Recording contract

Recording contract

A recording contract (commonly called a record deal) is a legal agreement between a record label and a recording artist (or group), where the artist makes a record (or series of records) for the label to sell and promote. Artists under contract are normally only allowed to record for that label exclusively; guest appearances on other artists' records will carry a notice "By courtesy of (the name of the label)", and that label may receive a percentage of sales.

Labels typically own the copyright in the records their artists make, and also the master copies of those records. An exception is when a label makes a distribution deal with an artist; in this case, the artist, their manager, or another party may own the copyright (and masters), while the record is licensed exclusively to the label for a set period of time. Promotion is a key factor in the success of a record, and is largely the label's responsibility, as is proper distribution of records.

While initial recording deals usually yield a relatively small percentage of royalties to artists, subsequent (or renegotiated) deals can result in much greater profit, or profit potential. A few performers, such as Madonna, Michael Jackson and U2, among others, have signed multimillion-dollar contracts. Whitney Houston, for instance, has the biggest recording deal in history, paying her $100 million for recording just five albums, on which she would also earn royalties. For many other artists, though, for the millions to become tangible, hit records meeting or exceeding their previous sales figures must follow. Recording contracts may include opt-out clauses for the label in the event an artist's popularity dips or they release non-hit albums under the deal; for instance Mariah Carey's $80 million deal with Virgin Records was canceled by Virgin and she was dropped from the label after her album released by the company sold poorly.

Unless worded otherwise, any advances or upfront money paid to a recording artist is owed back to the label, whether the recordings to follow sell well or not. Capitol Records suspended Linda Ronstadt's contract in the early 1970s, but she continued to tour partly to pay Capitol back for her 1960s deal, which cost Capitol more than it had yielded. (Her string of hits in the mid-1970s allowed her to finally clear the debt.) Labels expect to make a profit, and little concern themselves with a given performer's lack of business or financial savvy, as artists such as George Michael have discovered. "Walking out" on a deal is very difficult, as is attempting to strike a new deal without completing an old one; recordings released by Donna Summer and by members of Boston (calling themselves "Orion the Hunter") were pulled from distribution after their former labels took legal action. The Mamas and the Papas were forced into a reunion years after their 1968 breakup, by the letter of their Dunhill Records contract, which required one more album to be completed (1971's "People Like Us").

Record companies will generally increase royalties or give artistic freedom to get acts to re-sign contracts with them, and generally must offer the best deal to retain an artist. Sometimes, however, established acts will go where they see better opportunity. Diana Ross for instance, released her 1980 album "diana" which fulfilled her contract with Motown Records. The album featured three Billboard pop hits, a #1 and two top tens. Ross, however, felt she never was fairly compensated by Motown for any of her solo work or her work with The Supremes, one of the biggest groups in history. When RCA Records offered her $20 million to sign a contract with them, Ross gave Motown the chance to match the deal, or at least offer something favorable. Motown, believing Ross' solo career at the time was too up-and-down and saw no reason to now compensate her for her Supremes work, offered $3 million. Split with the decision to remain loyal to the label that made her famous but never properly paid her, or sign a deal with another company to get what she felt she was worth, she ultimately signed with RCA.

When recordings go out of print, this typically happens because either the label has decided that continuing to sell (or distribute) the record will not be profitable, or the licensing agreement with the artist has expired. (Labels may also stop distribution as a punitive measure, if an artist fails to comply with their contract, or as a strategic measure if negotiations for a new one prove difficult.) Record labels can also become bankrupt like any business, and their masters and copyrights sold or traded as part of their assets. (Occasionally these are purchased by the artists themselves.)

Recording artists signed to a failed label can find themselves in limbo, unable to record for anyone but a company that is out of business (and thus cannot sell or distribute their records), and with their existing works unavailable for sale. When one label "buys out" another (or a label is purchased by an outside party), any existing copyrights and contracts held (and masters, if owned by the label) normally go with the sale. This often benefits recording artists, but not always.

