Record Contracts

Professor CalleMUM 2700

www.ProfessorCalle.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 recordsOn 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.