Record Deals and Contract Tips: Part 2
In my article Record Deals and Contract Tips: Part 1, I provided some thoughts on record deals in 2022 more generally. In short, the decision to enter into a recording agreement with a label is a commercial decision that should be considered very carefully. Even before looking at the contract, an artist should understand the business of recorded music in 2022, their goals, and determine whether the label is the right partner to assist in achieving those goals.
This article focuses on some common provisions within recording agreements and tips to consider. Of course, this overview is only meant to scratch the surface as there are many more issues to consider in every deal. Furthermore, there is no “one size fits all” recording agreement, so artists should always contact an entertainment lawyer before signing anything. Here we go:
The Term of the Deal
Although the “Term” of a contract doesn’t sound very exciting, it is a critically important part of a recording agreement and is often a negotiated deal point.
Typically, the Term of the deal contemplates an “Initial Period” where the artist delivers one album (for example) by a certain period of time, plus one or more “Option Periods”. Each option, if exercised, typically requires the artist to deliver another group of recordings. If the Option Periods aren’t exercised, the Term normally ends in accordance with the contract. The mechanics of these provisions can get a bit complicated as the “Initial Period” generally commences on a certain date (usually the date the contract is signed), and ends, for example, 6-12+ months after the commercial release of the first album/group of recordings. Once that “Initial Period” is over, and if the next Option Period is exercised, that Option Period typically ends 6-12+ months after the commercial release of the second album/group of recordings, and so on. These clauses can take various forms, but this is a common structure in recording agreements.
For you artists out there here’s something to consider from a practical perspective: when the artist delivers its masters to the label, AND depending on when the label is required to release those masters, AND depending on when any given contract period ends (i.e. 6-12+ months after commercial release), will all dictate how long the Term of the deal runs from a practical perspective. For example, a Term of an Initial Period plus 2 Option Periods could easily take 3-5 years depending on the above factors.
Exclusivity
A label is rarely, if ever, going to sign a deal with an artist that is not exclusive. This means that, for the Term of the contract (see above), the artist is generally going to be required to provide recording services EXCLUSIVELY to the label. Subject to the language within the contract, the artist cannot release music with another label (or independently) during the Term. If you ever hear about an artist getting ‘stuck’ in a record deal (e.g. Kesha), it’s probably because the artist has not yet fulfilled their contractual commitments and the label has exclusive rights to the masters recorded under contract. This is less a tip than a contractual reality, which all artists should be mindful of before signing a record deal.
Ownership of Masters
Some deals are an outright assignment of copyright/ownership of the masters to the label, where the label can exclusively control those masters for the life of copyright. For example, when Taylor Swift signed with Big Machine in 2005 (recently acquired by Ithaca Holdings LLC), she apparently assigned copyright in her masters (first 6 albums) to Big Machine. Because Big Machine owned the masters (not Taylor), title to the masters got transferred from Big Machine to Ithaca as part of that transaction, which Taylor was not pleased about. Other deals, for example, might instead be a licensing deal where the label is entitled to exclusively license (not own) the masters for a fixed period of time.
Whether the deal is an assignment or licensing deal, artists should determine whether exclusive rights in the masters will “revert” back to the artist after a certain period of time (and on what conditions). This period of time is often referred to as an “Exploitation Period” or “Retention Period”.
Exploitation Period
It is important for artists to understand the difference between the “Term” of the recording agreement (explained above), and what is sometimes referred to as the “Exploitation Period” or “Retention Period”. As above, the Term of the contract outlines how long the artist is exclusively ‘tied’ to the label, which could be anywhere from a single, to an EP, to several albums. The label’s exclusive right to manufacture, market, promote, sell, distribute, etc. artist’s masters/albums typically applies to anything captured by the Term of the deal. Once the Term expires, and subject to the contract, the Artist should be able to work with a different label for all future masters/albums (or release music independently if they wish). However, once the Term ends/expires, the label will likely (but not always) still be able to exclusively control/exploit the masters that were delivered under the original contract, and continue to earn its revenue share related to the exploitation of those masters. This “Exploitation Period” (if applicable) is the period of time after the expiration of the Term in which the label can continue to exercise exclusive control over/earn revenue off of the masters under the contract.
