Garnish Music Production School

Intro to Artists’ Recording Contacts

Intro to Artists’ Recording Contacts

“Just because you’ve never done something before, doesn’t mean you won’t be good at it.”

 

-To produce and distribute recorded music, a label must negotiate the acquisition of a variety of goods and services, all of which become part of the finished product. Among the most essential elements of this package are, of course, the services of musicians who perform the recording.

 

-Some recorded works are by self-contained groups.

 

-Others use a mix of “sidemusicians” (instrumentalists employed for the session), background (or backup) vocalists, and a featured vocalist or vocal group.

 

-The services of backup performers are often controlled exclusively by the terms of the applicable union agreements.

 

-The featured artist may be a union member and, as such is also subject to the union agreements. However, contracts for featured artists go beyond the issues covered by union contracts; these artists negotiate separate agreements adding, among other terms, a royalty based on record sales.

 

SAG-AFTRA (Screen Actors Guild – American Federation of Television and Radio Artists)

-Created in 2012 in a merger, has 160,000 members, and its representation in music stems mainly from     the pre-merger union of the American Federation of Television and Radio Artists (AFTRA). Prior to the     merger, AFTRA alone handled 70,000 professional singers and other vocalists, actors, news     broadcasters, dancers, talk show hosts, disc jockeys, announcers, and other television radio     personalities.

 

SAG-AFTRA Agreements

-The major labels and many independents are among hundreds of signatory companies with labor     contracts for the services of singers with the SAG-AFTRA labor union.

 

-This agreement, known as the SAG-AFTRA National Code of Fair Practice for Sound Recordings,         covers all singers on a recording-from featured artists to backup vocalists, soloists, to full choirs.

 

-The contract addresses wage scales, overdubbing, working conditions, reuse payments and labels’     contributions to AFTRA’s Health & Retirement Funds.

 

-AFTRA is American Fed. Of TV & Radio Artists, part of SAG-AFTRA labor union.

 

-AFTRA National Code of Fair Practice for Sound Recordings (known as the “Code”).

 

Vocal Contractors

-When recording involves 3 or more AFTRA-covered singers, AFTRA requires a union contractor (must be singing member of group).

-Vocal Contractor must be present at all sessions to ensure adherence of producer to AFTRA code.

-He/She must keep track of overdubbing & reuse of a recorded performance (AFTRA demands extra charges for services).

 

-An additional source of income for performers is a share in the fees paid by users of the sound recording copyright, a revenue stream that began as a trickle in the United States with the passage of the Digital Millennium Copyright Act of 1998 and has grown more significant in recent years.

 

-In 1974, AFTRA managed to negotiate a contract incorporating the minimum royalty concept-a significant breakthrough in how extra wages were calculated for session singers. AFTRA singers who     previously didn’t receive a royalty started receiving additional wages based on recordings sold.

-These extra payments became known as contingent scale payments.

-For example, when an album reaches 157,500 in sales, nonroyalty SAG-AFTRA singers on that album receive a payment equal to 50% of their original scale for those particular sessions.

 

AFTRA Health & Retirement Funds

-Code requires record companies to contribute about 12.75% of an artist’s gross compensation for a recording into the artist’s fund (limited to first $140K made by artist & $160K made by an artist group of 3 or more)

 

Acquired Masters

-When a singer records for an SAG-AFTRA signatory label, SAG-AFTRA has little difficulty controlling  minimum wages and working conditions.

-But in a widespread practice, many recordings are made by very small companies and by independent record producers who later attempt to sell or lease their masters to a third party.

Here full union control is difficult-often impossible-although SAG-AFTRA and the AFM do what they can do to protect their members.

-The code requires that if a signatory (member) record company acquires a master from a nonsignatory producer, that producer must retroactively pay up to meet the SAG-AFTRA code in effect at the time the recording was made.

 

-Conversion, New Use, or Reuse-AFTRA requires that singers receive appropriate scale payment for this usage (commercial master transferred to for TV use, Film).

 

Nonunion Recording

-Even though SAG-AFTRA has agreements with all major labels, the practice of nonunion recording is WIDESPREAD. Aspiring young performers, who are eager to jumpstart their careers, often are only offered nonunion work by low-budget producers.

-It is important to remember that there is typically a pronounced DISPARITY of bargaining power between any one artist and entertainment conglomerate. Unions, therefore, remain key players in the entertainment business, providing an important source of artists’ rights protection.