Distribution deals are often renewed, but occasionally the label and whoever owns the copyright cannot come to terms for a renewal. The reason is usually that one party expects too much money, or too large a percentage of profits, to suit the other.

Breakdown of a typical Recording Contract

(i) Definitions

The first few pages of any recording contract usually deals with the definitions of words to be found in the body of the agreement.

Words such as "record", "compact disc", "territory", "A&R", "delivery" will be defined, as well as "the artist" etc.

(ii) The Term and Minimum Commitments

"The Term" is how long the contract can last for. This is an important clause because it prevents a label from binding a particular artist to them for extremely long periods.

The minimum commitment is, simply put, the least a label has to do whilst sticking to the contract. In most cases the minimum commitment is one album, with a "two album firm" being a rare deal that suggests that the label had previously engaged in a bidding war for a much sought after artist.

When you hear of a "six album deal" generally the label will only be committing to facilitating the recording of a single album but there will be the option of future products.

In many contracts there is no commitment of the label to actually release the finished product. Whether it's released or not depends on "acceptance" by the company. The label can reject delivery of an album by relying on quite precise conditions contained in the contract. The company will want the contract to say that each album must be "commercially acceptable" and a good lawyer acting on behalf of the artist should tone this down to "technically acceptable".

If the album is accepted then most labels agree to a "release commitment" which will provide that they release the album in as few major territories as they can get away with.

(iii) Exclusivity, Grant of Rights and Copyright

Record companies will ensure that the artist is restricted to making records and videos only for them. Artists will usually be permitted to appear as guests on other artists records as long as the company receives a "...appears by kind permission of..." credit and sometimes a fee or so-called "override" royalty from whichever record company is releasing the record upon which their artist guests.

The contract state that the artist is allowed to have his "performances", which may be defined as including speech, recorded by TV or radio as long as the recordings are not made available commercially without the record company's consent.

The copyright in all recordings made under the provisions of the contract will, in nearly every case, be granted (assigned) to the company by the artist, as well as the rights for the company to use the artist's name and image in exploiting the recordings. The company will be granted unlimited and exclusive rights to manufacture, distribute and sell records derived from the recordings, and the right to license other companies to do so. The company will also be granted the right to do none of the forgoing if it chooses not to.

(iv) Advances, Royalties and Recording Costs

The financial side of any recording contract is extremely complex. Some of the money may be "recoupable" which means that it can be earned back from record sales, some of it is money that the label is simply expected to pay out.

In very basic terms, the record company is like a bank giving the artist a very very big loan with which to create a record. The loan is paid back slowly through sales.

For every sale the artist received a royalty, which itself has a very complex formula by which it is calculated. Some of the money goes to the record company, some to the publishing company, some to the artist's manager, some to the distributor, some to the record shop, some to the producer(s) and engineer(s) etc etc.

Also packaging deductions are made, i.e. money is taken off the royalties to factor in for the manufacture of the actual CDs, jewel cases etc.

(v) Publishing

Music publishers own, control and exploit compositions written by songwriters. Record companies have to pay publishing companies (or unpublished writers whose works are "copyright control") for the use of these compositions. Realistically, the label must actually receive permission to reprint lyrics in album booklets, record the material in question, and distribute it, among other uses.

Under various intellectual property agreements, national and international, such as The Berne Convention, artists automatically retain copyright in their work the instant it is set into a tangible form, whether lyrics are written down, or a rough demo recording is made; so long as tangible evidence of its execution exists, rights to the work exist. There will be considerable relinquishing of these rights upon being signed to a label and publisher, but, dependent on the various deals thereby made, artists may or may not still have much clout in determining the uses of their work.

While the Convention provides for instant copyright in the execution of any artwork, in the case of songs, a songwriter not only owns copyright in their work upon creating it tangibly, but also automatically founds their own publishing "company". Now, to diffuse confusion, this is not an actual company, nor the same thing as the publisher or label themselves, but is a legal entity which retains the rights of an individual (as does an actual company, hence the name), and serves as the identifier and body which designates ownership of certain works.

