The Record Company - who does what? Part 4

by Marlyn Ntsele and Russel Hlongwane


Transferring of rights

The essence of a record contract is that the record company gets the exclusive rights to release music during a certain period of time and within a certain part of the universe. In return the artist gets a percentage of the profits – also called a royalty.

Sometimes the royalty is not a set percentage, but it might increase once the record sales have reached a certain level. For instance: 6% over the first 1000 records and 8% for everything above this. This is also referred to as a sliding scale.

In the first paragraph of the record contract you will find the transfer of rights. This will be described as the rights to make different carriers of music and exploit those. In many contracts record companies try to get more rights. It is normal to also make agreements on other forms of exploitation, such as:
• Synchronization: the right to synchronize sound recordings with images, such as movies or commercials. The film maker pays the record company for this right.
• Background music: the right to use the music in shopping malls, hotel- and catering industry etc.
• Remixing: if other versions of the song will be released not only permission is needed from the master owner, but also from the copyright owners.

Some record companies will even try to get some other rights through the contract. We are talking about the following:
• The right to publish the music (publishing) – see THIS article
• To get part of the performance fee – see THIS article
• To get needle time rights – see THIS article
• The internet domain name
• Digital distribution rights
• Merchandising rights
• Sponsoring
• Rights for any future forms of exploitation.

If it is a good idea to transfer all those rights depends on your personal situation and what the record company will actually do.

The record contract also always includes a clause that talks about exclusive use of an artist name on album covers etc. Some labels try to push this so much that they will own the artist name after you signed the contract. If the label is the initiator of the project, you can justify this decision. If the band is started by the musicians, the musicians should own the band name. They will license the record company to use the name for certain purposes and for a certain length.

A record contract also includes a clause about exclusivity. This means that the artist can not make records for another company at the same time without permission of the initial record company. To avoid conflict it is a good idea to include that the record company is not allowed to refuse this if the guest contribution does not interfere with the exploitation of your own project. Moreover it is usual that for television recordings that are being broadcasted live permission from the record company is not needed.

The calculations
In a lot of record contract negotiations a lot of attention is spend on the things that seem important and the things that are actually important are being skipped quickly. A lot of musicians focus on the royalty percentage, but without the other calculations that does not mean anything. Just as important is the amount over which the royalties are calculated. The most common method is the PPD (Price Per Dealer), the amount that the wholesaler pays for the album. The challenge for the record company is that it is not always them who get the PPD, in dealing with records there are a lot of discounts applicable. A good alternative is using the net invoiced value (net PPD).

Deductions to royalties
The record companies try different ways to deduct money from the royalties. A notorious clause is the one for the cost of cover- and packaging. Some record companies try to deduct up to 20% for this, while in reality this is much less. A deduction for copies that break – is also very old fashion (this sometimes used to happen with vinyl).

In the same notorious category fall the development costs of new types of sound carriers. You can obviously question if an artist should contribute to this.

In a lot of standard contracts there is a clause that the artist should agree on a discounted royalty for mid price – and budget records. It often happens that a record immediately is offered for a discounted price. This is why it is a good idea to discuss the price of your record within the contract.

If there will be an advertising campaign on radio and television, it is common that an artist will give up an half of the royalties. This is not really open for discussion, the artist profits from the extra record sales and the increasing fame. It is a good idea to discuss the length of this discount. You can add a clause that decides on the minimum magnitude of the campaign (a once-off 30 second commercial is obviously not enough).

Music Video’s
A music video can positively contribute to the promotional campaign for an album. In pretty much all recording contracts there is a clause that about half of the recording costs will be used as an advance. Meaning, that an artist will only get his royalties once the costs for the music video are earned back, meaning an artist will pay half of the music video himself. If that is the case, make sure that you will get your performing rights from SAMRO when the video is broadcasted.

If a record has international potential, this record will be on offer in other countries than South Africa. A major company will start with offering the album to their different departments in other countries. Smaller labels usually have their own network of colleagues abroad.

The downside of selling records abroad is that 2 labels have to earn money, this often gets partially deducted from the artist royalty. That is why record companies suggest in their contract to halve the royalties. Better is that the artists and the South African record company share the “costs”.

You sign a record contract for a certain “territory”. Outside of this territory the artist is free to sign a contract with another label (and get another advance). This is why it is important to make the territory for your contract as small as possible, preferably only Southern Africa. Make sure that the record company actually has departments and/or connections in the countries agreed on.

Length of contract and guarantee of release
An established artist can negotiate much better terms than a beginner. This is why it is important that you do not sign long contracts at the beginning of your career. A long contract does not give you any guarantee anyway, because the record company always makes sure it has the option to opt out easily. A first contract should be 1 album, with an option to sign the same contract for a second (title deed). Try to negotiate that there is space for negotiations for the second album.

Another term that is agreed on is when the album has to be recorded and released. It is a good idea to include a release guarantee. With a license deal you also have to negotiate when the artist is free to transfer the master to another company.

“Small font” (there is a word for this in English, can not remember)
• It sounds obvious, but when a label releases an album the law says that there has to be a written agreement with the artist. This is especially important when the music was recorded before the agreement was made and one or more of the band members left the band after the recording. The record company will also have to come to a separate agreement with those members.
• You will have to send your own invoice for the royalties you will get. To be able to do this the band has to be a registered entity.
• The record contract usually mentions one bank account for the royalties. If band members left (or got fired) the will have to claim their royalties from their ex-band members. The contract often works that way that ex-band members cannot approach the record company for anything, so make clear arrangements amongst band members.
• If artist and record company plan multiple albums and the company gives advances, for instance for tour support, it can happen that the advances are being spread over various records. This means that the advance is cross-collateral. If the first record did not bring in enough money the shortage is added to the next record. Only when the whole amount is earned back, the artist will get royalties.
• In the record contract the artist obliges himself to collaborate on various promotional activities. It is advisable to make sure that it says in the contract that the record company has to consult the artist about this and that the artist at least will receive a small fee to cover transport. The artist should also be able to refuse to be booked for activities that are against his artistic integrity or religious beliefs.
• You will not get royalties for promotional copies, because promo copies often end up in store anyway it is a good idea to limit this to 100 copies.
• A big part of record sales will consist of compilation CD’s with the latest hits. When the compilation is released by your own record company you supposed to get royalties according to the contract. With compilations released by third parties the usual percentage is 20% PPD. It supposed to say in your contract that this income will be shared between artist and record company on a 50/50 basis.

A record contract does not only contain merit agreements, but it also shows a strategy that you and the record company will conduct together. Important is that it does not only show the obligations that the artist has, but also that it is clear what the record company promises to do to make your album a success. You can expect from the A&R manager that he is clear about the amount of promotion and marketing he will do for your album. At the end of the day the record contract has to be fully custom made.




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