 

American Federation of Musicians (AFM)

-The oldest union in the United States representing individuals professionally active in the fields of entertainment and the arts (instrumentalists, conductors, arrangers, orchestrators, copyists).

 

AFM Agreements

-Many labels have agreements with SAG-AFTRA also have agreements with the AFM for services of instrumentalists, conductors, arrangers, orchestrations, and copyists.

 

-Approximately every 3 years, AFM negotiates a successor agreement with recording industry representatives. The current contract is known as the AFM Sound Recording Labor Agreement.

 

    Sound Recording Labor Agreement

-Governs wages, benefits, and working conditions for services of musicians working in the recording industry in the United States and Canada.

 

-Requires the employer to pay into the AFM Health and Welfare Fund (AFM H&W).

 

Sound Recording Special Payments Fund

        -When a recording company becomes a signatory to the AFM Sound Recording Labor Agreement, it must simultaneously execute a Sound Recording Special Payments Fund             Agreement.

 

-Record companies make payments into the Sound Recording Special Payments Fund twice each year, based on record sales. All royalties are then paid to musicians who, during the preceding 5-year period, performed on any of the recordings covered by the Special Payments Fund Agreement.

 

Music Performance Trust Fund (1948)

        -The Music Performance Trust Fund was established in 1948 as a nonprofit public service organization to help keep live music available to the public.

 

-The agreement requires trustee to use all monies collected, minus operational expenses to schedule live performances for the AFM members.

 

-Fund’s purpose was to foster pubic understanding of and appreciation for live music.

 

Nonunion Recording

-AFTRA/AFM have tried to maintain Union Shops (requiring all employees on job to be union members)

-It’s been unsuccessful; instead, AFM implements PR campaigns to attract young musicians w/ reduced fees & dues.

 

Royalty Artist Contracts

-Many performers think the way to prosperity-the big money; the international reputation-largely depends on obtaining a recording contract.

 

-Until a performer becomes recognized as a recording artist, according to this outlook, it is almost impossible to attract enough notice to get gigs from concert promoters, major booking agencies, television and film producers.

 

    Types of Deals

1. Label signs artist, then has one of its producers handle project in-house (less common now).

 

2. Label already has artist under contract-retains independent producer/production company to deliver a master (more common).

 

3. Indie producer & indie artist strike a deal, & subsequently pitch to labels, try to get them signed.

 

4. Master Lease Deal: artist or production comp pays for all recording & leases master to label in exchange for royalty.

 

5. Artist forms a production company and delivers master to label. The label pays the artist’s company a royalty, and the artist then pays the producer a share of those royalties.

 

 

        Negotiations

Currently, most record companies choose their talent more selectively than ever.

 

Today’s more conservative signing policies result largely from the prohibitive costs of “breaking” new pop artists, which can start at $500,000 to $1 million for production and initial marketing expenses for a major label artist.

The negotiation process begins when the label executive sits down to discuss the terms of a contract with the artist’s manager or lawyer. The terms of the deal are determined,             and the lawyers meet to hammer out the fine print.

 

Both parties see these negotiations as an opportunity to maximize self-interests. It stands to reason that the party getting more favorable terms is the one with greater clout. (Talk about various artist situations, viral, social media, actor)

 

Naturally, labels will seek to limit their risk in contract negotiations. An effective negotiation might satisfy both parties by providing royalty rate adjustments or bonuses as certain sales levels, sometimes called plateaus, are reached.

 

The Issues

Well-drawn recording contracts will cover the following issues:

 

Term

In the past, the standard length of an artists’ recording contact was 1 year, with a specific number of 1-year options (usually 3 to 5 options) for the company to extend.

It then became more common, at least with established artists, to have the contract duration tied to delivery of one or more albums and a period of evaluation by the record company.

 

Experienced artists’ lawyers would attempt to negotiate contracts on a multiple-album basis-for example, a firm “three-album contract.”

If the first album does not sell well, the parties are still bound to each other for two following-up releases.

On the other hand, the record company preferred the commitment to be for an initial album with options for one or two more albums.

If not then there is a “kill fee,” money label has to pay to artist to end contract.

 

Exclusivity

• Almost all recording contracts require the artist to record, during the term of the contract, only for the label that has the artist under contract.
• But if the artist also records from time to time in a capacity other than as a solo artist or featured group-for instance, as a session musician or sidemusician on a jazz recording-the artist’s lawyer will push for the contract to permit such outside services.