Mainly for royalty purposes, each songwriter has their own publishing "company" (realistically, a mere, unique name to which royalties are made out, and in which licenses are granted). Under the procedures of various performing rights and songwriting organizations in the world, such as ASCAP, signed artists must come up with a maximum of three possible names under which to license and administer their music (these are generally chosen based on personal significance, and most always end in the word "Music").

On sheet music and in album liner notes, songwriting credits are given to the individuals concerned, while rights are assigned to these "companies"; each composer and musician having their own. Some famous examples include "P!nk Inside Music" (the publishing "company" of recording artist P!nk); "Songs of Golgotha Music" (the "company" of Aaronea' Wiggins), and "Welsh Witch Music" (the "company" of Stevie Nicks). The contract may or may not mention this feature of the industry, while others may provide for the artist's entitlement to up to three publishing names. They serve primarily as legal identifiers.

For usage on records, record companies pay a "mechanical royalty" to the publisher at a rate of 8.5% of the dealer price of each record (in the UK).

Another example concerns "synchronisation" rights, where a song is synchronised with moving images, such as a film. Normally, for usage in feature films and TV, publishers expect significant payment. However, in the case of promo clips (music videos) the record company will expect to receive a free or nominally priced synchronisation license - the argument being that the showing of the clip will increase record sales and thus bring mechanical royalties to the publisher.

Subsequently, anyone, including organisations, who is not the artist, publisher, or label may obtain permission, or, a "license", to use the song in a certain way. Licenses include, as stated, both "mechanical" and "synchronisation" types, as well as other variations of the same. Generally, in the United States, publishers will charge $500 per 30-second synchronisation of a song. Of course, rates vary by publisher and are based on agreements made between the composer, the label, and the publisher.

Interestingly, if such deals provide for it, artists (songwriters) may actually be afforded the right to approve or reject applications for licensing their works. Such is the case with the famous sisters, Ann Wilson and Nancy Wilson of iconic band, Heart. One instance of such power involves the 1999 Sofia Coppola film, "The Virgin Suicides", for which Coppola desired to use some Heart songs due to it being set in the mid- to late-seventies.

When Sofia found out how much such synchronisation licenses would cost for the endeavour, she realized she could not legally use the music she wished to, so, hearing of her plight, the Wilson sisters granted her what the industry refers to as a "gratis license", or, rights to synchronise the songs for free. This is similar to when labels receive permission free of charge to use songs in music videos, though in the case of "The Virgin Suicides", the permission was granted on a compassionate basis.

It is not a common feature of this clause in a recording contract to grant such creative licensing power to the artist or songwriter, and depends almost entirely on the artist's clout and relations with the publisher in that deal.

(vi) Group Provisions

Record companies generally insist on signing the band "joint and severally"; this means that instead of the group being signed to the contract as a single entity, each member of the band is signed individually. Thus, if a band splits, the company controls any solo projects that they may embark on.

(vii) Creative Control and Cost Control

Most record companies are wary of giving artists complete creative control, and this is generally only done if the artist has demonstrated they warrant it, unless the company are desperate to sign the artist.

Generally the company will have control over the choice of material, studio and the producer used "in consultation with the artist". Most of the time there isn't much dispute in this area but it does happen.

There will often (but not always) be provisions in the contract that give the artist the right to veto certain costs, such as, for example remixes. This is to safeguard the artist against incurring debt by the company without the artist's consent.

(viii) Video

Promo clips (aka music videos) are heavy financial commitments made by the record companies, most shoots are between $35,000 and $55,000 with bigger artists being able to command budgets of $300,000 or more.

Recoupment of promo clips is often an area of dispute because there is no way a record company can make significant amounts of money back from them directly. Though, there is the debated format of video singles, pioneered by Madonna when her controversial video for "Justify My Love" was banned by MTV and other major music video broadcasters. She ended up selling a significant number of copies of the video, and has released songs in this format various times since. In spite of this, video singles have never been as commercially-viable as conventional audio singles, and indeed, the single format is dwindling in sales with the rise of Internet availability of both legal and gray-area music downloads.

