THE SIX POTENTIAL TRAPS IN A RECORDING CONTRACT 

IVAN HOFFMAN, B.A., J.D. 


        OK! You've finally landed a "deal" and now the label has presented you with a 35 or more page contract that you are very anxious to sign. Congratulations. However, before rushing head long into a deal that can affect your entire career, there are, at the very least, 6 significant issues about which you should be concerned. There are of course many, many other issues that loom large but for simplicity sake, these are the key areas:


    Term. This is generally set forth as a term of years, generally one year as the initial term and a series of option periods, to be exercised or not in the sole determination by the label. During each period, you will likely be required to record a stated minimum number of master recordings or "sides" in order to fulfill your commitment. You should request that the label guarantee a fixed number of masters recordings, equivalent to an album, but any clause that merely sets a minimum but not a maximum be eliminated. In this way, you know what you are committed to and are not subject to an open ended recording commitment that can tie you up for many years in an unproductive relationship. However, and this is most important, the agreement should provide that in order to exercise their options, the label shall have "released" those sides or at least a percentage of those sides, nationally, during each contract period. It is not enough that the label record the sides; you want them to release the sides for sale. In each subsequent option period, you should request a greater number of sides to be recorded and released, provided however that you want to make certain that you can fulfill those delivery requirements, lest you end up having the contract suspended for your failure to do so. Don't forget that, with any luck, you may be touring and that cuts into studio time.

    Royalty Rates. These can be based upon the retail price or the wholesale price, retail being far more favorable than wholesale for ease of calculation. The retail rate is likely to be anywhere from 6 to 12% of the suggested retail price but do not be misled by the rate alone for it is often quite different than the actual dollar and cent amount you may eventually put into your pocket. There are deductions galore that are used in calculating the net amount of your actual royalty, deductions such as recording costs, video production costs, foreign royalties, club royalties, packaging charges, reserves against returns, free goods, payment on only 90% instead of 100% of records sold, along with many other such deductions and reductions. Additionally, you should request that the rates increase throughout the duration of the agreement, both in terms of the option periods as well as on increased sales. Further, if you are going to be the producer as well as the artist, then the above rates should be increased by anywhere from 3% to perhaps 5% of the retail price and the artist/producer deal would be what is referred to as an "all in" deal. There are a number of fancy wrinkles on these approaches and you should be quite careful in how you negotiate this form of agreement.

    Advances. This is subject to a "complex" formula, the shorthand of which is "WYCG," which stands for "Whatever You Can Get." [grin] For the newer artist, there is no rule of thumb, at least for the initial contract period. However, if the contract goes into options, the negotiations can attempt to phrase future advances based on a percentage of previously paid royalties, as well as higher advances for the albums in later years on the theory that the deal must be a successful one to have gone on for so long. Keep in mind that these are advances against royalties but you should be aware that the advances may also be phrased as against "any other sums due under this agreement or any other agreement between the parties." This seemingly innocuous language is actually potentially quite damaging to you. In the first place, it allows the company to recoup advances not only against subsequent "royalties" but against subsequent "sums" which may mean that if you are unrecouped but entitled to another advance, any amounts unrecouped can be offset against these subsequent advances as well. This means that if you are due $x on the delivery of the next album, you may end up not getting the full amount of $x. The difference is between the words "royalties" and "sums."

    Cross-Collateralization.  Furthermore, included in the above clause is the infamous language of "cross-collateralization." This means that if you are unrecouped and have another agreement with the company (or potentially any of its subsidiaries as well), any amounts due you under that other agreement or agreements may be used to recoup the unrecouped advances under the recording agreement. The best example is if you also have a publishing or co-publishing agreement with the label, such amounts as may be due you under that agreement can be "cross-collateralized" against monies due under the recording agreement. And even if you have retained all your publishing, to the extent that you issue mechanical licenses to the company allowing them to record your songs, the sums coming due under that mechanical license may potentially also be used in offset. Thus, this clause must be carefully negotiated.

    Controlled Compositions.  And related to that publishing relationship, there is often a provision in the recording agreement that refers to what is commonly known as "controlled compositions." This means that any compositions you write and control must be licensed to the label at a reduced mechanical royalty rate. These are some of the key issues here: First, it should only apply to those compositions you "control" and not merely those you "write" since if another publisher controls the compositions and refuses to abide by the provisions of this clause to which it was not a party, the excess mechanical royalties payable by the label on your recordings can be used to reduce royalties "and other sums" due you. Second: the rate should be no less than 75% of the maximum, not the minimum statutory rate in effect at the time of release of the recording containing the controlled composition, not the time your recording contract is entered into. The contract may go on for many years and the rights to rerelease the recordings for even longer, during which time the statutory rate is likely to increase and you do not want to be stuck with a rate hopelessly out of date as to compositions that are embodied on recordings in later years. Third: you should be paid the rate on "all" controlled compositions and not merely times 10, especially since CD's often contain 12-14 compositions. Fourth: mechanical rates are often paid on all "records manufactured and sold" and often the label is not allowed the same sorts of deductions on non-royalty records as you may be subject to as an artist and this clause must be examined to make certain that you get paid on all records "manufactured and sold" and that any non-royalty records are very limited.

    Name and likeness. Often overlooked as "standard," this clause has great potential to be harmful to you. First: the right to use your name and likeness should only be allowed in direct connection with the sales of your records, not the business of the label. The label should not have the unrestricted right to license your name and likeness for other purposes, such as endorsements and so on. Second: there should be no money paid to the record company for the rights to use your name and likeness and if there is, then you should get a piece of that money, say 70% or WYCG.

CONCLUSION

Needless to say, there are a great number of other issues that arise in a recording agreement and the agreement should be examined on your behalf by an attorney thoroughly familiar with the music and record industry. This short article is certainly not intended to be exhaustive of the potential problem areas that may arise in even the most successful of artist/label relationships.

© 1997 Ivan Hoffman

****************

This article is not intended as a substitute for legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws.

****************

No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.


FOR MORE INFORMATION:

EMAIL

Where Next? 

Ivan Hoffman Attorney At Law || More Articles for Recording Artists and Song Writers || Home