raise the royalty rate, when a certain sales, quota is
reached. So how do you approach a record contract? Hopefully, you can afford the
assistance of an attorney. A lawyer's advice can be very helpful when making an
independent record deal and it's essential for the 50-plus page, agreements
furnished, by major labels.
That is a contract with a label owned or distributed
by Universal, Music, Group, Sony Music Entertainment or Warner Music Group, even
if an attorney is retained, it's in the musician's best interest to be able to
read and comprehend. The key provisions of a record agreement, because every
record company uses its own agreement because there's no set format for record
contracts. A musician should expect to spend some time, identifying and
deciphering the key provisions, and then prioritizing any proposed changes.
Grants in Recording Contracts
An artist possesses something that the label wants the exclusive rights are
copyright to musical recording to obtain these rights to record. Contract
includes a provision referred to as the grant of rights or just the grant. There
are two ways of label can get this transfer of copyright. It can lease the
copyright for a period of time known as a license or it can purchase ownership
of the recording copyright known as an assignment.
Occasionally, a label of a
copyright under a principle known as the Work Made For Hire rule in which the
label hires are employees. The artist with a license in artist retains
copyright, but gives up or rent rights temporarily with an assignment. The
artist transfers title to the copyright much like the sale of a house. However,
these distinctions can be artificial because some licenses last forever making
them similar to assignments and some Pants are not permanent.
The label gives
the copyright back to the artist. So when it comes to the grant of rights
provision, what matters is not what the arrangement is called license or
assignment, but whether the rights are returned to the artist at some point
known as a reversion with rare exceptions, the grant is exclusive during the
period of the agreement. The artist cannot record for or release recordings for
a second label, unless permission is granted.
To buy the first label. Also, the musician is usually prohibited from
re-recording the same songs for a period of time. After the agreement is over
known as a lockout provision in an Ideal World. A musician would seek a grant
that is as short as possible. For example, the label would have rights for
between three and five years to exploit a recording afterward rights revert to
the musician. Similarly. The artist wants his little Time as possible before he
or she can rerecord the songs. The musician also wants a provision that if the
label doesn't release certain recordings, the songs on those recordings are not
subject to lock out.
If the words in perpetuity are in the grant section that means that the label
wants to rights forever. If a musician gives up rights in perpetuity, the label
will always own the rights or at least on them for 35 years in the case of an
assignment after which copyright law permits the musician to reclaim rights in
some circumstances. An additional factor is the area of the world referred to as
the territory in which the recordings can be exploited because of the
international nature of music distribution. Most labels will seek worldwide
If a label has not advanced money to pay for the recording, that is the
musician. Has already created the recording or plans to pay for the recording
with non-label money. The musician should seek a short license, five years or
less. After all the label is taking a relatively small risk here.
Term and Options in Recoding Contracts
How long does a record contract last that is how long does a musician have to
furnish recordings exclusively to the record label this period of time is called
the term. There is typically an initial term of 12 months to make the first
recording and subsequent. One-year terms known as options to make other
recordings Independent Record companies usually seek options for one, two, three
albums Majors typically seek for 274 a Titian, it may be tempting to sign a deal
providing for many options after all, it's a multi-album deal. How exciting is
that? However, because these are options, the musician is guaranteed only the
If the label doesn't want to continue, they don't exercise the
option and drops a musician and that's it by doing it this way. The record
company lowers its risk and increases its chance of making a profit, because
there is no, Guarantee that options will turn into recordings. It benefits the
musician to limit options to as few as possible, ideally to two or three
recordings. Realistically. This is difficult to achieve with a major label and
an artist may have better luck seeking a compromise. For example, setting, a
sales goal that must be achieved before an option can be exercised.
