All The Details

You have heard it said that the devil is in the detail? Well, that is true no less in recording contracts. In What Record Companies Want we saw that profit is the motive behind recording contracts. Your music is a raw material input into the factory which makes CD’s for sale; a new kind of sausage, say, that they have to get the consumers out there to like, and purchase in droves.
So, what you need to do is carefully scrutinize how the recoupment of their investment is structured. You can expect to find many of the features that are summarized below. This does not mean that you will find these clauses thrust under your nose, or that you definitely have to agree to such terms and conditions. Our purpose here is just to alert you…
What follows is in alphabetical order, and does not give any ranking to importance or priority. Reference to ‘recording’ includes reference to material such as a music-video featuring the recording (unless, of course, the context indicates otherwise).

Advances
Aah, the infamous ‘advance’. When the deal is struck, the record company ‘advances’ the band a sum of money – for living expenses, wardrobe, and whatever.
This is likely very attractive for first-timers, because it means instant wealth! However, often, the company excludes its liability to pay any advances.
At the same time, if it does happen that the company agrees to pay an advance, it is not instant wealth. Rather, it is rather a golden handcuff. Remember, it is just that – an advance. It is not a grant, donation, or gift.
It is to be paid back, and usually that means from sales in due course, just like the production costs are recouped. And, it can be provided in the contract – and most often is – that the advance monies are to be paid back before there is any royalty distribution.

Ancillary Rights
This covers aspects such as live performance engagements, exploitation in the media of names, likenesses, merchandising rights (like, do you know how much money the Elvis Presley Estate made last year?) endorsements (“Mark Knopfler uses D’Addario strings”), books, biographies, websites, and so forth.
This does not mean that the record company will necessarily want to control all of these downstream industries relating to each of their artists, but just be cautioned as to what your deal might be providing. Check the details.
The way that it works, generally, is that if the company identifies such an opportunity, you have the right to take it up or reject it. If you take it up, the company gets a share of the proceeds – one major company’s contract I have seen pegs this at 20%. If you reject the opportunity, you are restrained against agreeing a similar exploitation opportunity with the original prospect, or someone associated with the original prospect.

Artistic Control
This set of provisions can take away the reason why you do this in the first place!
Watch out!! For clauses which stipulate:
* for example, that what songs will go on the record will be decided by the company;
* that the nature & style of performance on the recording will be decided by the company;
* that final creative control in respect of the recording will vest with the company;
* that the company will decide the order of tracks on the album;
and such matters which maybe be very close to your creative and musical heart!
A lot of the time, things are not so draconian. The clauses provide that you will make the decision together with the company – or, that it will make the decisions “in reasonable consultation” with you.
The point is just to be alive to the existence of these details, these kinds of terms and conditions, and enter into the contract with your eyes open.

Budget Excesses
This is sometimes one of those clauses snuck away in a little corner that comes out to bite now and again. (Ah, damn the details…) Remember the company is going to foot the bill for the studio, mastering etc. So it has a budget, which it will have stipulated somewhere in the agreement.
If, by any chance, recording costs, or other costs for which a budget has been stipulated (eg video production) run over because you have not followed the plan, or have been careless, negligent and the like, then this budget excess gets treated as an advance – and you know what that means.
This may well be a reasonable protection mechanism for the company, because we all know what muso’s are like… LOL! However, what you need to bear in mind is that it could be interpreted, for example, that repeated takes in the studio, necessitated because you are not following the directions from the producer (see the previous paragraph!) mean that you are the cause of the over-run on studio time, and therefore budget excess.
Strange? You better believe it, and get all this sorted out up front.

Compilations
This relates to the exploitation rights. What it means is that the company has the right to exploit the single, or tracks from the album as the case may be, into the future, including on compilations.
So when you see all those “Greatest Hits of 2013”, you’ll know why your song is there. Of course, you still get royalties, but this provision generally means that you have no control or say in the decision as to whether your song goes onto a compilation. About this you may or may not care, just beware.

