Record Contracts
Professor Calle
MUM 2700
www.DrCalle.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 records
 On 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.