Record Contracts

1. Record Contracts Professor Calle MUM 2700 www.ProfessorCalle.com

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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.

8. Marketing • Advertising • Publicity • CD cover, artwork, etc. • Promo videos • In-store promotions • Promotional merchandise

9. New Media • Techno folks • Find all new types of delivery methods and media • iTunes. iPods • Satellite radio • Internet radio • Telephones • DVDs

10. 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

11. 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.

12. Finance • Compute and pay artist’s royalties, salaries, production budgets, etc. • Manage the company’s income and expenses

13. International • Coordinates the product worldwide • This includes airplay, distribution, promotion, etc.

14. Sales • Responsible for getting records in the store

15. 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.

16. 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.

17. 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).

18. 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.

19. 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.

20. 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.

21. 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.

22. SRLP • The suggested retail price. • This is the number from which your royalty base, after deductions, is figured.

23. Constructed Retail Price • Typically uplifted by calculating 130% of the wholesale price. • This number is usually lower than the SRLP.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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.

35. 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.

36. 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.”

37. 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.

38. 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.

39. 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.

40. 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.

41. 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.