recording agreements Flashcards
overview of recording agreements
Exclusivity
Term/Options
Delivery Commitment
Budgets
Advances
Royalties/Recoupment
Accounting and Audits
Videos
Miscellaneous Provisions
exclusivity
The artist may only record for the label during the term of the deal.
Definition of “record” or “master” could be broad, unless certain types of recordings (i.e. soundtrack recordings) are excluded.
Labels customarily allow an artist to perform as a “featured performer” on another artist’s recording.
Remember…recording agreements almost always incorporate “work for hire” language.
term/options
Terms tend to not be stated in time periods only, but are stated as being for the later of a certain time from the start of the agreement or a certain time after delivery of a specified number of recordings.
i.e. “The term for each album shall continue until the later of 12 months after the commencement of the current contract period or 9 months following delivery of the delivery of the recording commitment for the current contract period.”
Labels typically have 2-7 options after the first album to make future albums.
delivery commitment
“Commercially satisfactory” is the industry standard and puts control in the label’s hands.
“Technically satisfactory” is better for the artist.
Other delivery criteria: Studio recordings, not live or greatest hits. Not previously recorded. Featuring artists performance. Not wholly instrumental. Minimum playing time. Limit on number of cover songs. Warranty of non-infringement.
budgets
Usually, a single all-inclusive recording fund is given to the artist.
It’s an incentive to minimize recording costs.
No cash advance for artist if he/she goes over budget.
Contract states initial budget and provides formula for budget on option albums.
i.e. 60-70% of all royalties earned on prior album (in U.S. over a certain period of time, such as 6-18 months after release) or averaging the earnings of the prior two albums.
To prevent negative impact by low earnings on prior album, budget formulas usually have a floor. To prevent having to provide too large a recording fund if earnings on prior album are huge, budget formulas will often have a ceiling too.
advances
The all-inclusive fund will not only include the recording costs, but will also include monies paid to the artist in advance.
This money goes into the artist’s pocket for things like food, rent, etc.
Whether for recording costs or for an advance, these monies are recoupable against future royalties.
royalties
Based on suggested retail list price (“SRLP”). This is not the price that CD’s actually sell for. SRLP can be as much as $18.98.
Artist royalty rates on album sales range from 10-20% (10-13% for new artists) in a traditional deal. It will be higher in 360 deals.
Royalties on album sales may have escalations, which are escalated royalty rates based upon sales of records…i.e. .5%-1% at some level between 500,000 and 1 million album sales.
The artist’s deal is usually “all in”, meaning that the producer’s royalty (3-4%) comes out of the artist’s royalty.
So if an artist has a 10% royalty, his/her royalty will be reduced to 7% to account for a producer’s 3% royalty.
There are certain customary deductions that get factored into royalty calculations:
A container or packaging deduction of 25% for CD’s, 20% for cassettes, and 10% for vinyl.
The artist’s royalty rate is applied to albums “sold”. “Sold” is considered to be 85% of the actual number of albums sold.
There used to be a 10% deduction for “breakage”, but this is rarely applied today.
As retail outlets have return privileges with distributors and as distributors have return privileges from music companies, the music companies hold a “return reserve” of 25-40% of the royalties otherwise due an artist (the time frame could be for up to 2 years).
recoupment
Recoupment is when the music companies get paid back the monies they advanced to the artist for recording costs and other advances.
Royalties “due to” the artist go first towards recoupment of the recording fund and then, if anything else is left, the remainder goes to the artist.
Using the example from the prior slide, if we assume a $250,000 recording fund/advance:
$357,000 Gross Royalty - $250,000 recoupment = $107,000
$249,900 royalty after return reserve - $250,000 recoupment = $-100.00
cross collaterization
Recording agreements frequently provide for “cross-collateralization”, which means any advances on one album may be recouped from royalty income from any other releases.
Cross-collateralization also frequently means that advances from sound recordings may be recouped from royalty income from publishing or any other ancillary revenue stream.
controlled compositions
Music compositions composed by the recording artist are called “controlled compositions”.
Recording agreements usually state that the music company gets a discount on the statutory mechanical license royalty rate, paying only 75% of that rate.
360 degree deals
With 360 degree deals:
360 degree recording agreements will have provisions that account for royalty rates for ancillary revenue streams.
These deals are all over the place with rates, so there is no standard. You may see a 50-50% split in these revenue streams, or you could see more or less than that.
accounting and audits
There are usually two accounting periods each year, ending June 30th and December 31st.
Royalties are usually paid within 3 months of the end of these accounting periods.
The artist has a right to audit the records of the music company for a period of time after the contract ends. Underpayments larger than a certain percentage result in the music company having to pay for the audit.
music videos
Usually promotional in nature, although they can generate some income via sales of DVD’s or paid downloads or through sharing of ad revenue from online video sites (like VEVO).
Label usually has creative control; artist usually wants some veto power, although this is unlikely.
The record company might be willing to absorb half the costs of the video. This would be recoupable against artist royalties.
miscellaneous provisions
There are usually reduced royalty rates for things like foreign sales, mid-line or budget albums, recordings sold at discount, record club sales and the like.
Territory in recording agreements is usually “the world” or “the universe”.
With 360 degree deals, tour support will more customarily be paid by the label.
While the music company is never required to release an artist’s album, contracts may provide for the right for the artist to get out of the deal if an album is not released within a specified period of time.
An artist may try to get the music company to commit to spending a certain amount of money on marketing and promotion