Once the term ends, the artist is free to release new recordings with a second
label. However, even though the artist is free to release new recordings, the
rights to the previous recordings remain with the first label, which continues
to pay royalties to the artist, but for how long does the first label own rights
to the recordings that depends on whether the recordings revert to the musician
and when and that's why it's always in an artist's best interest to fight for it
Advances and Royalties in Recording Contracts
The artist is paid by the label using a system of advances and royalties. When a
record label pays for a recording to be made, it usually does. So via a process
known as an advance. In that case, the label pays money to the artist that will
be used to pay the recording costs. This is similar to a loan except that the
musician is not personally liable.
The money is paid back from incoming Revenue.
That is the artist. Will not receive a royalty payment until the advances,
repaid or recouped from the artist's share of Revenue. So for example, consider
the artist who received a ten thousand dollar advance and earn to 12 percent
royalty rate, let's say that sales of the recording generate fifty thousand
dollars in Revenue, according to the contract. The musician has earned six
thousand dollars, twelve percent of fifty thousand dollars.
musician would not receive any money because the label keeps the six thousand
dollars in royalties to offset or recoup, the 10,000 dollar advance. You'll
notice that in this case, the label has revenue of fifty thousand dollars. While
the musician is still in debt to the label for four thousand dollars. So is it
better for the musician to seek a low advance in order to earn royalty sooner?
Conventional wisdom? Says, no, the more popular approach is that the musician
should get as much money.
As possible in advance because the musician may never
see any more checks from the company. Of course. The good news is that the
artist is not have to pay the advance back, if the album doesn't sell the label
can only recoup the advance in the manor. Described in the agreement typically
from incoming Revenue. It's sometimes recouped specifically from the album for
which the advance was used. But in most agreements from any recording made under
the agreement. Some labels. Did Doctor recording advance from non-recording
revenue, for example? From merchandising a music, publishing Revenue.
process of recouping from a source, other than the album, for which the money
was used, is sometimes known as cross-collateralization or cross recoupment if
possible. It's in a musician's best interest to avoid cross-collateralization.
That is, it's always better for an artist to keep each recording discreet and
tie, the recoupment only to the recording for which the advance was made.
Royalties are based on a percentage of income. There's sometimes referred to as
points royalties are. Commonly determined in one of three ways, a percentage of
retail price a percentage of wholesale price where a split of profits back in
the day, when music sales were a physical products, only for example, albums,
cassettes CDs. Royalty payments were always based on a percentage of the
suggested retail list price or SRLP some record. Contract still use this
principle, for example, the SRLP 4, compact discs is usually $16.
So if the
musicians royalty rate were twelve percent of SRLP the musician would earn a
dollar ninety. Two per each compact discs old. Nowadays, most labels. Don't
bother with the SRLP. And instead, based through royalty on the wholesale price
or PPD published price to dealers. In a third type of deal commonly used by
Indie, labels known as profit splitting or a net profit deals.
The label deducts
direct expenses from making and marketing, the album and splits the rest with
musician, an artist usually doesn't have much Choice as to, which system is
used. But as a general rule, Royalty rates will be lower for retail SRLP deals,
typically between 10 and 16 percent and higher for a wholesale. PPD deals
between 14 and 22 percent or higher. As for-profit splitting deals, which are
most suitable for licensing existing recordings.
The rate may be as high as 50%.
Some labels may use a system in which royalties are tiered. For example, one set
of royalties for physical products. And another reduced royalty for digital.
Also, keep in mind a final twist that applies primarily to Major label deals
record, producers in some mixers are often given two or three royalty points,
that are subtracted from the artists royalty, except for 50/50 profit splitting
deals. It's usually a good idea for the artist to seek a higher royalty rate
than what's offered regardless of the bargaining Dynamic. It doesn't hurt to
Deductions in Recording Contracts
You've heard the expression that there's no such thing as a free lunch in the
music business. That is literally true. Artists are often surprised to find that
the cost for the complimentary sandwiches and beverages is provided at a record.
Company reception later. Mysteriously appear as an expense on the artist's
royalty statement. Welcome to the world of deductions, some sitters subtracted
from the artist's check.