Music videos have been widely used by influential major-label artists such as Michael Jackson, Madonna, Whitney Houston, Prince, and Janet Jackson; all of whom used them to great effectiveness over their decades old careers. Some artists videos often resemble full-fledged films, utilizing 35mm filmstock, famous directors, and lengthy shooting schedules, among special effects and expensive sets. Michael Jackson made headway in artists' rights to command high costs for video production with his famous Thriller, arguably a movie in its own right.

Artists' lawyers will tend to say that music videos are marketing tools and therefore should be paid for out of the company's pocket, not the artists debit balance. In respect of this, and because of the actions of artists like those aforementioned, some labels are modifying their expenditures to produce better videos, without having their artists incur so much debt.

The normal compromise is that half of the cost is recoupable from record sales, half from any other income related to that video or other videos.

There will be provisions for "long form videos", which are usually specially filmed concerts for TV or video release. The record company will nearly always want to take the artist's right to such releases.

(ix) Tour Support and Equipment

There are provisions made for the prospect of the band touring, as many artists will build up their fanbase in this way. This will usually include certain advances made in the way of tour support or equipment being bought. This clause will vary significantly from deal to deal.

Arguably the best way for a tour to increase an artist's fanbase is for the artist to book appearances not only as headliners, but also as supporting performers at large festival tours. Mainly popular in Europe, though with some North American examples, the festival concert draws the largest audience possible in the touring aspect of the industry, with the exception of televised concerts. Also, festivals offer fans of diverse demographics and tastes to partake of several different bands at one venue over a period of days.

Many of the major labels have their own "in-house" touring departments which handle nearly all aspects of an artist's tour, from transportation and equipment, to promotion and investment. Such an example is Universal Tours, the "in-house" department of mega-label, Universal Music. In such scenarios, usually only external bookers are required. Such departments are also responsible for the hiring and payment of touring personnel, such as roadies and drivers. In this capacity, an artist's contract may or may not adequately furnish their touring efforts.

(x) Producers

This clause deals with how the producer's royalty is calculated.

A "name" producer will charge a royalty of between 3% and 5% of the retail price (often referred to as "points") against an advance of $4,000 per track.

(xi) Auditing and Accounting

A record company will send the artist a detailed royalty statement twice a year. All record companies will allow an artist's accountant to check their books to see if the information on the royalty statement is correct. Likewise, music publishers also send royalty statements twice a year, detailing uses of an artist's work (if the artist is the songwriter) through licensing deals. Depending on an artist's publishing deal, they may or may not have a final say in who can license their music for what, purpose and fee. Both of these types of statements reflect sales and distribution, though the methods used by publishers and labels to tabulate sales and licensing data may differ dramatically, which is why the option of auditing can be very helpful.

(xii) Promotional Duties

Most contracts contain provisions whereby the artist agrees to promote the release of records free of charge other than the reimbursment of out-of-the-pocket expenses.

Promotional activities include, for example, press interviews, photo sessions, appearing on radio and television and making personal appearances.

(xiii) Termination

Like most contracts, there are provisions for if either party makes a significant breach of the contract that means it can be terminated.

(xiv) Miscellaneous Provisions

The contract will normally finish with a few pages of miscellaneous clauses such as:

*That the contract is governed by law.
*That the artist warrants that there are no restrictions which would prevent the artist from entering into the contract (such as already being signed to another label).
*That the artist acknowledges that the sales of records are speculative and will not sue the company if not enough records are sold.
*Specifically agreed minor terms, such as the record company paying for the legal costs in negotiating the agreement.

(xv) The Signature

There is space for the artist, and an authorized signatory of the record company to sign the contract, which in terms, seals the deal.


A Band's Guide to Getting a Record Deal by Will Ashurst; ISBN 1860742432

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