Record Contracts Professor Calle MUM Professor Calle MUM

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  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

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  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

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  President  Oversees entire company  Chief financial officer (C.F.O.)  Has final say regarding artists, personnel and general direction of the company

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  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

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  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

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.  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.

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

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

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  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

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.  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.

Finance  Compute and pay artist’s royalties, salaries, production budgets, etc.  Manage the company’s income and expenses CCompute and pay artist’s royalties, salaries, production budgets, etc. MManage the company’s income and expenses

International  Coordinates the product worldwide  This includes airplay, distribution, promotion, etc. CCoordinates the product worldwide TThis includes airplay, distribution, promotion, etc.

Sales  Responsible for getting records in the store

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.  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.

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.  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.

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). AAlso known as Min/Max formulas CContract specifies the minimum and maximum advance or fund amounts to be issued to the artists. FFirst album in the contract has a fixed amount. OOther amounts vary upon artist performance (sales).

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.  All funds, advances, expenditures and profits are combined over the course of the artist’ contract.  Each album/CD is not an event unto itself.

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.  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.

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.  Gold album is one that sells 500,000 U.S. copies.  Platinum album is one that sells 1,000,000 U.S. copies.

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. NNew artists rates signing with an independent label - 10 and 15 points. NNew Artists signing with a major label - 13 and 16 points. MMidlevel artists - 15 to 17 points. SSuperstars - 18 to 20 points.

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

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

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.  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.

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.  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.

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.  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.

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.  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.

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. FFunds +: TTypically forces lower recording costs. MMoney saved in recording allows faster recoupment and royalty earnings. FFunds -: LLess control of funding and thus recording. DDoes not provide an incentive for efficiency or a large cash base for artist/producer.

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.  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.

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. RRecoup - to earn back the money advanced by the record company at the point rate specified in your contract. RRed position - not-recouped/loss. BBlack position - recouped/profitable.

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.  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.

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.  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.

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. TTry to limit options DDo not assume you will be a failure. Try to assure better rates if you have success. IIf offered 4 or more options try to force a 5th CD if the 4th option is exercised and so forth.

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.  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.

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.  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.

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.” TTechnically satisfactory - Recorded and mixed professionally. Sounds good. C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  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.  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.

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.  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.

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.  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.

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.  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.

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.  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.