These deductions are always expressed in the record
contract. Usually, in the payments or royalty section, as you're probably aware,
royalties are calculated by, multiplying the artist percentage of points against
the incoming Revenue deductions, maybe subtract two, incoming Revenue before the
royalties are calculated. Or in most cases. They're deducted from the royalties
after their calculation. The timing makes a difference. Deducting it before the
calculation is always better for the artist.
For example, we consider an artist
with a 12 percent royalty whose record generates 100,000 dollars in Revenue. The
record label claims ten thousand dollars in deductions. If the labelled the
Ducks the ten thousand dollars before the royalty is calculated the artist
receives 12 percent of ninety thousand dollars or ten thousand eight hundred
dollars, but if the label calculates the royalty 12% of 100,000 dollars or
twelve thousand dollars and then deduct.
The ten thousand dollars the artists would receive only two thousand dollars,
what gets deducted, some labels doing retail or wholesale deals. May claim a
packaging deduction to pay for the materials required for physical products,
such as CDs and vinyl when such a deduction is made it can sometimes run as high
as 20% of a recordings list price revenue.
For example, if the SR LP for a
compact discs were 16, Dollars than 20% three dollars and twenty cents would be
deducted from each CD sold before royalties are calculated as a result, a 12
percent royalty artist would receive a dollar fifty, three per CD. Instead of a
dollar ninety-two, like deductions for independent promotion or marketing cost.
The artist is being required to cover. What a really the labels costs. In other
words. The artist is being asked to pay for the companies.
Expenses. Historically classified as its overhead, if packaging deductions are
included. It's in the musician's best interests to keep this some as low as
possible and always have it deducted before royalty calculation. Another form of
deduction is the reserve in which a percentage of sales revenue between 10 and
30% is deducted to deal with the potential of returns.
By record stores, the
label holds the Is reserved for a period of time, sometimes as long as for
accounting periods, and then eventually pays it to the artist. If a reserve is
included, an artist should seek the lowest possible reserve and improve Vision.
That clearly guarantees timely repayment. There should be no reserves for
Also in Vogue for a while, they'll become less common are record. Contract,
deductions for new technology. Supposedly the digital equivalent of packaging
fees and piracy fees the costs of fighting infringement suits. Again, these fees
are another way of passing the labels overhead cost to the artist. If these sums
are included, they should always be deducted before royalty calculation, all
labels deduct a certain percentage for promos and free Goods which are free
copies distributed to radio stations, reviewers, or that are given to
Distributors and stores as a promotion.
Certain sums are typically deducted from
the artist's royalties. After their calculated, these include record company
advances to our support and a portion of video, production cost typically 50%.
In summary. When it comes to deductions less is more. That is fewer, the
deductions, the more, the artist earns as for timing of the deduction. It is
always better to make a deduction before royalties are calculated. Rather, than
Controlled Composition in Recording Contracts
Under copyright law, the record company must pay the song owner what is known as
a mechanical royalty. As of 2014, it was 9.1 cents. Each time a song is
physically duplicated and distributed. So if there are 10 songs on an album, the
label must pay the song owners, 91 cents per album. If the label sells a
thousand copies of that album, copyright law requires that the label paid the
song owners a Dollar payment.
This payment is separate from the payment of
record royalties and is made to the song owner. A controlled composition Clause,
lets the record company pay less than the law requires for physically.
Reproducing songs on a CD or vinyl, typically a control composition Clause
allows the record company to pay 75% of the statutory mechanical royalty rate.
Sometimes referred to as the three-quarter rate for controlled compositions a
controlled composition is any song used on a Boarding that the artist controls
that is the artist roared owns it or co-owns it. So, if the claws were included
in the contract, the label would pay the song on are approximate. Six-point
eight cents per song or 68 cents for a 10 song album.
If the label sells a
thousand copies, the song owner receives $680. In other words, the artist song
owner loses $230 per thousand. Copies with a controlled composition clause. In
addition. It is not uncommon for a record label to use the controlled
composition Clause to limit the total payment for mechanical. Royalties, for
example, refusing to pay for more than 10 songs. In other words.
company will pay only 10 times. 75% of the statutory rate per album, even if an
artist includes 12 songs, if an artist has any leverage negotiating the
controlled composition, provision. The artist should try to avoid these limits.
