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.