Record Contracts
Professor
Calle
MUM
2700
Major Record Company
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Major
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Signs artists
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Pays for production
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Distributes records (CD) directly or via a distributor
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Company is responsible for:
w Advertising,
promotion, marketing
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other words - company is responsible for everything
Independent Record Company
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Signs artists
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Pays for production
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Markets and promotes the record
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Does not distribute directly but instead negotiates
distribution deals with a distributor or a major record company
Record Company President
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President
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Oversees entire company
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Chief financial officer (C.F.O.)
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Has final say regarding artists, personnel and general
direction of the company
Business Affairs/Legal
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Write and negotiate contracts with artists,
distributors, publishers, licensers and other company holdings such as real
estate, property, patents and trademarks
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Primarily owners, lawyers and management
A & R
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A & R = Artist & Repertoire
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Ears of the company
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Search for and select artists
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Choose/approve material to be recorded
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Oversee production
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Manage the production advances or funds
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Are often credited as executive producers
Promotion Department
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Primary job is to ensure radio airplay for a CD
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Call radio program music directors
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Try to ensure maximum exposure for their artist in
media including radio, television, etc.
Marketing
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Advertising
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Publicity
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CD cover, artwork, etc.
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Promo videos
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In-store
promotions
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Promotional merchandise
New Media
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Techno folks
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Find all new types of delivery methods and media
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iTunes. iPods
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Satellite radio
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Internet radio
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Telephones
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DVDs
Production
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Producers oversee and are responsible for the creative
process
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Often help choose material and direction of the artist
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Mostly sub-contract labor and not working full-time for
a record company
Product Management
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Coordinate all record company departments
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Ensures that all tasks related to the record
production, release and promotion are timely and efficient
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Set and monitor deadlines for art work, production,
promotion, release, videos, etc.
Finance
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Compute and pay artistÕs royalties, salaries,
production budgets, etc.
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Manage the companyÕs income and expenses
International
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Coordinates the product worldwide
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This includes airplay, distribution, promotion, etc.
Sales
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Responsible for getting records in the store
Term
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Length of contract:
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Number of records
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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
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Number of years
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contracts are written in terms of albums because years usually represent a
shorter term.
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contracts favor the artist if the artist is successful.
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contracts normally contain many options.
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are at the whim of the record company.
Floors & Ceilings
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Also known as Min/Max formulas
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Contract specifies the minimum and maximum advance or
fund amounts to be issued to the artists.
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First album in the contract has a fixed amount.
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Other amounts vary upon artist performance (sales).
Cross-collateralization
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All funds, advances, expenditures and profits are
combined over the course of the artistÕ contract.
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Each album/CD is not an event unto itself.
Types of Artists
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New artist: sold less than 250,000 records.
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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.
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Superstars are artists who have sold 2.5 million units
or more.
Album Awards
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Gold album is one that sells 500,000 U.S. copies.
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Platinum album is one that sells 1,000,000 U.S. copies.
Royalty Rates
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New artists rates signing with an independent label -
10 and 15 points.
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New Artists signing with a major label -13 and 16
points.
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Midlevel artists - 15 to 17 points.
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Superstars - 18 to 20 points.
SRLP
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The suggested retail price.
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This is the number from which your royalty base, after
deductions, is figured.
Constructed Retail Price
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Typically uplifted by calculating 130% of the wholesale
price.
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This number is usually lower than the SRLP.
Escalations
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Prospective - An escalation applied upon reaching a
performance/sales marker. This escalation is applied to all units sold after
the marker is reached.
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Retroactive - An escalation applied to all records
sold, from record one, upon reaching a performance/sales marker.
Royalties
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Net/Artist - The artist royalty/point rate.
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All-in rate - The combined artist and producer
point/royalty rate.
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Producer points range from 0 to 5 points.
Advances and Funds
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Advances are issued to a producer or artist. The artist
or producer turns in a finished master and keeps money left over.
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Funds are available to an artist or producer. Money not
spent is not kept by the artist or producer.
Advances + & -
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Advances +:
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More control of funding.
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Money saved can be kept.
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Advances -:
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All money issued is recoupable.
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Large advances can prevent an artist from earning
royalties because the money is not recouped.
Funds + & -
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Funds +:
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Typically forces lower
recording costs.
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Money saved in recording
allows faster recoupment and royalty earnings.
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Funds -:
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Less control of funding
and thus recording.
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Does not provide an
incentive for efficiency or a large cash base for artist/producer.
Deductions
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Free goods = 15%
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Packaging = 25%
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10% for breakage (A&M Records)
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Reserves = 35% (Make up for returns. Liquidated within
2 years)
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85% of net sales - makes up for piracy, etc.
Recoupment
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Recoup - to earn back the money advanced by the record
company at the point rate specified in your contract.
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Red position - not-recouped/loss.
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Black position - recouped/profitable.
Returns
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Retailers can only return 20% of goods shipped without
penalty.
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All units over 20% are charged a restocking fee.
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In the past, retailers enjoyed a 100% return privilege.
Options
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Firm albums are mandatory. Most new artist have one
firm album with a series of options.
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Options are exercised at the discretion of the record
company based upon sales, conviction or momentum.
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Options can be bad because they tie up the artist for
long periods of time.
Option Negotiation Strategies
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Try to limit options
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Do not assume you will be a failure. Try to assure
better rates if you have success.
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If offered 4 or more options try to force a 5th CD if
the 4th option is exercised and so forth.
Term
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The term of your
contract is the maximum length including all options.
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The term is measured in
CDs and not years.
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CDs can take 2 or more
years to produce.
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The contract can be
terminated by the record company at any time as specified in the contract.
Late Delivery of Items
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Producers can loose future accounts by turning albums
in late because this destroys the marketing process and causes huge financial
losses to companies.
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Albums delivered late can force contract termination.
Satisfactory Recordings
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Technically satisfactory - Recorded and mixed
professionally. Sounds good.
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Commercially satisfactory - Company believes CD will
sell and is representative of the artist image or style. ÒCountry singers donÕt
make jazz CDs.Ó
Pay or Play
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Record company can shelve or not record a CD by:
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Paying the artist the union scale for the CD.
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Negotiate and pay the difference between the recording
fund and the cost of the last CD.
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Pay a pre-determined amount.
Demo Deals
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Company will pay for a 3-song demo.
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Contract will require a period of time (30 to 90 days)
during which the demo is shopped
internally.
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After this term expires, the artist can shop this demo
to competitors.
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Originally company has the right of first refusal.
Demo Deal Advantages
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Professional recording with a qualified producer paid
for by the record company.
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Instant artist credibility.
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High-quality demo can be used to shop at other
companies.
Demo Deal Disadvantages
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A lot of record company
input.
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Money must be recouped.
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Record contracts will
typically offer low point structures and be more in the companyÕs favor.
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You must inform the
original company in case of any offers.
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You cannot use the
master for profit unless you buy it back.
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Money will be recoupable
for any company contract issued.
Demo Deal Calendars
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Calendar days - Monday - Sunday including holidays.
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Work days - Monday - Friday not including holidays.
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Calendar days defines a shorter a period of time than
work days.