Revenue Streams
In exchange for the label’s services (marketing, promotion, publicity, distribution, etc.), artists will be asked to give the label a share of all record revenues from a certain number of sound recordings, and will be asked to assign or exclusively license copyright in the masters to the label for the life of copyright or a set/fixed period of time (see above discussion on Exploitation Period and Ownership). In addition to seeking a share in revenues from the exploitation of masters (e.g. physical sales, digital streams, master use licenses, performance/reproduction of sound recordings, etc.), the label may also seek a slice of other artist revenue streams. Some labels may, in addition to master revenue, seek a piece of publishing, touring, merch, and/or any other revenue stream artist earns in the entertainment business (acting, endorsements, books, fan club, etc.). Record deals that include a share of all (or mostly all) of artist’s revenues within the entertainment industry are often referred to as “360” or “ancillary rights” deals.
The merits of “360 deals” and labels seeking other revenue streams in addition to master revenue exceeds the scope of this article, but all artists need to be crystal clear on the revenue streams they are sharing with the label and ensure that the contract is aligned with the artist’s expectations and early discussions it may have had with the label.
Revenue Share
Obviously, it’s critically important that the deal clearly lays out the revenue share between the artist and label. A “net 50/50” deal, for example, is quite common for most small to mid-size label deals. A “net 50/50” deal means that, generally, once the label has recouped all costs/expenses/advances, whatever revenue is left from the exploitation of the masters, gets split 50/50. Major label deals, on the other hand, typically offer the artist a record royalty based on a formula set out within the agreement (often a basic royalty rate of 15-20%, with multiple variations). There is often significantly more upfront investment under major label deals, in terms of “in pocket” advances, recording, and marketing budgets. If the label is taking a piece of other revenue streams in addition to master revenues (see the discussion on this, above), there might be a different revenue share arrangement associated with those other streams.
Whether a “net 50/50” or more traditional royalty-based deal, the provisions that apply to how revenue is being divided and royalties calculated needs to be examined very carefully.
Territory
Within a recording agreement, the territory provision identifies the territory over which the label exercises its exclusive right to manufacture, market, promote, sell, distribute, etc. the artist’s master recordings. Labels typically seek a territory of ‘the world’ or ‘the universe,’ for obvious reasons. If this is the case, the artist should confirm with the label what its plan is for a worldwide release.
Advances
Advances are upfront sums the label ‘advances’ to the artist, which are generally (but not always) fully recoupable against future artist revenues/royalties. This means that if an advance is payable to the artist, artist’s share of revenues from the exploitation of masters will first be applied to label’s recoupment account until the advance(s) is/are paid back in full. Once the advance(s) is/are recouped in full, revenues will then flow to artist in accordance with the agreement. If all or a portion of artist advances are being provided from Canadian funding sources, the parties should clearly determine what portion of those funding sources, if any, are recoupable.
If an advance is on the table, the parties should clarify how it will be paid. For example, will it be half upon signing and then half upon delivery of the first album? Will there be an advance associated with the optioned albums if they are exercised? Is there an escalation associated with future advances and/or minimums/maximums? If so, what is the formula for determining this?
I’ve done deals with no or very small advances, to deals with hundreds of thousands of dollars in advances (upfront cash, recording budget, marketing budget, etc.). This will completely depend on the artist’s bargaining power and resources of the label. For artists starting out, even modest advances can mean a lot and keep the artist going so they can focus on music.
Creative Control
At the end of the day, it’s all about the music. If you are an artist that really values your creative process and wants limited interference, ensure you get clarity in your recording agreement about creative decisions and the label’s role in that process. If there are any disagreements around creative aspects of the masters, will the label’s decision prevail? Will the artist and label make creative decisions jointly? Can the artist make final creative decisions and tell the label to go pound sand if it disagrees? This is an example of a clause that, in my experience, is often overlooked/not included within recording contracts. Ensure there is clarity on this issue in the Agreement so both parties understand their role (or lack thereof) in the creative process.
Final Thoughts
The above is only meant to scratch the surface, and includes only some provisions you might find in a recording agreement. In my experience, recording agreements can take vastly different shapes, sizes, and permutations, and will be unique to each particular set of circumstances. Keep in mind that, although it is critically important to review what is written in the contract, it is equally important to understand what provisions/issues might be missing from the contract, which could add clarity and assist in avoiding disputes down the road. As such, always have entertainment counsel review your agreements from this perspective and advise accordingly.