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How the record industry works Part 2


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How the record industry works part 2

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How the record industry works Part 2

  1. 1. Music IndustryHow the Traditional Music Industry Works Contracts Part 2 Chris Baker
  2. 2. Record Contracts TerritoryMajor labels will normally sign the artist to a worldwide deal.Companies such as Universal and Sony have offices in all the keymarkets, together with the vast distribution network capable ofdelivering their latest offerings to a supermarket near you. Split-territory deals are less likely with major record labels, butindependents may be more willing to agree to such anarrangement.
  3. 3. Record Contracts Rights GrantedUnder most exclusive recording contracts, the artist will assigncopyright in the sound recordings to the record company. Anassignment is a transfer of ownership for the full life ofcopyright. In the case of sound recordings this will be 50 yearsfrom release.Having made a lot of money for his former label, Warner Music,but still not having access to the masters of his own material,Simply Reds Mick Hucknall turned his back on what hedescribed as an immoral deal, to go his own way
  4. 4. Record Contracts Rights GrantedTwo issues are of particular concern here. Firstly, evenunreleased recordings remain the property of the label for theartists entire career. And secondly, even once the artist hasrepaid all recording costs, the label will still own the masters.This was one of the reasons why Mick Hucknall decided to partcompany with Warner Music in early 2000, claiming that his dealwas immoral. Warner made approximately £192m from therelationship, and kept all the masters, whereas Mick earned£20m! Hucknall has since taken control of his destiny, along witha greater share of the profits, releasing music on his self-financed label,
  5. 5. Record Contracts Key-man ProvisionWhat if the A&R person who signs you leaves the label, or theMD whos a big fan of your music is suddenly fired? In thissituation you might be glad youd negotiated a key-man clause inyour contract, allowing you to leave the label as well. This wouldenable you to sign a new record deal elsewhere and avoid beingleft on the shelf.
  6. 6. Record Contracts Producer RoyaltyThe artist is further expected to pay the producer royaltyfrom their own royalty share. So where, for example, aproducer is paid a three percent royalty and the artist 15percent, the artist will end up with an actual rate beforedeductions of 12 percent. Dont forget that the artist stillhas to pay their manager a percentage of earnings, recoupadvances and, in the case of a band, possibly split royaltyincome five ways. The producer, however, will be earning ahealthy three percent from the very first record sold.
  7. 7. Record Contracts Producer RoyaltyIts important not to allow the record company to recoup fromthe artists royalty-income advances paid to the producer. In theUK, producer advances are the responsibility of the label.
  8. 8. Record Contracts PromotionIn order to raise the profile of a release, the artist will have toundertake some domestic and international promotional work.In the event that you dont follow in the footsteps of SandiThom, by webcasting your tour from the comfort of your livingroom, the record company will deploy an army of radio, press,and new media marketeers to talk up your record. Theconsiderable cost this may incur should not be recoupable fromartist royalties.
  9. 9. Record Contracts PromotionAfter all, the record label benefits whenever the record sells,and promotion is a reasonable overhead of their business. And,of course, with a likely earnings ratio of 3:1 in the labels favour,theyre going to break even a lot quicker than any artist canrecoup.
  10. 10. Record Contract Artist WarrantiesThe artist will have to promise the label that they will performtheir duties to the best of their ability, and that they are free toenter the agreement i.e.. not currently signed to another recordlabel. More specifically, theyll have to promise to attendinterviews and undertake personal appearances and all otherreasonable promotional duties. Costs incurred in connectionwith the latter (for example, travel and accommodation) shouldbe borne by the label.
  11. 11. Record Contract Artist WarrantiesThe artist will also have to warrant that they havent breachedcopyright in another persons work in making their record. Thelabel should be notified of any un cleared samples and allsession musician consents must be obtained before the label willaccept the record.
  12. 12. Recording Contracts Re-recording RestrictionsAnother protection the label will ask for is a re-recordrestriction. This prevents the artist from re-recording their musicon another label for a certain number of years following expiryof the contract. Any restriction you agree should apply for amaximum of five years following the end of the contract, andshould only ever cover records actually released.
  13. 13. Record ContractTour Support & Leaving MembersTour support paid by the label to get the artist on the road isrecoupable, so its best to agree a limit on spend for obviousreasons.In the case of a group signed to a label, usually the company willreserve the right to terminate the contract should a key memberof the band decide to leave. The label may also try to obtain aclause allowing them to sign any leaving member as a solo artistand if the group break up before releasing a record, but afterspending their advance, theyll probably be sued for breach ofcontract and return of the monies theyve received!
  14. 14. Record ContractTour Support & Leaving MembersCare should be taken not to allow the label to recoup advancespaid to leaving members for solo releases against the remainingmembers royalties.
  15. 15. Record Contracts Controlled CompositionsIf the artist is also a songwriter and the label are releasing yourmusic in the USA, youll have to deal with the thorny issue ofhow your mechanical royalties are paid. Essentially, mechanicalsare royalties paid to songwriters when their compositions arereproduced on sound carriers for sale: CDs, vinyl, DVDs, and soon. These are quite separate from public performance royalties,which performers and composers are entitled to when theirworks are broadcast on radio or TV.
  16. 16. Record Contracts Controlled CompositionsIn the UK the mechanical royalty rate is set as eight and a halfpercent of the dealer price on physical product and eightpercent of gross revenue (excluding VAT) on downloads. In theUS, however, most record companies are only willing to pay 75percent of the fixed statutory rate for mechanicals. There is alsoa limit on the number of tracks the US labels will actually paymechanical royalties on when the artist is also the songwriter.
  17. 17. Record Contracts Controlled CompositionsNormally the maximum is 10 songs per album, even though theartist may have composed, say, all 14 songs on an album. In thisway it could be said that the US labels control the compositions,as well as capping the total amount they will pay toartist/writers. The most successful acts are eventually able tonegotiate a 100 percent rate, but it may take several hit albumsbefore they get there.
  18. 18. Record Contracts Controlled CompositionsUltimately, the mechanical royalty issue boils down to thebargaining power of artists and the might of the North Americanrecord companies. Mechanical royalty reductions are fairlystandard practice over the pond, although to the uninitiatedartist it looks remarkably like daylight robbery. If you wantfurther clarification of this matter, your publisher whoadministers your song rights will be able to help.
  19. 19. Record Contracts Secondary IncomeA well-negotiated deal will ensure that the artist is entitled to a50:50 share of any secondary income earned by the label. Thiscould be in the form of advances paid by overseas labelslicensing your record, income from compilations, or sync feesthat are paid when a sound recording is used in a film or TVcommercial or on a computer game.
  20. 20. Record Contracts Secondary IncomeSynchronization exposure can sometimes provide a much-needed boost, taking the artists career to the next level. Thecolorful bouncing balls commercial for Sony Bravia, delicatelyunderscored by Jose Gonzalez Heartbeats, helped propel theringtone to the top spot on the charts and increase sales ofGonzalez album, Veneer.
  21. 21. Record Contracts Secondary IncomeIn recent times, artists including the Subways, Dandy Warhols,Dido and 60s hippy-folk singer Vashti Bunya featured on T-Mobiles Flexible World commercial have also greatly benefitedfrom advertising and movie exposure. Other times the effect hasbeen more short-lived, but nonetheless lucrative. The popular2003 advert for Lynx Pulse, featuring a man performing aspontaneous dance routine with some women in a bar,catapulted the accompanying track, Make Luv, to the No. 1spot when it was re-released by Room 5 featuring OliverCheatham.
  22. 22. The End