Record Contracts
Professor Calle
MUM 2700
www.DrCalle.com
Major Record Company
Major
Signs artists
Pays for production
Distributes records (CD) directly or via a
distributor
Company is responsible for:
Advertising, promotion, marketing
In other words - company is responsible for
everything
Independent Record Company
Signs artists
Pays for production
Markets and promotes the record
Does not distribute directly but instead
negotiates distribution deals with a
distributor or a major record company
Record Company President
President
Oversees entire company
Chief financial officer (C.F.O.)
Has final say regarding artists, personnel
and general direction of the company
Business Affairs/Legal
Write and negotiate contracts with
artists, distributors, publishers, licensers
and other company holdings such as
real estate, property, patents and
trademarks
Primarily owners, lawyers and
management
A&R
A & R = Artist & Repertoire
Ears of the company
Search for and select artists
Choose/approve material to be recorded
Oversee production
Manage the production advances or funds
Are often credited as executive producers
Promotion Department
Primary job is to ensure radio airplay for
a CD
Call radio program music directors
Try to ensure maximum exposure for
their artist in media including radio,
television, etc.
Marketing
Advertising
Publicity
CD cover, artwork, etc.
Promo videos
In-store promotions
Promotional merchandise
New Media
Techno folks
Find all new types of delivery methods
and media
iTunes. iPods
Satellite radio
Internet radio
Telephones
DVDs
Production
Producers oversee and are responsible
for the creative process
Often help choose material and
direction of the artist
Mostly sub-contract labor and not
working full-time for a record company
Product Management
Coordinate all record company
departments
Ensures that all tasks related to the
record production, release and
promotion are timely and efficient
Set and monitor deadlines for art work,
production, promotion, release, videos,
etc.
Finance
Compute and pay artist’s royalties,
salaries, production budgets, etc.
Manage the company’s income and
expenses
International
Coordinates the product worldwide
This includes airplay, distribution,
promotion, etc.
Sales
Responsible for getting records in the
store
Term
Length of contract:
Number of records
On average, records take from 9 months to 2
years to produce. Thus, 5 records can
represent a much longer period of time than 5
years.
Term - continued
Number of years
Typically, contracts are written in terms of
albums because years usually represent a
shorter term.
Shorter contracts favor the artist if the artist is
successful.
Long contracts normally contain many options.
Options are at the whim of the record
company.
Floors & Ceilings
Also known as Min/Max formulas
Contract specifies the minimum and
maximum advance or fund amounts to
be issued to the artists.
First album in the contract has a fixed
amount.
Other amounts vary upon artist
performance (sales).
Cross-collateralization
All funds, advances, expenditures and
profits are combined over the course of
the artist’ contract.
Each album/CD is not an event unto
itself.
Types of Artists
New artist: sold less than 250,000
records.
Mid-level or artist in demand: artist has
sold between 750,000 and 1 million
copies or is a new artist involved in a
bidding war.
Superstars are artists who have sold 2.5
million units or more.
Album Awards
Gold album is one that sells 500,000
U.S. copies.
Platinum album is one that sells
1,000,000 U.S. copies.
Royalty Rates
New artists rates signing with an
independent label - 10 and 15 points.
New Artists signing with a major label -
13 and 16 points.
Midlevel artists - 15 to 17 points.
Superstars - 18 to 20 points.
SRLP
The suggested retail price.
This is the number from which your
royalty base, after deductions, is
figured.
Constructed Retail Price
Typically uplifted by calculating 130%
of the wholesale price.
This number is usually lower than the
SRLP.
Escalations
Prospective - An escalation applied
upon reaching a performance/sales
marker. This escalation is applied to all
units sold after the marker is reached.
Retroactive - An escalation applied to all
records sold, from record one, upon
reaching a performance/sales marker.
Royalties
Net/Artist - The artist royalty/point rate.
All-in rate - The combined artist and
producer point/royalty rate.
Producer points range from 0 to 5
points.
Advances and Funds
Advances are issued to a producer or
artist. The artist or producer turns in a
finished master and keeps money left
over.
Funds are available to an artist or
producer. Money not spent is not kept
by the artist or producer.
Advances + & -
Advances +:
More control of funding.
Money saved can be kept.
Advances -:
All money issued is recoupable.
Large advances can prevent an artist from
earning royalties because the money is not
recouped.
Funds + & -
Funds +:
Typically forces lower recording costs.
Money saved in recording allows faster
recoupment and royalty earnings.
Funds -:
Less control of funding and thus recording.
Does not provide an incentive for efficiency or a
large cash base for artist/producer.
Deductions
Free goods = 15%
Packaging = 25%
10% for breakage (A&M Records)
Reserves = 35% (Make up for returns.
Liquidated within 2 years)
85% of net sales - makes up for piracy,
etc.
Recoupment
Recoup - to earn back the money
advanced by the record company at the
point rate specified in your contract.
Red position - not-recouped/loss.
Black position - recouped/profitable.
Returns
Retailers can only return 20% of goods
shipped without penalty.
All units over 20% are charged a
restocking fee.
In the past, retailers enjoyed a 100%
return privilege.
Options
Firm albums are mandatory. Most new
artist have one firm album with a series
of options.
Options are exercised at the discretion
of the record company based upon
sales, conviction or momentum.
Options can be bad because they tie up
the artist for long periods of time.
Option Negotiation Strategies
Try to limit options
Do not assume you will be a failure. Try
to assure better rates if you have
success.
If offered 4 or more options try to force
a 5th CD if the 4th option is exercised
and so forth.
Term
The term of your contract is the maximum
length including all options.
The term is measured in CDs and not years.
CDs can take 2 or more years to produce.
The contract can be terminated by the record
company at any time as specified in the
contract.
Late Delivery of Items
Producers can loose future accounts by
turning albums in late because this
destroys the marketing process and
causes huge financial losses to
companies.
Albums delivered late can force contract
termination.
Satisfactory Recordings
Technically satisfactory - Recorded and
mixed professionally. Sounds good.
Commercially satisfactory - Company
believes CD will sell and is
representative of the artist image or
style. “Country singers don’t make jazz
CDs.”
Pay or Play
Record company can shelve or not
record a CD by:
Paying the artist the union scale for the
CD.
Negotiate and pay the difference between
the recording fund and the cost of the last
CD.
Pay a pre-determined amount.
Demo Deals
Company will pay for a 3-song demo.
Contract will require a period of time
(30 to 90 days) during which the demo
is shopped internally.
After this term expires, the artist can
shop this demo to competitors.
Originally company has the right of first
refusal.
Demo Deal Advantages
Professional recording with a qualified
producer paid for by the record
company.
Instant artist credibility.
High-quality demo can be used to shop
at other companies.
Demo Deal Disadvantages
A lot of record company input.
Money must be recouped.
Record contracts will typically offer low point
structures and be more in the company’s
favor.
You must inform the original company in case
of any offers.
You cannot use the master for profit unless
you buy it back.
Money will be recoupable for any company
contract issued.
Demo Deal Calendars
Calendar days - Monday - Sunday
including holidays.
Work days - Monday - Friday not
including holidays.
Calendar days defines a shorter a
period of time than work days.