Confidentiality
Confidentiality clauses are common in all fashions and forms of contracts. Particularly, they feature in employment agreements and technology exchange agreements – patent licences and such like.
Basically, the rationale is this. In the course of the relationship between you and record company, you may well be exposed to information that is not public knowledge, and which relates to the way the company does its business.
There are many types of such information – there is no closed category (or numerus clausus as they say in the classics). So it could be financial information – the way discounts, even kick-backs are structured; the fact that payola is still in existence (despite all denials to that effect haha); commission rates to agents in the route-to-market, and so forth. It could even be the details like techniques the producer and/or sound engineer have developed for a certain production quality to the mix. It could be anything, provided the information is something that the law regards as protectable as confidential information.
Basically, for present purposes, this means that the information must be of application in trade or commerce; that it would be useful to a competitor; and that it is truly confidential ie, that it is known only to a closed circle of people.
The confidentiality clause will bind you not to disclose that information, or use it other than in the company’s interests, and so forth. Generally speaking, provisions like this are reasonable, and if there is such a clause in your contract, my advice to you is to make sure you honour it.

Contract Period

Nothing much turns on the period of the agreement, but you need to pay attention to provisions which talk about automatic renewals. Essentially this keeps the company’s options open. If the first album is a flop, it will simply give notice that it is not taking up the renewal option. You are left without a recording deal in the event that you would like to make a second album – unless of course you get picked up by another label.
If the first album is a success, however, you will be locked in to the automatic renewals (for 2nd, 3rd, etc albums) whether you like it or not. All the company needs do is nothing. Yip, that’s right, the renewal is automatic – if it doesn’t want to do a second album with you, it then it tells you. You have no say.
The same scenario repeats itself after the second album.
Watch out.

Copyright
We deal with this topic, in the context of your composition, in What Are the Copyrights? and you can even check out our Case Study. Bear in mind, however, that the copyright in a ‘sound recording’ is a different copyright from that which subsists in respect of the composition, ie, the musical work. We touch on this in some detail in the discussion on needletime.
It must be noted, up-front, that the default position is that if somebody commissions the making of a sound recording, and pays for it, they own the copyright in that sound recording. This is what the statutes say. In other words, record company ‘A’ outsources the recording of your album to studio ‘B’, and pays for it. So, 95% of the time, this means the record company.
These rights are quite extensive. As with compositions, the copyrights in a sound recording are:-
* to make, directly or indirectly, a record embodying the sound recording (ie, home-taping as it used to be called, and now just file-sharing);
* to rent out a copy of the sound recording (ie, record libraries);
* to broadcast the recording;
* to communicate the recording to the public (ie, other than by way of broadcasting – this means disco’s, at public fairgrounds, etc); and
*to transmit the recording in a diffusion service (ie, the piped music in shopping malls, hotel lobbies etc).
We deal separately with the compulsory licence provisions.
What is important to bear in mind when it comes to concluding the recording contract is that the chances are it is going to deal with all the likely monetization potentials that flow from the venture. It will be appreciated that the company already owns the basket of rights – although this can be changed by agreement, and depending on your negotiating power (or ability!), it may be that you can take control of all the sound recording copyrights!
You may be expected to assign your copyright in the musical work, although if the company has ties with a publishing operation this would probably be left to them. Read up in Publishing.
It is more likely that you are going to agree that all rights to exploitation of the recording are in the hands of the company. This means synchronization rights, for the purposes of film use; as copyrights are divisible country by country, provision will be made for the international position too (although – no joking – they usually just specify the entire universe); remix rights; digital and streaming rights, and so forth. These are aspects not covered by the statutes and their definitions, and so are often included for the sake of certainty. (Ah, damn the details!!)
The point is that the company will try to gain complete control over the monetization potential of the recording. Your job is to be knowledgeable about the position, and negotiate accordingly!

Cross Collateralization
Usually, or some of the time at least, the record deal will be for two, three, or more albums. (So you get locked in, remember!) What happens if the first album doesn’t sell well enough to recover the production outlay costs – and your advance? The record company doesn’t write them off, that is for sure.
It ensures cross-collateral – by a provision in the recording contract that says these expenses can be recovered from the sales of the second album! Naturally, the accountants and auditors will say, but of course…
What you need to decide is whether it is reasonable that the success or failure of the first business venture can also have an effect on the second and subsequent business ventures. If you don’t agree with this, then don’t agree it!

Exclusivity
Here is another provision which is sometimes hard to swallow. You get joined at the waist to the record company, and it is not always comfortable either.
During the period of the contract, and that will include renewal periods, you will not be allowed – whether under your name or any other name, or in another group – to perform or record anywhere else, otherwise than with the express consent of the company. I have seen a provision which says you may not even advise on other recordings – audio, video, whatever, for any purpose whatsoever!
It may be that the intended restriction on your artistic freedom does not extend to background performance, but then there is a long list of conditions attached – like no ‘step-out’ solo’s; the style of music must not be the same; there will be no impact on your responsibilities to the record company, etcetera, etcetera etcetera.
Another feature of this exclusivity concept finds its way in like this. For a certain period of time after the termination of the contract – it can be anything like 5 or more years! – you may be restrained from recording the same songs for another company. And that can include even material which was not released by the previous company. Holey Moley!

