The Music Industry (Part 4) : Record Deals Explained:

Let’s face it most musicians out there get themselves into a band and then start hunting down that ever lucrative record deal with a music industry major label. But when it actually comes to the crunch not many musicians actually know the ins and outs and what each “clause” of a contract could mean and some of these contracts can be quite big (especially when a larger advance in concerned).

However, in this article we won’t get technical about what each clause means so we will just highlight certain things that you should look out /ask for from music industry professionals. Now, whether you like to admit it or not more often than not there is only one thing that a record label signs a band for and it’s not the music, it’s MONEY. Hence the fact that labels pretty much only “chase” artists who have built up a strongish following and now seem like a solid investment. So therefore when a label signs that contract they will expect to make a substantial return on their future investment.

So just before we really get down and dirty bear in mind that the information provided below is intended to outline the basic key parts of a recording contract. These contracts can be legally and financially binding for a very, VERY long time. As such we can’t stress enough how important it is that you consult with a relatively qualified and experience solicitor before signing anything.

Many bands get starry eyed when any kind of contract is waved in front of them and suddenly decide to start jumping through hoops to get that contract signed. At all times you must be prepared to say no and walk away for various reasons and if your not then as the saying goes “it’s your funeral”.

The “Indie” Label Record Deal
What an independent label is is basically a record label that is not affiliated in any way with a Major Label, and tends to use independent distributors as an avenue to get their releases into stores.

There are many advantages and disadvantages to signing with an indie label and it is worth thinking about some of the following music industry issues:

Make sure that the label has a solid distribution deal on a national (if not least a provincial) level. Also be sure to check on the relationship between the label and their distributor(s). You shouldn’t be afraid to ask questions such as:

• How many records has the distributor sold of the label’s product?
• Did the label have any problems getting paid by their distributor?
• What kind of working relationship do they have with their distributors on their new releases?
• Does the label have a budget to pay for some ads and in-store promotions through their distributor?

These things can be key to ensuring the successful commercial independent release of your music and if a label can’t answer these basic questions pretty much straight away then I would already be getting prepared to walk away.

The size of an independent labels artist roster is more important (even more so than a major labels roster). It could be of great benefit to you to enquire as to who the other artists are on it’s roster, how many artists they have and if they are similar in their “sound” to you. This is for 2 reasons which are;
• The more artists a label has on its roster the greater the likelihood that you will receive less attention from the label.
• By knowing which other artists are on the label it can allow you to assess how the successful the label has been in pushing its artists.

If the label has an affiliated Music Publishing division and wants part of your publishing, don’t be surprised, but be sure your solicitor protects as much of your publishing royalties as possible. Never allow a label to recoup any monies advanced to you for the recording of your record from your mechanical royalties. (This is the money owed to the songwriter and music publisher of the songs you wrote on your record, for the sales of your record)

Merchandise deals are deals made by your solicitor outside of your recording contract, for your likeness or band logo to appear on t-shirts and other clothing and objects. If the label wants a percentage of the income from such a deal, you may have to negotiate how much they get.

Remember merchandising can be a great money spinner when a band is touring about and it literally pays to keep this in mind when discussing merchandising percentages with a label. Also, you could consider this clause as a decent “litmus test” for the label as if they don’t try to grab a slice of merchandising; one would have to wonder how experienced, naïve or effective the label is.

Find out how many options the label wants. Simply explained options = potential amount of records. So therefore in practice that means if a contract states the label has 5 options that means that they’ll more than likely be expecting 5 albums (and possibly a stated number of singles also) so it is again worth bearing in mind that you do not want to agree on too many options.

It’s worth bearing in mind the usual lead in time for one album when you take into account planning, recording and then releasing it. So as a rule of thumb a 3 option contract would be considered short enough, a 4 or 5 option contract would be considered fairly normal and a 6 option or above contract would be considered very long.

Find out if your band will be allocated an advertising budget for releases and general promotion of your music in various other forms of advertising.

Personally speaking this clause for me could be potentially a make or break one for me. If a label is not willing to spend on promoting your music then how committed are they to you? Likewise, if they can’t afford to budget for advertising then they are either very naïve or run a risk of becoming insolvent if they hit any possibly minor or major problems.

Tour Support
Now when it comes to tour support in particular there is one main subject you will want to make absolutely clear with both parties and that is simply financial support. It will literally pay for you to fully understand the amount of tour support that you receive (financially, morally etc) and even more importantly how much of this support will be recoupable by the label.

If you don’t know your level of support then make sure to check it out because if you are not given financial support YOU will be the one who will face all the bills if the tour incurs any kind of financial loss.

Find out how much you get paid for each record sold. A new act usually gets somewhere between 10-15% of the suggested list price of a recording. It is worth bearing in mind that in some contracts it is not uncommon for clauses to stipulate that out of your percentage you have to pay certain other people involved with the production of your record so this particular section of the contract is worth paying close attention to.

