The Guitar Player's Resource
It is my experience that most musicians think they want a record deal, but know nothing about these ominous 75-90 page, single-spaced recording contracts. Recording contracts are legally binding agreements between solo artists, or individuals who make up a band and a record label which is usually a corporation.
Record labels are attracted to acts that have built a strong following and have proven to the industry that they are a solid investment. When a record label signs an act to a recording contract, they expect to make a substantial return on the financial investment they have made in that act.
The following information is provided to you as a basic outline to the key parts of a recording contract. Please be advised that should any such contract ever come your way, never sign anything without consulting your entertainment law attorney.
Indie Label: By the purest industry definition, an independent label is a record label that is not affiliated in any way with a Major Label, and uses independent distributors to get their releases into stores.
Note: For an in-depth article on the types of relationships that exist between independent labels and major labels, see the chapter I co-wrote with entertainment law attorney Bartley F. Day in the excellent resource book "The Musicians Business and Legal Guid (3rd Edition)", published by Prentice Hall.
When you think about pursuing an independent record label deal, think about the following issues:
Make sure the label has a solid distribution deal on a national level. Be sure to check on the relationship between the label and their distributor(s). Ask some questions like:
Make sure the label's roster isn't too big, or else you won't be given the attention you deserve. Also, make sure the bands on the roster match the type of music you play.
If the label has an affiliated Music Publishing division, and wants part of your publishing, don't be surprised, but be sure your attorney 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 attorney outside of your recording contract, for your likeness 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.
Find out how many options the label wants. Since "options = number of records," you don't want to agree on too many options.
Find out if the label works with independent radio and/or retail promoters. It's a good sign when they do; this raises the chances that your record will be seriously and effectively promoted.
Find out if the band has an advertising budget for releases.
Find out if and how they support you on your tour (financially, morally, etc.) and how much of any advances for touring are recoupable.
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. (Remember too, that out of your percentage, you must pay your producer their percentage, for producing your record.)
Major Label: By industry definition, a major label is a label that commands a high percentage of the annual sales of records, and has their own distribution system (the Big 5 distribution companies currently are: WEA. BMG, SONY, UMVG, and EMD.)
When pursuing a major label deal be absolutely sure that this is what you really want. Here are some points that might help you determine if this is the right thing for you to do:
A major label often signs artists for six to eight records (not years).
Research the A&R person. Know whom they've signed, who they've worked with, who they've worked for, and how long they have been employed.
Find out how many records the label releases per year. You don't want to sign with a label that releases too many records. Remember, they only have so much time and enthusiasm to put into the promotion of each record. Many major labels have between 12-25 releases coming out each month.
Here are some terms and clauses that you will encounter (and sometimes have to watch out for) in a contract with a record label:
Every record contract includes a provision stating that the deal is "exclusive." In other words, during the term of the agreement, you can't 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). I strongly recommend that your attorney define the extent of exclusivity.
The duration of the contract. (How many records? Any time constraints?)
Who will control the amount of product and the quality of the product? You always want as much creative freedom as possible; the record company often maintains a veto power when letting a band choose the producer, engineer, studio, etc.
How much (recoupable) recording money will you get? Don't overdo it! Remember, 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 that amount to the label.
The money paid for your service as recording artists. Outside of U.S. is calculated differently. (Canada: 75-90 % / UK, Japan, Australia: 60-70 % / Rest of the world: 50 %-of U.S. rate).
Who controls the music video and how the costs are apportioned? Try to have only 50% of the cost recoupable.
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.
Same as with Independent labels.
Your promise to join a union (AFTRA, AFM).
Your right to audit the books. Make sure this clause is included in the contract.
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.
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 2003, 8 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.
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.
If a significant label executive resigns, or leaves the company, you may terminate the deal. The label may also put such a clause in concerning a band member.
Throughout his fprty year career in the music business, FourFront Media & Music's Christopher Knab has shared his experience at many industry conventions and conferences, including the New Music Seminar and the Northwest Area Music Business Conference.
Knab was owner of a San Francisco music store, co-owner of the 415 Records label, and station manager at KCMU Radio in Seattle.
He currently provides a unique consultation and education service for independent musicians and record labels. His new book is entitled "Music Is Your Business".
