Recording Agreement

In the last article, we talked about setting up your record company by creating a corporation or forming an LLC!

Before you spend any real money paying for studio time and producers to develop an Artist, first make sure to sign the Artist to an Exclusive Recording Agreement with your record/production company.  Why?  Because if you spend money paying for studio time and paying producers to record demos, and you’re stupid enough to give the Artist copies of the demos and he (or she) runs into Diddy at a party and he hears the demos (loves it!) and signs the Artist to Bad Boy Records – nine times out of ten, you’re fucked because you’ve now lost the Artist!!  Whoa!!

All you can do at that point is hope that the Artist remembers your contribution and breaks you off when the deal is closed or at least thanks you in the album credits!! If the Artist was signed to your record/production company from the get-go and Diddy wanted to sign him (or her), he would have to make a deal with you because your record/production company has the exclusive rights to the recording services of the Artist.

If you decide that you first want to find out if the Artist is worth developing and want to cut a few demos, that’s cool – but don’t give him (or her) the demos to run around with until after he (or she) signs an Exclusive Recording Agreement (“ERA”) with your company.  Don’t say I didn’t warn you!!

In simple terms, the ERA is a contract between your record/production company and the Artist which gives your company the exclusive right to record, market, promote and distribute the performances of the Artist.

In having an attorney draft the ERA, here are some main points to consider:

1. Options: Your goal as a record/production company is to sign the Artist for as long as you can.  Under the ERA, your record/production company will have the “option” to require the Artist to record and deliver a certain number of albums during the term of the Agreement.  Why do you want to keep getting records from the Artist?  Well, if he (or she) is successful and sells records and you’ve spent a shitload of money producing, recording, marketing and promoting the Artist’s album, you want to be able to get that money back by selling as many albums for as long as possible!  You may not recoup your initial investment form the sales of the first album, but you may on sales from the second album.  Make sure you have some real “paper” to begin with or access to capitol because playing this music game can be very costly!!

1. Advance: Typically, the ERA will provide for the payment of a sum of money (also known as an Advance) to the Artist.  The Advance is “recoupable” from the Artist’s royalty, which means that your record/production company will deduct the Advance from the Artist’s royalty share.  You should advise your Artist to keep their day job because the Advance a truly independent record/production company can pay, if any, is usually not enough for the Artist to live on.

1. Royalties: The Advance is also defined as a “pre-payment of royalties” which brings us to the next item of discussion.  A royalty is defined as a percentage of the “suggested retail list price” of records sold and each percentage point, for simplicity’s sake, is roughly about 8-10 cents.  So if the record/production company is paying a fourteen (14%) percent Artist royalty, for example, the Artist is roughly receiving approximately $1.12 – $1.40 per record sold.  Keep in mind that this is considered an “all-in” royalty because the Artist will pay the producer of the song a producer royalty (typically three (3%) percent for a new producer) out of his (or her) “all-in” royalty.  Also remember that all the costs associated with the production, marketing and promotion of the album will be recouped out of the Artist’s royalty share before the Artist will actually receive a royalty payment.

1. As an independent record/production company owner, you may also want to have your attorney add in language regarding Merchandising (where your record/production company can receive a percentage of the Artist’s merchandise sales such as t-shirts, poster, etc.) and Co-Publishing (where your record/production company becomes a part owner of the Artist’s songs).

This is a very brief overview of the main points of an ERA and for more details, please consult with a competent Entertainment Attorney.  In summary, if you are a new record/production company, don’t get played!! Have the Artist sign an Exclusive Recording Agreement with your record/production company before you spend your time and money.