Major record companies sign artists, pay for production and distribution, and are responsible for advertising, promotion and marketing. Independent labels perform similar functions but don't directly distribute, instead negotiating distribution deals. Record labels have various departments that handle tasks like A&R, promotion, marketing, finance, and international operations. The music industry uses terminology around contracts, sales levels, royalties, advances, funds, and more. Demo deals can help artists create professional recordings to shop their music.

1. Music Business
Record Company Roles & Terminology
Chris Baker
www.musicstudentinfo.com

2. Major Record Company Function
Signs artists
Pays for production
Distributes records (CD) directly or via a distributor
Company is responsible for:
Advertising, promotion & marketing

3. Independent Record Company Function
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

4. Record Company Roles President US, C.E.O. UK
President CEO (Chief Executive Officer)
Oversees entire company
Chief financial officer (C.F.O.)
Has final say regarding artists, personnel and direction of the
company

5. Business Affairs/Legal Department
Function
• Write and negotiate contracts with artists, distributors,
publishers, licensers and other company holdings such as real
estate, property, sample clearance patents and trademarks
• Primarily owners, lawyers and management

6. A & R Function
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
Often credited as executive producers

7. Promotion Department Function
• Primary job is to ensure radio & internet airplay for a CD
• Call radio program music directors
• Try to ensure maximum exposure for their artist in media
including radio, television, etc.

8. Marketing Department Function
Advertising
Publicity
CD cover, artwork etc
Promo videos
In-store promotions
Promotional merchandise
Styling

9. New Media Department Function
Find new types of delivery methods and media
iTunes. iPods
Satellite radio
Mobile phones
Internet radio
DVDs

10. Record Production Function
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

11. Product Management Function
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

12. Record Company Finance Department
• Compute and pay artist’s royalties, salaries, production
budgets, etc.
• Manage the company’s income and expenses

13. International Department Function
Coordinates the product worldwide
This includes airplay, distribution, promotion, etc.

14. Sales Department Function
Responsible for getting records in the store

15. Music Industry Language Term
Definition Length of contract:
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

16. Industry Language Term Cont.
• 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.

17. Industry Language Floors & Ceilings
• 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).

18. Industry Language 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.

19. Types of Artists By Sales U.S.
• New artist: sold less than 250,000 records.
• Mid-level: artist has sold between 750,000 and 1 million
copies.
• Upper level: Superstars are artists who have sold 2.5 million
units or more.

20. Album Awards US & UK
Gold Album US 500,000 U.S. copies
Platinum Album US 1,000,000 U.S. copies
Singles UK
Silver 200,000; Gold 400,000; Platinum 600,000
Albums UK
Silver 60,000; Gold 100,000; Platinum 300,000
Music DVD UK
Gold 25,000; Platinum 50,000

21. Music Business Terminology 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.
Mid level artists 15 to 17 points.
Superstars 18 to 20 points.

22. Music Industry Terminology SRLP
• The suggested retail price.
• This is the number from which your royalty base, after
deductions, is figured.

23. Music Industry Terminology 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.

24. Industry Terminology 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.
• Point equals a percent.

25. Industry Terminology Advances & 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.

26. Industry Terminology Advances
Advances Positive
More control of funding.
Money saved can be kept.
Advances Negative
All money issued is recoupable.
Large advances can prevent an artist from earning royalties
because the money is not recouped.

27. Industry Terminology Funds
Funds Positive
Typically forces lower recording costs.
Money saved in recording allows faster recoupment and royalty
earnings.
Funds Negative
Less control of funding and thus recording.
Does not provide an incentive for efficiency or a large cash base
for artist/producer.

28. Industry Terminology Deductions
Free goods = 15%
Packaging = 25%
10% for breakage
Reserves = 35% (Make up for returns. Liquidated within 2 years)
85% of net sales - makes up for piracy, etc.

29. Industry Terminology 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.

30. Industry Terminology 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 SOR

31. Industry Terminology 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.

32. 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.

33. Industry Terminology 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.

34. 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.

35. 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.

36. 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.

37. Types of Deal 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.

38. 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.

39. 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.