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What's a Record Label Deal All About?
by Christopher Knab - Fourfront
Media & Music - Janurary
2002
Back to Music
Business 101
It is my experience that most musicians think they want a record
deal, but know nothing about these ominous 80 –100 page, single-spaced recording contracts. Recording contracts
are legally binding agreements between individuals who make up a band and a corporation.
In previous columns, I have given a lot of information about how the music business works, and what an independent
artist or band must do to establish their careers. Record labels are attracted to acts that have built a strong
following and have proved to the industry that they are a solid investment. When a record label signs an act to
a recording contract, they expect to make a substantial return on the financial investment they have made in that
act.
The following information is provided to you as a basic outline to the key parts of a recording contract. Please
be advised that should any such contract ever come your way, never sign anything without consulting your entertainment
law attorney.
INDIE LABEL VS. MAJOR LABEL
Indie Label (See
Also, Major Label)
By the purest industry definition, an independent label is a record label that is not affiliated in any way with
a Major Label, and uses independent distributors to get their releases into stores.
Note: For an
in depth article on the types of relationships that exist between independent labels and major labels see the chapter
I co-wrote with entertainment law attorney Bartley F. Day in the excellent resource book The Musicians Business
and Legal Guide, 3rd Edition, published by Prentice Hall.
When you think about pursuing an independent record label deal, think about the following issues:
DISTRIBUTION
Make sure the label has a solid distribution deal on a national level. Be sure to check on the relationship between
the label and their distributor(s). Ask some questions like:
- How many records has the distributor sold of the label’s product?
- Did the label have any problems getting paid by their distributor?
- What kind of working relationship do they have with their distributors
on their new releases?
- Does the label have a budget to pay for some co-op ads, and in-store
promotions through their distributor?
ROSTER
Make sure the label’s roster isn’t too big, or else you won’t be given the attention you deserve. Also, make sure
the bands on the roster match the type of music you play.
PUBLISHING
If the label has an affiliated Music Publishing division, and wants part of your publishing, don’t be surprised,
but be sure your attorney protects as much of your publishing royalties as possible. Never allow a label to recoup
any monies advanced to you for the recording of your record from your mechanical royalties. (This is the money
owed to the songwriter and music publisher of the songs you wrote on your record, for the sales of your record.)
MERCHANDISE
Merchandise deals are deals made by your attorney outside of your recording contract, for your likeness to appear
on t-shirts and other clothing and objects. If the label wants a percentage of the income from such a deal, you
may have to negotiate how much they get.
OPTIONS
Find out how many options the label wants. Since “options = number of records,” you don’t want to agree on too
many options.
INDIE PROMOTERS and/or IN-HOUSE STAFF
Find out if the label works with independent radio and/or retail promoters. It’s a good sign when they do; this
raises the chances that your record will be seriously and effectively promoted.
ADVERTISING
Find out if the band has an advertising budget for releases.
TOUR SUPPORT
Find out if and how they support you on your tour (financially, morally, etc.) and how much of any advances for
touring are recoupable.
POINT / PERCENTAGE of the LIST PRICE You Receive
Find out how much you get paid for each record sold. A new act usually gets somewhere between 10-15% of the suggested
list price of a recording. (Remember too that out of your percentage, you must pay your producer their percentage,
for producing your record.)
Major Label
By industry definition, a major label is a label that commands a high percentage of the annual sales of records,
and has their own distribution system. ( The Big 5 distribution companies currently are: WEA, BMG, SONY, UMVG,
and EMD.)
When pursuing a major label deal be absolutely sure that this is what you really want. Here are some points that
might help you determine if this is the right thing for you to do:
OPTIONS
A major label often signs artists for six to eight records (not years).
A&R
Research the A&R person. Know whom they’ve signed, who they’ve worked with, who they’ve worked for, and how
long they have been employed.
NUMBER OF RELEASES
Find out how many records the label releases per year. You don’t want to sign with a label that releases too many
records. Remember, they only have so much time and enthusiasm to put into the promotion of each record. Many major
labels have between 12-25 releases coming out each month.
Here are some clauses that you will encounter (and sometimes have to watch out for) in a contract with a record
label:
EXCLUSIVITY
Every record contract includes a provision stating that the deal is “exclusive.” In other words, during the term
of the agreement, you can’t make records for anybody else. Therefore, an exclusivity clause in a contract refers
to the fact that you may only contract with this record company (you are “unilaterally married” to that company.)
I strongly recommend that your attorney define the extent of exclusivity.
TERM
The duration of the contract. (How many records? Any time constraints?)
PRODUCT/CREATIVITY
Who will control the amount of product and the quality of the product? You always want as much creative freedom
as possible; the record company often maintains a veto power when letting a band choose the producer, engineer,
studio, etc.
RECORDING COSTS
How much (recoupable) recording money will you get? Don’t overdo it! Remember, you will have to pay it back from
your royalty rate as applied to actual sales.
ADVANCES
How much (living) money will you get that is recoupable? What about other advances, such as videos, and touring?
Remember, you will have to pay back that amount to the label.
ROYALTIES
The money paid for your service as recording artists. Outside of U.S. is calculated differently. (Canada: 75–90
% / UK, Japan, Australia: 60–70 % / Rest of the world: 50 %–of U.S. rate).
VIDEO
Who controls the music video and how the costs are apportioned. Try to have only 50% of the cost recoupable.
PUBLICITY
The label will need your permission for name, likeness and voice in order to publicize your record. Also, ownership
of your website URLs may also be a point of negotiation.
MERCHANDISING
Same as with Independent labels
UNION
Your promise to join a union (AFTRA, AFM).
AUDITING
Your right to audit the books. Make sure this clause is included in the contract.
ACCOUNTING
The label’s responsibility is to report financially to you (reports to artists usually occur every six months;
i.e., if an accounting period lasts from January till June, the label will report to the artists approximately
in September).
ASSIGNMENT
The record company’s right to sell the contract. Majors sometime shuffle acts around from one affiliated label
to another within their family of labels.
CONTROLLED COMPOSITION
How the label will pay mechanical royalties. Standard practice is that the label will only pay on 10 songs on your
record, and at 75% of the current statutory mechanical license fee. (As of 2002, 8 cents per song, per unit sold.)
This rate changes every two years.
TERMINATION
This clause specifies the songs you may not be allowed to record for a set time after the ending of the contract.
SIDEMAN'S CLAUSE
You might want to consider including a sideman’s clause. A sideman’s clause allows an artist to do studio work.
The artist still needs permission from the record company; they however, can’t say no unless they have a very good
reason. Under normal circumstances -- without such a sideman’s clause -- you would be prohibited from performing
for any other band/label under the terms of an exclusive contract. If you have a sideman’s clause in your contract,
make sure all members of your band sign the document.
KEY MAN CLAUSE
If a significant label executive resigns, or leaves the company, you may terminate the deal. The label may also
put such a clause in concerning a band member.
I hope this information was useful for you. Knowing some basics about the realities of recording contracts before
you get involved with them can save you a lot of grief down the road. Remember, record company lawyers have a reason
for every clause in their contracts—so should you.
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Christopher Knab is an independent music business consultant based in Seattle, Washington. He
is available for private consultations on promoting and marketing independent music, and can be reached at 206-282-6116
or by email at: Chris@Knab.com
Chris Knab's new book, 'Music Is Your Business'
is available NOW from the Music Biz Academy bookstore.
Visit the FourFront Media and
Music website for more information on the business of music from
Christopher Knab.
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