Recording contracts — before you sign on the dotted line…
by Lale Kemal
This article explores some of the key contractual issues or ‘red flags’ you or your artist should consider before entering into a recording contract. For a fuller review of your contractual obligations and options it is important to seek the advice of a music lawyer.
- CHECK THE NATURE OF THE DEAL
Before reviewing any contractual terms, it is important to understand the nature of the deal you or your artist are entering into upfront. There are a number of different types of recording contracts and a good agreement will be tailored specifically to the artist involved. By way of example, it could be:
(i) A development agreement, under which an artist will record a few initial demos or tracks. If successful, the label may reserve the right to extend the arrangement;
(ii) A classic recording contract permitting a label to exclusively record and commercially release an artist’s works;
(iii) A 360 deal or an exclusive recording contract plus additional rights — the label will benefit from an artist’s record sales but also have access to and take a share of an artist’s other revenue streams, for example merchandise, live performances, sponsorship deals, existing publishing agreements or other intellectual property rights; or
(iv) A production agreement whereby a production company agrees to produce an artist’s sound recordings and potentially license the works to third party record labels for commercial release. It is important to consider the costs a production company can recover for producing an artist’s works and for any future artist recordings and earnings.
2. THE TERM — HOW LONG IS TOO LONG?
It is usual to have an initial 12-month contract term with options for a record company to extend or renew the contract (for example, for five or six albums). This could be a significant commitment and it is important to ensure a longer contract term works for the artist involved and is not tantamount to a restraint of trade.
3. ENSURE THE MINIMUM COMMITMENT IS ACHIEVABLE AND REASONABLE
During the term of the contract, an artist will be expected to fulfill certain obligations including a minimum commitment. The parties should mutually agree the scope of the commitment, but it could be delivering a set number of sound recordings within a defined period or a full album that is ready for commercial release. Whether recordings are commercially ‘ready’ should be considered within the label’s reasonable discretion, in accordance with the standards expected in the industry. It is also key to consider how far the minimum commitment stretches territorially. An artist may need to make new copies or request remixes of tracks to suit different markets.
From an artist’s perspective, the minimum commitment must be achievable and reasonable. A balance must be struck between an artist over-promising and under-delivering, and ensuring an artist is not locked into a contract for an unduly long term to meet its obligations.
The record company will usually be subject to a similar set of obligations, for example the label will be subject to a release commitment to release and properly promote an artist’s album within a specific timeframe, with the artist’s reasonable assistance. Each party should have the option to terminate the contract if the other party fails to fulfill its obligations.
4. CHECK THE LABEL’S CREATIVE CONTROLS
An artist will commit to providing a certain number of sound recordings (this could be preexisting and new recordings) and other services to a label exclusively for the term of the contract. The label will own the copyright in the artist’s recordings, however it will not have the right to the artist’s underlying musical compositions and lyrics and it will need permission to make or use a recording of an artist’s live performances.
In return, the label will provide an artist with a recoupable advance to support the artist during the recording process, and will produce, manufacture and distribute the recordings made during the term.
The label will own the rights to the artist’s physical sound recordings and the content of any downloads or streams and it may license the right to use or make copies of this content to other parties — for example publishers, television companies or streaming services. If an artist wants to appear on a television show or have a track featured in a compilation, the record company will likely license the right to permit this. Similarly, it may license copies of artist recordings for music videos and films (sync rights) or for brand endorsements.
A record company could therefore be involved in a number of important artist revenue streams which could mean it plays a leading role in directing an artist’s progression. You or your artist must be comfortable with the extent of a label’s creative control; for some artists this label support is invaluable. Record companies have the resource and infrastructure to build an artist’s career and give access to new opportunities and markets. However, if an artist enters into an extended two or three-album deal, this may prove restrictive.
5. KEEP AN EYE ON ROYALTIES & OTHER COSTS
The calculation of royalties, or the proportion of an artist’s earnings shared by a record company and an artist, depends on the leverage of the record company and artist involved.
The money a label makes from the sale or use of an artist’s sound recordings will be shared between label and artist. For 360 deals, a label will also receive a portion of the earnings made from its involvement in the artist’s other revenue streams (for example merchandise sales, licensing, live performances, tours).
An artist may theoretically receive 50% of all net royalty receipts (the income received from the label arising out of the exploitation of the artist’s sound recordings, less the recoupable advance the artist initially received and any reasonably incurred expenses). New artists could expect to receive a 10–15% royalty on downloads or streams, and established artists could receive up to 20%. Note, there are other royalty sources that are not considered in this article (for example mechanical and performance royalties).
It is important to review the royalty deductions a record company intends to make and request a full narrative of costs to ensure it is not claiming general business expenses. A label will accrue recording costs, music and video production costs, it may hire engineers and spend time and money on the manufacture, release and promotion of an artist’s works. These are acceptable recoupable costs, however paying a label’s landline bill, general travel or other unrelated expenses would not be. An artist may request that its prior written approval is required before any royalty deductions are made. The contract may also include a right of audit, permitting an artist’s accountant to inspect a record company’s account statements to ensure appropriate royalties have been paid.
Key points:
- Nature of the deal: What is the record company asking you or your artist to do and does it sound reasonable?
- An initial 12-month contract term with options for a record company to extend or renew a contract is usual.
- Ensure the minimum commitment under contract is reasonable and you or your artist is able to achieve it.
- Make sure the record company is obliged to take reasonable steps to release and promote artist recordings and check you or your artist are comfortable with the creative control it may take.
- A label is entitled to recoup its initial advance and reasonable costs incurred during the course of the recording contract, but check the royalty deductions are fair.
This is a basic guide to the key terms in recording contracts. For more detailed advice, we would suggest that you approach a specialist music lawyer, or if you have a specific query for the author, please contact the Shesaid.so team directly.
