Record Contracts

Professor Calle

MUM 2700

www.ProfessorCalle.com

Major Record Company

w   Major

w  Signs artists

w  Pays for production

w  Distributes records (CD) directly or via a distributor

w  Company is responsible for:

w Advertising, promotion, marketing

w In other words - company is responsible for everything

Independent Record Company

w   Signs artists

w   Pays for production

w   Markets and promotes the record

w   Does not distribute directly but instead negotiates distribution deals with a distributor or a major record company

Record Company President

w   President

w  Oversees entire company

w  Chief financial officer (C.F.O.)

w  Has final say regarding artists, personnel and general direction of the company

Business Affairs/Legal

w   Write and negotiate contracts with artists, distributors, publishers, licensers and other company holdings such as real estate, property, patents and trademarks

w   Primarily owners, lawyers and management

A & R

w   A & R = Artist & Repertoire

w  Ears of the company

w  Search for and select artists

w  Choose/approve material to be recorded

w  Oversee production

w  Manage the production advances or funds

w  Are often credited as executive producers

Promotion Department

w   Primary job is to ensure radio airplay for a CD

w   Call radio program music directors

w   Try to ensure maximum exposure for their artist in media including radio, television, etc.

Marketing

w   Advertising

w   Publicity

w   CD cover, artwork, etc.

w   Promo videos

w   In-store  promotions

w   Promotional merchandise

New Media

w   Techno folks

w   Find all new types of delivery methods and media

w  iTunes. iPods

w  Satellite radio

w  Internet radio

w  Telephones

w  DVDs

Production

w   Producers oversee and are responsible for the creative process

w   Often help choose material and direction of the artist

w   Mostly sub-contract labor and not working full-time for a record company

Product Management

w   Coordinate all record company departments

w   Ensures that all tasks related to the record production, release and promotion are timely and efficient

w   Set and monitor deadlines for art work, production, promotion, release, videos, etc.

Finance

w   Compute and pay artist’s royalties, salaries, production budgets, etc.

w   Manage the company’s income and expenses

International

w   Coordinates the product worldwide

w   This includes airplay, distribution, promotion, etc.

Sales

w   Responsible for getting records in the store

Term

w   Length of contract:

w  Number of records

w 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

w  Number of years

w Typically, contracts are written in terms of albums because years usually represent a shorter term.

w Shorter contracts favor the artist if the artist is successful.

w Long contracts normally contain many options.

w Options are at the whim of the record company.

 

Floors & Ceilings

w   Also known as Min/Max formulas

w   Contract specifies the minimum and maximum advance or fund amounts to be issued to the artists.

w   First album in the contract has a fixed amount.

w   Other amounts vary upon artist performance (sales).

Cross-collateralization

w   All funds, advances, expenditures and profits are combined over the course of the artist’ contract.

w   Each album/CD is not an event unto itself.

Types of Artists

w   New artist: sold less than 250,000 records.

w   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.

w   Superstars are artists who have sold 2.5 million units or more.

Album Awards

w   Gold album is one that sells 500,000 U.S. copies.

w   Platinum album is one that sells 1,000,000 U.S. copies.

Royalty Rates

w   New artists rates signing with an independent label - 10 and 15 points.

w   New Artists signing with a major label -13 and 16 points.

w   Midlevel artists - 15 to 17 points.

w   Superstars - 18 to 20 points.

SRLP

w   The suggested retail price.

w   This is the number from which your royalty base, after deductions, is figured.

Constructed Retail Price

w   Typically uplifted by calculating 130% of the wholesale price.

w   This number is usually lower than the SRLP.

Escalations

w   Prospective - An escalation applied upon reaching a performance/sales marker. This escalation is applied to all units sold after the marker is reached.

w   Retroactive - An escalation applied to all records sold, from record one, upon reaching a performance/sales marker.

Royalties

w   Net/Artist - The artist royalty/point rate.

w   All-in rate - The combined artist and producer point/royalty rate.

w   Producer points range from 0 to 5 points.

Advances and Funds

w   Advances are issued to a producer or artist. The artist or producer turns in a finished master and keeps money left over.

w   Funds are available to an artist or producer. Money not spent is not kept by the artist or producer.

Advances + & -

w   Advances +:

w  More control of funding.

w  Money saved can be kept.

w   Advances -:

w  All money issued is recoupable.

w  Large advances can prevent an artist from earning royalties because the money is not recouped.

Funds + & -

w   Funds +:

w  Typically forces lower recording costs.

w  Money saved in recording allows faster recoupment and royalty earnings.

w   Funds -:

w  Less control of funding and thus recording.

w  Does not provide an incentive for efficiency or a large cash base for artist/producer.

Deductions

w   Free goods = 15%

w   Packaging = 25%

w   10% for breakage (A&M Records)

w   Reserves = 35% (Make up for returns. Liquidated within 2 years)

w   85% of net sales - makes up for piracy, etc.

Recoupment

w   Recoup - to earn back the money advanced by the record company at the point rate specified in your contract.

w   Red position - not-recouped/loss.

w   Black position - recouped/profitable.

Returns

w   Retailers can only return 20% of goods shipped without penalty.

w   All units over 20% are charged a restocking fee.

w   In the past, retailers enjoyed a 100% return privilege.

Options

w   Firm albums are mandatory. Most new artist have one firm album with a series of options.

w   Options are exercised at the discretion of the record company based upon sales, conviction or momentum.

w   Options can be bad because they tie up the artist for long periods of time.

Option Negotiation Strategies

w   Try to limit options

w   Do not assume you will be a failure. Try to assure better rates if you have success.

w   If offered 4 or more options try to force a 5th CD if the 4th option is exercised and so forth.

Term

w   The term of your contract is the maximum length including all options.

w   The term is measured in CDs and not years.

w   CDs can take 2 or more years to produce.

w   The contract can be terminated by the record company at any time as specified in the contract.

Late Delivery of Items

w   Producers can loose future accounts by turning albums in late because this destroys the marketing process and causes huge financial losses to companies.

w   Albums delivered late can force contract termination.

Satisfactory Recordings

w   Technically satisfactory - Recorded and mixed professionally. Sounds good.

w   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

w   Record company can shelve or not record a CD by:

w  Paying the artist the union scale for the CD.

w  Negotiate and pay the difference between the recording fund and the cost of the last CD.

w  Pay a pre-determined amount.

Demo Deals

w   Company will pay for a 3-song demo.

w   Contract will require a period of time (30 to 90 days) during which the  demo is shopped internally.

w   After this term expires, the artist can shop this demo to competitors.

w   Originally company has the right of first refusal.

Demo Deal Advantages

w   Professional recording with a qualified producer paid for by the record company.

w   Instant artist credibility.

w   High-quality demo can be used to shop at other companies.

Demo Deal Disadvantages

w   A lot of record company input.

w   Money must be recouped.

w   Record contracts will typically offer low point structures and be more in the company’s favor.

w   You must inform the original company in case of any offers.

w   You cannot use the master for profit unless you buy it back.

w   Money will be recoupable for any company contract issued.

Demo Deal Calendars

w   Calendar days - Monday - Sunday including holidays.

w   Work days - Monday - Friday not including holidays.

w   Calendar days defines a shorter a period of time than work days.