Exploitation
This gives the company the right to exploit the recording in the ways it sees best fit. So this could be, for example: to put it out on vinyl; or to merchandise it for film use; or to sell it in whatever territory it chooses.
Clauses like this can also cover the exploitation rights to your image, and name, in connection with anything to do with the recording.

Net Receipts
The royalties that come your way will be based on what is referred to as ‘net receipts’. Usually contracts have a ‘definition’ section in which all terms with a certain intended meaning (that is not the ordinary grammatical dictionary meaning) will be given the intended definition. “Net receipts” is usually one of those terms, but it may be that the scope of the basis upon which your royalty calculation is set out elsewhere too…
The thing is, your royalties will not be based on sales of CD’s, but on receipts of actual money. So, for example, give-aways for promotional purposes will be excluded from the royalty calculation. What the company might also do is stipulate that sales of CD’s at a price below the published price to dealers (PPD) will also not be royalty-generating. These sales might be to get rid of excess or dead stock, or to disc-jockeys, and so on.

Performance
You will be required to attend recording sessions as stipulated by the company. You may also be required to perform the songs – or sections thereof – for as many times as it takes for the company to be satisfied.
You may also be required to perform the songs (or others) at live events, concerts, launch events and the like.
You may also be required to record audio-visual material such as fan-greetings, and other such promotional material for the company to use.

Personal Services & Promotional Obligations
Some of this has been covered elsewhere. You may be called upon to put in extra time for promotional appearances, interviews, press releases, video recordings and the like.
There may be remuneration for these personal services, but likely not. It is up to you to negotiate for this – and remember about travel expenses, board and lodging as well. These ‘disbursements’ might not be ‘remuneration’, so make provision for them separately. Chances are the record company will be reasonable about such expenses and agree to pay them, whether up front or on a reimbursement basis. Depends how famous you are, haha….

Recoupment
Some contracts provide that all of the production investment is recovered (from sales) before the artist sees a cent. That means that you, the band, has to be self-sufficient and possibly even living in difficult circumstances whilst your record is top of the charts! Hopefully, the break-even point arrives, and there is revenue flow into the band coffers.
However, that is generally not the rule – thankfully! What happens is that the revenues from sales are divided, or at least there is a reasonable apportionment so that the band receives a fair split from the beginning of sales. However, that ratio will stay, so that once the entire outlay has been recovered by the company, it still banks from sales, and that is then pure profit (well in simple terms anyway).
Remember, if the company is not going to recoup on its investment, it will not invest in the first place. So, do not be too hard-nosed when it comes to negotiating the deal in this regard. Fairness is the best lodestone!
Royalties
There is no rule as to when payments will be made. Some contracts provide for quarterly accounting/payments, others half-yearly. The deal is in the details – or have I already said this?
The amount of the royalty also varies. Sometimes it will be as low as 7% on retail sales, calculated at the published price per dealer and net of sales and ad valorem taxes. If the record goes gold (a status which differs from country to country – or the record company itself has its own figure) or better, the rate might go up.
There might also be a difference between the royalty on domestic sales and that for international sales.
It is advisable to do a bit of homework and find out what the going rate is for an artist in your position before committing to the contract.
Also, do bear in mind the various deductions, exclusions and what have you that are discussed above.

Territory
If the company is one of the majors – Warner, Sony, Universal/EMI are the top dogs at the moment- you can expect that the deal will be a worldwide one.
But note this: if you are, say, an Australian artist it does not mean that the company will automatically promote your CD outside of Australia. It may retain for itself the discretion to do so.
However, the same cannot be said for your position. Most likely, the assignment of rights – from you to company – will be on a worldwide basis, as with the obligations generally imposed on you.
So the upshot of this could be, for example, that the company refuses to promote your CD in the UK; but, you are not allowed to record a version for a company who is prepared to sell it in the UK, and because you have no rights to the original recording, you cannot enter into any distribution deals yourself. For all this you will need the consent of your record company – and get it in writing!

Any questions, please feel free to Ask The Experts

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