Recording Contracts Explained

recording-contractsRecording Contracts Explained

So you have done all the hard work needed to get a record label interested in singing you or your music. You arrive at the labels head office and are lead to the conference room. All that stands between you and your dreams is the voluminous recording contract that has been thrown down in front of you. You start to read through it......uh oh!

You have absolutely no idea what half the stuff means!

Before this happens to you I suggest you read through this section. It will explain everything you need to know about recording contracts. You will learn about how recording contracts work, the common terminology used and the different types of recording contracts used in the industry today.

By the end you will have the knowledge and confidence to understand and negotiate your own recording contract.

And If you're not lucky enough to have been offered a recording contract yet then I suggest you read How Do I Get A Recording Contract?. In it I discuss some of the things which record labels are looking for.

How Recording Contracts Work

Recording contracts are an agreement between the artist and the record label, allowing the record label to exploit the artist’s work in return for royalty, in a legally recognized format.

Most artists are under the mistaken assumption that the job of recording labels is to make them millionaires, while their job is to make music. They consider signing a contract with a recording label as the ultimate goal of their musical journey; as something which instantly monetizes and validates all the hard work that they have put in.

Nothing can be further from the truth for it is when you sign a record deal with a label that the hard work actually begins.

When you sign a record contract with a label, you are basically asking the label to fund:

The record label has to earn back all of this money, with interest and profits added to it.

After all it is a company which has money to make. They earn all of this off the royalties that your music makes.

A record label always makes money before you do. The money they invest in you is simply an advance against the royalties you will generate for them. If you don’t give them enough hit songs, and if they are unable to earn back from you the money they have spent, they will cancel your deal.

Hence, once you sign a deal with a label, you have to continually give them the re-assurance that you will keep generating royalties for them by making hit songs and albums.

If your CDs don’t sell, or if the radio stations don’t play your music enough to generate enough royalties to recoup the expenses that the recording label has incurred on you, you can kiss your contract goodbye.

A recording contract will usually spell out contract periods. You will receive an advance for each contract period as stipulated in the contract. Each contract period will require you to deliver a certain amount of work, usually measured in terms of number of songs or albums. You are obliged to meet the deadlines.

Once the artist or the band goes into the studio and records an album, it belongs to the label, forever. There will also be a lock-in clause with a duration of around 10 years which prevents the artist or band from re-creating or re-recording the songs, from the end of the contract.

The label can reject an album that it does not like, in which case the artist or band is obliged to record another. It can also accept the album, but never do anything with it. The lock-in clause still applies.

At this point you will be wondering how much money you will get?

The typical figure for royalties ranges from 10 to 20% of sales. If you are an unknown, you will probably earn on the low end of the range. Also make sure you know what the wholesale price and the retail price per unit is, for sometimes the royalties are paid on the wholesale price, and not the retail price, which is often jacked up by about 80%.

Once the recording label recoups all the investment that it has made on the artist, by deducting all the expenses (real or imaginary) it has incurred on the artist from the proceeds earned from sales of the music, it cuts the band or the artist a royalty check for the balance amount. Out of this check about 20% is pocketed by your manager, while the rest of the money goes to the artist or is distributed between the band members.

So what does a recording label do, if you are giving them everything on a platter?

To be fair to these companies, they give you exposure on a scale you could never have managed on your own. They have the financial muscle and the necessary influence to market you to a world-wide audience. They have the organizational resources to organize humongous tours for you. They give you the publicity required to expand your fan-base exponentially and drive your album sales into millions.

They have the resources required to handle all your business deals, from promotional deals, to copyright protection and from collection of royalties to sales of merchandise. They have the risk-appetite required to give you all the facilities that you’ve hitherto dreamed of, before you’ve earned them a single penny.

To summarize, recording labels do have the upper hand in the business. But remember, if they want to give you a contract, they think you are a good prospect. Try to negotiate as hard as you can for higher rates and clear terms and always have a lawyer handy, and you will be fine.

A Recording Contracts Terminology Explained...

Below are some of the clauses you will find in recording contracts.

Types of Recording Contracts

No two contracts are alike. Recording contracts are tailored to keep in view the needs of the negotiating parties concerned. Below is an overview of the different types of recording contracts you can expect to encounter while signing on with a record label. 

The main types of Recording Contracts are:

Apart from the above three, there are other types of deals like:

Remember, a recording label is out to make profit, not to promote your music, so always have a competent lawyer at hand who will thoroughly vet the contract before you sign anything.

How Do I Get A Recording Contract?

How Do I Get A Recording ContractSo now that you know the major types of recording contracts that exist in the music industry. Lets work on getting yourself one.

Check out my article "How Do I Get A Record Label Contract?" for some great advice and tips on how to get labels interested in you and your music.

Have you got a story about how you got a recording contract? Why not Share your story with the world. Use this form to let me know and I will share your experiences with other songwriters.

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