Ideally, the label should pay for all songs. In some cases, an artist May record
a song owned by another songwriter a cover. If the artist cannot get the other
song owner to agree to a 75% rate.
The artist will have to pay for the
difference. That is the label will only pay 75% of the legal royalty rate for a
cover and the artist must pay the remaining 25%. Ideally the artist should try
to avoid having to make such payments and speaking of an Ideal World, the
contract should state that the Mechanicals are paid on all recordings
manufactured and distributed as the law requires, and not be limited to music
sold and not returned as the controlled composition Clause, May State finally,
the mechanical royalty rate, periodically changes.
And the contract should
provide for such adjustments control compositions are subject to another quirk
in 1995. The U.S. Congress passed legislation that prohibited the use of a
controlled composition clause for digital. Download delivery of sound recordings
released under a post 1995 contract. In other words. If an artist entered into
an agreement, after 1995, the artist can't get less than what is required in
mechanical royalties for digital downloads. Although there are a few exceptions
to this law. The general rule is that controlled composition, Clauses should not
be used for digital downloads.
Creative Control in Recording Contracts
Creative control refers to the right of final approval over recording video or
other artistic Endeavour. Indie labels are more open to granting creative
control to artists that are giving artists final approval of the choice and
sound of the final recordings, as well as the album art and packaging. Major
labels rarely seed creative control Majors believe they know it's best in the
And therefore they want the final say on everything they sell. Even
artists who negotiate creative control, Clauses have limited powers because the
only way to enforce such a provision. Should a dispute arise is to sue the
record company. These lawsuits are expensive to initiate difficult to win and
usually tie up an artist's recording. Career artists concerned about creative
control should talk to other musicians, signed, by the record company and find
out how the company treats them.
In addition in order to should take the
initiative to troll as much as possible. For example, overseeing any mastering
and Furnishing camera-ready artwork. If possible. There are some issues of
creative control than an artist. May be able to negotiate favorably especially
with Indie labels. For example, an indie label May Grant final approval, over
composition studios producer's mixers videos and artwork, even for major labels.
It's Not Unusual to include a contract provision allowing an artist.
Final approval over the producer remixer or the director of a video. A major
label artist may also try to get approval over which songs were recorded, what
order they are presented on the album and whether the label can license, the
music for advertising campaigns creative control is also an issue in the
delivery provision. Sometimes known as acceptance that typically states that
when the artist submits recordings, they must be commercially acceptable.
vague. Meg discretionary standard that allows the label to basically reject
anything it doesn't like or consider marketable. When a label rejects recording,
it may choose to require the artist to remix or re-record, the recording at the
artist's expense. Alternatively rejection may be away for the label to run out
the clock and terminate the agreement because the artist didn't deliver a
commercially acceptable recording on time of worse. Having discretionary power,
doesn't mean that the label will use it.
Obviously, if a label signs an artist,
they're familiar with the artist's music and a prepared for this style and
content of the recordings. In addition labels often consult during the recording
process to make sure things are on course, still if possible. A musician, who
has the power should seek to lower the standard from commercially acceptable to
technically satisfactory. The latter is a much. Each lower bar to achieve
because it only requires that the recording meet current audio recording
Another section of the record contract related to artist control is
the provision granting the labels right to use and exploit the artist's name
likeness and Persona that's necessary in order for the label to market, the
artist recordings, but the label should only use the artist name and likeness
and connection with selling the artists music and should not have the right to
Grant those same name and likeness rights to a third party, for example, to
enter into endorsement deals or deals in which the artist name is licensed in
the event that a label insists on such rights. The artist should seek a high
percentage of the income 50 to 80% because after all this is income, tied to the
artist popularity and for which there is little upfront expense.