 

Royalty, Advances

• Depending on the relative leverage of the record company and the artist, the royalty offer will generally be in the range of 13% to 17% of the wholesale price.
• Major stars have been known to get as high as 18% to 22% of wholesale.
• Occasionally, the percentages or points are expressed as a percentage of retail, in which case the numbers will be lower.
• Sometimes a label will try to hold the initial royalty below 10% and then escalate the rate as sales rise.
• For example, the artist might receive 9% of the first 250,000 unit sales, 10% on the next 250,000, and 12% if the recording “goes platinum” by selling over 1 million copies.
• In this scenario, the artist might persuade a label to compromise by upping the royalty rate on the second album, should sales of the first album turn out to be satisfactory.
• If an artist’s royalty deal is “all in” (A royalty where the cost of paying the producer’s royalty is deducted from the artist’s royalty), the cost of paying the producer’s royalty will be deducted from the artist’s royalty-a substantial bite out of the artist’s share.
• There is no standard policy among record companies on royalty advances.
• An advance is really a prepayment of royalties, so the amount of an advance is based on an estimate of future sales. Any subsequent payments occur only after the label recoups the advance fee.
• If an artist has a history of sales of approx. 100,000 albums and an average royalty is in the area of $1.00 per album, then an advance of somewhat less than $100,000 might see reasonable.

 

Creative Control 

• The artist’s track record and bargaining power will determine the amount of control an artist has over issues such as song selection, choice of producer, and style of album graphic art.
• Stars get lots of control, while less established artists generally have to accept the judgments of the record company.
• The parties usually decide together on selecting the producer or producers.
• Labels usually want new artists to collaborate with producers having proven track records.
• As for the selection of songs, record companies rarely give up the final decision on which tracks to record, but few labels force their artists to record specific ones.

 

Commitment to Promote

• Disagreement over promotion is one of the chief causes of artist-label tensions.
• If the music doesn’t sell, the label blames the artist: the artist insists sales would have been just fine if the label had done its job promoting and marketing the release.
• Artists and their managers ideally seek label commitment for tour support, press coverage, interviews, independent radio promotion, retail in-store promotion, and ads.
• Often, half the money spent on promo is recouped from the artist’s royalty earnings, providing a disincentive for artists to go crazy with spending demands.

           

Chargebacks

• Royalty contracts routinely stipulate that the label does not have to pay the artist any royalties beyond whatever advances are negotiated, until the label has recovered, through a recoupment from the artist’s royalties, it’s out-of-pocket production costs and advances.
• Production expenses that are considered legitimate to chargeback include studio rentals, union wages to AFM and SAG-AFTRA members, music arranging and copying expense, producer costs, and any other expense directly or indirectly related to production of the album.
• If album sales are not sufficient to recoup the advance through artist royalties, the artist is usually not obligated to return any of the advance money, which in any case has probably been spent.
• Obviously, recoupment of an artist’s recording account is not always necessary for the label to realize a satisfactory return on an artist’s recordings.
• For example, although it is true that it would take 100,000 unit sales to generate royalties of $100,000 if the rate was $1 per unit, at a wholesale price of $10.00, the label would generate $1 million in gross income.
• Of course, there are additional costs involved with those sales (such as salaries of label executives, office expenses, etc.), but it’s likely that the record company in                                 this situation sees profits long before the artist’s royalty account is recouped. (For example 50,000 sales)

 

Cross-Collaterization

• A process by which labels force artists to pay them back until they fully recoup their spending, over the course of all album releases.
• For example: if an artist makes three albums with each having recoupable costs of $100,000 and the albums sell very few copies but the artist makes a fourth album for $100,000, then the artist will not receive any royalties until the label has recouped $400,000.

Ownership of Masters

• Initially, the recording company owns all the rights to the masters, but when a contract is terminated, artists’ attorneys often try to negotiate transfer of ownerships to their clients.
• Record companies vigorously resist giving up ownership and distribution control of an artists’ old masters, since old recordings of successful artists can be considerable residual value, particularly in the form of repackages and/or reissues.
• Reissues of old recordings in the new formats have contributed significantly to album sales over the decades.
• Most major record companies now have separate departments dedicated solely to “vaults,” or reissues of their back catalogs.
• True superstars might, in some cases, be able to negotiate eventual return of their masters, but in general, if a label pays to record a master, the label will control it for as long as it can retain the copyright.