Though usually when you are paying other people out of your percentage (such as managers etc) then your percentage stated in the contract if fair will take that into account and be approx 20%.

The “Major” Label Record Deal
Basically what describes a major label is a label that commands a high percentage of the annual sales of records, and has their own distribution system (some of the current biggest distribution companies are SONY/BMG & UMVG.
When pursuing a major label deal be absolutely sure that this is what you really want as pretty much 10 times out of 10 the major label will completely own your music and have complete control of it Here are some points that might help you determine if this is the right thing for you to do:

Remember that options = amount of records (see indie label section). It is not uncommon for most majors to sign artists for 6 to 8 records (not years).

Don’t be afraid to ask about the A&R person. Find out who they’ve signed, worked with, worked for, and how long they have been employed. It is probably worth noting here that for every successful band the A&R person may have worked with there could be another 100 who have failed.

Also, bear in mind that part of an A+R persons job is to “sell” the label to a band so don’t be naïve. Not they could be lying but they might be embellishing the truth.

Below I have detailed some more “clauses” that you may encounter and some things to watch out for especially in a contract with some majors.

Every record contract includes a provision stating that the deal is “exclusive.” In other words, during the term of the agreement, YOU CANNOT make records for anybody else. Therefore, an exclusivity clause in a contract refers to the fact that you may only contract with this record company (you are “unilaterally married” to that company). So bearing this in mind it is strongly recommended that your solicitor clearly defines the extent of exclusivity.

It’s also important to remember that exclusively can be restricted to countries or continents. Though with a major they will more than likely look for worldwide exclusivity seeing as how they have a presence in every territory.

This clause states the amount and quality of the product. Seeing as how artists will always want as much creative control as possible the record company will often maintain a veto. This basically means that whatever engineer, studio and CD designs etc will all have to get the final nod from the label.

That’s how quickly your perceived control of your music and band can suddenly been taken away with the quick shake of a head.

Recording costs
How much (recoupable) recording money will you get? Remember DON’T OVERDO IT because you will have to pay it back from your royalty rate as applied to actual sales.

How much (living) money will you get that is recoupable? What about other advances, such as videos, and touring? Remember, you will have to pay back whatever advances are given to you to the label after which you start making some money.

So if you’ve been advanced 50k living expenses, 10k touring expenses and 5k video expenses this clause will effectively state that you will not be getting another penny from that label until you have paid back every red cent of that 65k advance plus any other costs the label incurs.

That 50k advance might have to last you a VERY long time.

Who controls the music video and how the costs are apportioned. As a general rule of thumb you will be doing pretty well to settle on 50% of recoupable costs of the video.

The label will need your permission for name, likeness and voice in order to publicize your record. Also, ownership of your website URLs may also be a point of negotiation especially if things go sour in any way.

Can you imagine being dropped but the label still having legal control of the things above? It would make near impossible for you to continue on in your career.

This is one clause that you will definitely want. Put simply your solicitor if he’s worth his salt will ensure your right to audit finances pertaining to your band.

As a rule of thumb you will have to give a certain period of notice of your intent to audit your accounts and it will usually be outdated by approx 6 months. This is due to the fact that invoices could be outstanding that long before they are being payed and this depends on your labels arrangements.

The label’s responsibility is to report financially to you (reports to artists usually occur every six months; i.e., if an accounting period lasts from January till June, the label will report to the artists approximately in September).

The record company’s right to sell the contract. Majors sometime shuffle acts around from one affiliated label to another within their family of labels.

Controlled composition
How the label will pay mechanical royalties. Standard practice is that the label will only pay on 10 songs on your record, and at 75% of the current statutory mechanical license fee. (As of 2007, 12 cents per song, per unit sold) This rate changes every two years.

This clause specifies the songs you may not be allowed to record for a set time after the ending of the contract.

Sideman’s clause
You might want to consider including a sideman’s clause. A sideman’s clause allows an artist to do studio work. The artist still needs permission from the record company; they however, can’t say no unless they have a very good reason. Under normal circumstances — without such a sideman’s clause — you would be prohibited from performing for any other band/label under the terms of an exclusive contract. If you have a sideman’s clause in your contract, make sure all members of your band sign the document.

Key man clause
If a significant label executive resigns, or leaves the company, you may terminate the deal. The label will almost definitely put such a clause in concerning a band member

So there you have it. A quick and dirty guide to some of the key clauses you will see in a standard music contract to help you at least understand what you are signing without having to 100% trust a solicitor.

Remember, “It’s your funeral” sign any kind of contract and you do not consult with a properly qualified and experienced music solicitor.

Damien Gill (for, © 2008

DISCLAIMER: While the author (Damien Gill) has written this article from professional experiences as well as taking all reasonable steps to ensure the accuracy of this article, such information is not guaranteed. Therefore the author and Mantra Music will not be held responsible for any individual decisions taken as a direct / in-direct result of this article or any information contained within this article which is intended for general information purposes only.