Leaving Member Provision in Recording Contracts
What happens when a label signs a duo or a group and members later leave. The
group or the group breaks up? The record contract deals with this possibility,
in the leaving member provision. A clause that permits the label to poach, any
leaving member from the group under the same terms as the original deal. In
other words, when members leave or groups disband, the label can choose whom it
will keep under a contract of greater concern.
Learn to the members who are retained is whether they will be saddled with the
debt of the group. For example, if a group breaks up in the label claims, the
lead singer is leaving a member, the lead singer's income can be withheld by the
label until the group's debts are paid off. If at all possible leaving members
should not be linked to the financial obligations of the group such provision
should also give pause to a group member thinking seriously about embarking on a
Aside from artist provision, also known as the sidemen Clause permits, an artist
to play on other peoples, recordings provided that the label approves and
certain criteria are met. Usually the label requires that the performance be
credited in a certain way and that the performance, not be of a song that the
artist has already recorded. Also, the artists shouldn't be the star of the
performance as expected. Major label contracts are more.
If indie label deals in regard to these issues, some artists form, strong bonds,
with certain record company Executives, their owners because the record business
is a game of musical chairs, the executive who believed strongly in a musician's
future may disappear before the ink, is dried on the record contract to avoid
being stranded or label without any supporting Executives. A key-person
provision is sometimes inserted in the car. Contract this provision states, that
if the favored executive, the key person leaves the company. The artist is free
to terminate. These Provisions are rare and Indie labels are more likely to
Grant such a provision than a major label next. I'll discuss co-publishing
Co-Publishing in Recording Contracts
A Co-publishing provision allows, the record label to own a piece of the artist
song writing Revenue. Song writing revenue is distinct from recording revenue.
For example, the song on her gets separate payments when radio stations play a
song when a song is used in a commercial when a song is used on TV or in movies,
or even when the song is used on a ringtone, when a recording artist to also,
write the songs the label may want to obtain some of that Revenue.
In order to make that happen, the label uses a co-publishing provision note that
these deals though still popular? Are becoming less prevalent. A little
background about song ownership is necessary here, the artist who writes a song
is the initial owner of that song because of an antiquated system used by the
music business songwriters must create or affiliate with the music publisher and
entity that supposedly represents the Interest. Although, in many cases.
simply a shell company receiving income on behalf of the song writer; a
co-publishing provision requires that the artist enters into a separate
agreement with the label's publishing company. And as a result, the label
publishing company will then keep 15 to 25% of the song writing income. As you
can imagine any artist with sufficient bargaining, power should avoid
co-publishing with the Well, because the artist is giving up a potentially
lucrative. A long-lasting source of income, an artist, who takes the
co-publishing agreement should seek as much money up. The front is possible, the
The artist should also avoid if possible, cross
collateralizing the publishing Advance with record company, Revenue that is
ideally publishing income shouldn't be used to pay back the record contract
advanced. Similarly, recording Revenue shouldn't be used to pay off the
publishing advance. Ideally, the arrangement should be limited to the songs
released by the record company. That is if the record company hasn't released
the song, it cannot claim co-publishing rights. In addition, the publisher
should only be entitled to income generated by the artist's version of the song,
not from cover versions. Finally, it would be best for the artist. If the
publishing relationship ended, when the record contract terminates or at least
within five years after it terminates.
Marketing Provisions in Recording Contracts
The main reason most artists signed with the label is for the marketing muscle.
Oddly, the labels marketing obligations are hard to locate in most recording
agreements. Aside from an assurance that it will use reasonable efforts or some.
A similarly vague statement to manufacture distribute and Market the recordings.
The label rarely provides any straightforward marketing, guarantees, Financial,
or otherwise at best, a label May Supply advances for video.
Is or tour support.
For example, a record contract may include a guaranteed advance for one video
for each album. The costs of which are often 50% recoupable. Although videos are
enormously popular. YouTube is the number one source for music listening.
Historically, they have not earned money. Though. This may be changing as video.
Hosting sites, monetized plays until there is substantial video revenue and
artists will have to pay back the advance from record sales, even when a video
is sold directly to Consumers. The record contract is likely to provide for a
reduced royalty rate.