 

Publishing rights, Controlled Compositions       

• When a performing artist composes or co-writes original songs, the label will usually try to persuade him or her to place them with a publishing company owned by or affiliated with the label.
• When this happens, the artist-writer may receive additional advances.
• If the label’s publishing wing cannot obtain full publishing rights, it will probably offer to share the publishing revenue with the composer-performer in what is known as a copublishing     arrangement.
• If the label or production company cannot share “in the publishing,” it will almost always demand a reduced mechanical rate, commonly 75% of the current statutory rate, for all works owned or controlled by the recording artist.
• Such language is called controlled composition language, and the artist refusing to accept this language may not get signed.

 

Video Rights

• Many labels demand the exclusive services of their contract artists for any and all performances on videos and DVD’s (clips, compilations, and long forms such as concerts), offering to share the potential income from distributors.
• They also charge to the artists’ recording royalty account all or part of video production costs.
• Artists should seek to retain most creative control in videos and if label doesn’t support making the video, artists should fight for right to do it anyway (at their own expense).

 

Foreign Releases

• The artist’s lawyer should try to persuade the recording company to specify the foreign territories in which the recording will be released, simultaneously and/or shortly after American release to maximize effectiveness of promo campaign and minimize the damage of both Internet piracy and imports into territories where cheaper records imported from Europe and US compete with the expensive domestic version. (Matteo and “SUNSHOWER”)
• All major labels have their own foreign operations, but smaller labels work through licenses-third party labels in overseas territories.
• Many labels only pay 50% of the domestic rate for foreign sales, especially for territories handled by licenses that take a cut of music sales, but this can often be increased through negotiation.

 

Assignment

• Contracts normally specify the terms under which a label may assign a contract to another entity. When a contract is assigned, the new label owns all the recordings and artist services signed to the previous label.
• Record companies, especially smaller ones, often change ownership, leadership, or direction, and such circumstances may result in the label assigning its contact rights.
• In negotiating an artists’ contract, the artist’s attorney should try to limit the label’s right to assignment to the sale of the company’s total business or assets.
• Generally speaking, the right to sell existing masters is permitted, while the right to require the artist to record for another company can be restricted to an affiliated entity.

 

Right to Audit

Artists are typically allowed to audit label’s books. Sometimes labels cheat an artist out of royalties by mistake.

 

Default

• If artist doesn’t adhere to contract, label can default & suspend term of agreement/obligation to pay royalties, or terminate.
• If label doesn’t adhere, artist can refuse to record or attempt to renegotiate.

Royalty Discounts

Record companies try to reduce what they pay artists through a variety of techniques. In addition to discount factors such as cross-collaterization, here are some possible limitations on the royalty base, some of which are receding in importance as physical goods continue to become less of a factor:

1.                 Breakage Allowance 

-Royalties based on 85-90% of sales, b/c records damaged in transit.

2.                 Packaging Discount

-Labels deduct fee to cover cost of packaging materials-can  be as high as 25% of retail on CD’s.

3.                 Free Goods

-Labels don’t pay royalties for free goods given to distributors & retailers as incentives & quality discounts.

4.                 CD Rate Discounts

-Labels reduce artist royalty rates to 15-20% for CDs, as opposed to tape formats.

5.                 Merchandising 

-Labels acquire these rights and make merchandising deals on behalf of the artist…take a %. Artist should seek to retain rights.

 

360 Deals (“Artist Brand” Agreements)

• The widespread phenomenon of the 360 Deal illustrates the shifting dynamics between artists and record companies.
• With the sale of physical copies of recordings no longer the industry’s growth engine, labels want agreements under which they can earn income from a wide range of an artist’s activities.
• Not only labels, now other firms such as artist managers, producers, and concert  promoters offer such deals (traditionally only labels).

 

2 Types 

1.  The record company receives traditional revenue from sales of the product and simply gets a percentage of the artist’s other income streams.
2. The record company directly handles many non-recording activities, and both parties have to agree on major decisions.

• Goes beyond basic revenue sharing and finds the label in a true partnership with artist.
• The label’s share has gone as high as 50% (10% generally to 50%).

 

Major Keys for Music Contracts:   

 

• If artist’s first contract negotiated poorly, can have long-lasting consequences.
• Artists should resist temptation to sign anything that’s presented to them as a “standard recording contract.”
• Always hire legal counsel to negotiate on your behalf (Don’t be afraid to spend money for lawyer, it could save you money and your career down the road.
• Many unsigned artists underestimate their bargaining power (at same time, don’t OVER-estimate it, you don’t want to lose a deal during negotiation).