This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Methods and Practices Part 2: Standard Recording Agreements (Part 1)
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From the course by West Virginia University
Today’s Music Industry
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From the lesson
Recording Industry
Meet the Instructors
Darko VelichkovskiMusic Industry Program Director
Music Industry
Just like we looked at and became familiar with some standard contractual issues and
clauses in the music publishing business, back in our module on publishing, we need
to do the same here with the recording agreements; because if we are serious about things in
the industry, sooner or later, we will have to deal with it out there, and it will help
if we know what to expect and what to look for.
In essence, a recording contract is an agreement between the artist and the record label where
the artist agrees to record a certain amount of albums for the label, in exchange for a
percentage of the albums’ sales income. Sounds simple and straight forward, right?
What is there to talk about? But it is in reality one of the most convoluted and misunderstood
(by artists at least) documents in the industry. We will look at some crucial clauses in the
recording agreements as found in the major record label contracts, because these, over
the decades of use by the majors, became de facto standards against which all the possible
options and parameters out there are judged and compared to. We are not saying these standards
are set in stone across the spectrum of the record companies. Like everything in business,
they are of course negotiable. Especially in the indie and the micro indie world where
considerations are very different. But when it comes to majors, these standards still
prevail and are considered typical and mainstream, as outrageous as you will see that some of
those parameters are. So remember, we are talking about major label standards here.
We will look at the realities and the practice among indies regarding this issue later on
in this module.
Let’s start with the issue of the copyright ownership of the recordings the artist makes
for the label. It belongs to the label. Period. For the duration of the copyright. That’s
a traditional, standard line. Remember that we are talking about majors here. The contract
refers to the artist’s work as the work for hire, meaning the artist was hired by
the company to do the work, and the work therefore belongs to the company. Do you remember what
is the duration of such copyright ownership? The work for hire ownership. We discussed
it in our section on copyright. 95 years from publication, or 120 years from creation, whichever
is shorter. OK, that’s forever, but surely you can record the songs from those albums
for yourself or some other label once your contract expires, right? Wrong. The so-called
re-recording provision of your contract will prevent you from re-recording any of those
songs for a long, long time. Bummer, right?
So, how long is the recording agreement usually in the majors’ world? What does the standard
recording contract say about that? Well, the contract refers to it as the term of the agreement,
and connects it to the number of albums that the artist is committed to do for the label,
which is by the way referred to as the artist’s commitment. Usually it’s 5 to 7 albums,
each usually under a year long term, each term considered an option for the company,
at company’s discretion and choosing. By the way, these additional terms are referred
to as options in the contract. The agreement usually starts with one album and a one year
term, and is extended at the end of each term by the company, if the company so choses,
for up to the number of albums specified in the commitment clause of the agreement. You
following this? Rewind it if you have to.
And when we say that each term is usually a year, in the standard recording contracts
universe, that’s not 12 months. The artist is under contract for much longer than that,
each term. Because the contract specifies that the term starts at the signing of the
agreement, and that it continues for usually 12 months after the delivery of the masters
by the artist; meaning, after the recording is done and the masters are delivered. So
right there you have 12 months plus whatever time it takes to record an album. Which is
usually several months. Plus, if there is a problem with the company accepting the masters,
that ‘s another possible prolongation of the term over the stated 12 months.
How do you mean if they accept the masters? Well there is a clause in the contract, referred
to as the delivery and acceptance clause, which specifies the conditions upon which
the company will accept the masters. It states that the company will accept only commercially
satisfactory masters, which is very subjective term, and if at all possible the artist would
try to change it to something like technically satisfactory masters, or masters of the professional
technical quality, which are more objective terms than the commercial quality reference.
Also, the clause includes other components that need to be delivered to the company besides
from the recordings themselves. Like various licenses, union contracts, release forms,
etc. The lack of which can delay the acceptance, and consequently prolong the term of the contract.
So a five-album, five-year contract can easily turn into seven years of belonging to the
company. You see now how that can happen, right? And it usually does happen.
OK, that may not be the most fortunate of the situations, but at least the company is
paying for everything, right? - the recording production, the videos, the licenses, promotion,
sometimes even the tour support, and so on. Right? Well, yes and no. The company usually
does pay for it initially, at least for some of it anyway, but the contract specifies something
called recoupable expenses, which lists all the things that the company will be reimbursed
for, from the artist’s royalties; meaning, from the artist’s percentage of the sales
income; meaning, that at the end, the artist will actually pay for a lot of those things
from his own paycheck, if his paycheck is big enough to cover it. And the company is
really, really hoping it is.
So what kind of things are usually recoupable in the majors constellation? Recording production,
artist’s advance, tour support - fully recoupable. Half of the expenses for the videos are usually
recoupable, and some, or all, the expenses for the independent promotion, as well. Even
some of the licensing is usually recoupable. There is a clause in the contract called the
controlled compositions clause, which addresses this issue of the licensing recoupment. Stay
with me here, because this is as important as it is amusing. In a sad commentary on humanity
kind of way. So we learned about mechanical licensing, and how the copyright regulations
require those who want to record and distribute a recording of someone’s composition to
pay the composer, or his publisher, a statutory royalty, which is currently 9 point 1 cents
per song per recording distributed. Right? So if I record your song and distribute 1000
copies of it, I have to pay you 91 dollars. Simple and straight forward. What is there
to talk about?
Well, the controlled composition clause usually states that the company will pay maximum of
75% of the statutory mechanical royalty rate, and even that, for a maximum of 10 songs per
album. If the amount owed for the mechanical licensing is more than that, the difference
is recoupable from the artist’s royalties. What? Meaning, the company will not pay 9
point 1 cents per song per recording distributed, as stipulated by law, but 6 point 825 cents,
up to 10 songs maximum per album, which comes to 68 point 25 cents per album distributed.
If the artist is recording his or her own songs, than he or she will not receive the
full mechanical royalty rate, but the defined 75% of it, up to ten songs per album. If an
album has more songs than that, the artist will receive no mechanicals for those extra
songs.
Now, as unfortunate as that sounds, it’s not the worst case scenario here. Think about
what happens if the artist does not record own songs, but somebody else’s, and that
somebody else’s publisher insists on the full mechanical royalties. The artist then
owes the label the difference from his artist royalties for each album distributed; which
if the album has 10 songs on it, comes to 22 point 75 cents per each album. (9.1 cents
minus 6.825 cents equals 2.275 cents; times 10 songs, equals 22.75 cents.) If there are
more than 10 songs on such album, then you would add 2 point 275 cents for every additional
song per each album, as owed to the label by the artist. That’s the magic of the controlled
composition clause. I told you it’s amusing, in a sad commentary on humanity kind of way.
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