That is a royalty rate lower than the record royalty for
video sales. For that reason and due to the high cost of professionally made
videos Savvy. Independent Artists take a low-budget root often partnering with
creative video. Making friends, another source of marketing by the label is to,
or support money intended to keep the artist to float. While touring most new
artists lose money while on tour, major label artists, typically get to or
support, all of, which is usually deducted from royalties. It's unusual for Indie labels, to pay for her support. Although, Independence is often willing to
help touring efforts by booking bands. On a tour, supplying wholesale CDs for
sale while touring.
Making promotional efforts with the touring artist, there is one situation known
as the 360 deal in which a label will commit specific sums to Market in a 360
deal or multiple, right? Steal. The label agrees to make firm marketing.
Commitments in return for a percentage of some combination of the artist's
income, including endorsements, acting Book, Sales publishing merchandise,
ringtones, and During the elements that are most often in play are publishing
merchandising and touring income.
The result is that the record label functions
as a manager, albeit a manager with a big bankroll cross collateralizing, all
these sources of income and generally taking a cut before any deductions in some
360 deals. The artists may even retain all rights, and in a reversal of the
typical deal, pay the label its share, instead of vice versa. A 360 Arrangement
works fine. When it propels the artists into branded superstardom as it did in
the case of Lady Gaga, but for every Gaga, there are dozens of artists whose 360
deals ended. In a sea of red ink 360 Arrangements appear to be confined to major
labels with financial Cloud, but in coming years, it is likely that
Independence, particularly those in the rap. The Hip-hop genre will seek similar
Such transactions involve risks because the odds are stacked heavily against the
artist. Consider merchandising Revenue, while on tour an important source of
artist's income with the 360 deal, 60, to 70 percent of merchandise, income goes
to the label, the venue, and the manager. Although will rarely be in an artist's
best interest to sign away so much to a record label, many new artists are
intent on doing whatever it takes to make. It will probably continue to accept
these 360 deals.
Warranties and Indemnity in Recoding Contracts
Most record deals include both a warranty and an Indemnity provision. A warranty
is a contractual promise. Basically, the artist is warranting that he or she is
the copyright holder and can deliver a lawsuit, free recording. In other words,
warranties placed, the burden on the artist to be sure that the work doesn't
infringe and that clearances and permissions have been granted from graphic
Producers and anyone else who contributed something
creative, it is in the artist's best interest to read and understand each
warranty and to feel confident or as confident as possible that the promise can
be made one type of warranty that may pose a problem. For some artists has to do
with samples digital Snippets of recorded sound lifted from someone else's
recording, the sampling warranty, always requires a clearance and often requires
that the artists list every sample used.
The companion to a warranty provision is an Indemnity provision. Also known as a
hold harmless, Clause is an artist who agrees to indemnify. The label is
agreeing to pay for any damages including the label's attorney fees that arise
from legal claims surrounding the recording.
For example, if a session musician,
sues, the record company over rights to a performance. The recording artist
would have to pay to defend the label from the session musicians lost among
other expenses as you can see warranties and indemnity Provisions. Work
together, enabling the label to shift risks to the artist using warranties the
label obtains promises using Indemnity. The label spells out the punishment for
breaking those promises in some ways.
These Provisions may be redundant. For
example, a label can recover damages for breach warranties without Indemnity,
but the combination provides the broadest shield for the label, it also creates
unlimited liability for the artists to avoid the potential for personal
financial disaster. It's in the artist's best interest to limit recovery for
One way is to strive for Indemnity obligations to be deducted
solely from future earnings from the recordings not from the artist personally,
in addition, it's important to limit Indemnity to third party claims. In other
words, the artist will only pay for damages when someone other than a party to
the agreement has a dispute. For example, a session musician or graphic artist's
indemnity provisions that require the musician to indemnify for claims brought
directly by the label should be avoided.
- Navin Kumar Jaggi
- Gurmeet Singh Jaggi