Let's make a deal

Recording deals are basically about giving the record company permission to make and sell copies of your recordings in exchange for a percentage of the revenues from selling the copies, called royalties. There are now a much wider variety of ways for artists to get a record out to the public than by getting a deal with a "major" or "indie" record label, but these are still the most important, and they share similarities. As for the other ways, anything is possible, but for now, this article will cover the more typical scenario.The most common model for how a record deal is struck is based on a band investing its own time and money into a demonstration recording, and then trying to generate enough interest in the demo so that a record company will finance future recordings, which the company then has the right to copy and sell. The company will budget an advance against royalties, some of which will be paid to the musicians, but most of which will be paid to the studio, producer and designers as cost of preparing the recordings for sale.Once the record goes on sale, that advance is like an empty bucket that must be filled back up before any more cash will flow over the top and into the artists' hands. The company also will also seek insurance against its investment, known as options on future recordings.So the principal issues to negotiate are (1) percentage, (2) advance amount and (3) number of options. What gets complicated in recording deals is the relationship between the three issues. For instance, you may take a lower percentage for fewer options, or get a larger percentage for requiring a smaller advance. Based on some knowledge of these three issues, however, you'll know more about when you want to hang up on the offer for good, or call a qualified professional to get the details worked out.Percentages typically run from 5-12 percent of the retail selling price of the record. But before you start calculating, the meaning of "retail price" is usually defined in the contract to mean something other than the price people see on the store shelf. This definition is critical to what the artist actually gets, as companies customarily receive deductions for promotional costs, including free copies, advertising and maybe touring expenses and videos, as well for some production and packaging costs. It is probably fair to share the costs of promotion with the company, but artists should be careful that there are well-defined limits as to what may be deducted.Advances are based on what the company thinks it is worth investing in the recording to prepare it for release. A budget is set and the disbursement of the money is determined by the company, with only a small part allotted for the musician's "pay" during this period. While a musician wants the advance to be substantial so that recording is well-funded, the larger the advance, the longer it will be before it has been recouped and the artist sees any royalties.Advances are also usually tied to options; frequently, if one album has not recouped its expenses, the company may deduct from later records' proceeds to pay for unrecovered expenses from prior records.Options refer to the company's right to make and sell copies of the artist's later records. Options rarely include a way for the artist to opt to do much once the contract is signed. For instance, if the artist doesn't produce an acceptable album within the set time, the contract may be terminated. On the other hand, if the artist is unhappy with the way in which the records are produced or promoted, the artist must still allow the company to decide whether it wants to continue to accept new records within the terms of the options. Option terms can get very complicated, and the language is among the most unreadable gibberish ever set on paper, so be careful.The last major subject in getting into a recording deal is about getting out of a recording deal. As attractive as terms may seem when you get into it, both parties must recognize that there are times when things just do not work out, and there should be a way to end such a situation. However, if there are major unrecouped expenses for prior records, or if the artist is successful but is burdened by lots of low-percentage options for a long time, the cost of leaving will likely be quite high. Thus the issue of how to get out should be addressed from the beginning -- primarily by paying close attention to the option terms.These are the principal issues at stake in striking a recording contract. But that is merely the beginning. The relationship of those terms with the many other conditions involved in a thoroughly negotiated and drafted recording agreement is complex and often confusing. So, go out there and talk royalties, advances and options, but don't sign anything until you've had someone qualified read it, too.Markus Brakhan is an attorney in Burlington, where he practices intellectual property and entertainment law.


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