Specimen Production Agreement

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 The most common form of “Production Agreement” is where a studio owner, producer or a manager with access to a studio signs a band to a recording agreement with the intention of making recordings which can then be “sold on” to a major or large independent record company. Sometimes the production company will themselves release singles or even an album in order to raise the profile of the Artist and secure interest from a third party but often they will have no intention of doing so.

The advantage from the production company’s point of view is that rather than take a fee as a producer or for renting out the studio to the band to record demos (which the band may not have or which may have to be heavily discounted) or (if the production company is the manager) fronting the cost of demos, they would secure ownership of the material recorded and the right to exploit it. Although more money might have to be spent or more services/time might have to be given initially, eventually the rewards if the band are successful are potentially much greater.

From the Artist’s point of view the advantage is that although they will have to share at least the early part of any success with the production company they will have someone else out there pushing for them and a finished album is likely to make then more attractive to record companies, many of whom have built up relationships with production companies. In considering whether it is right to sign to a production company (and potentially have to share income with them) the Artist should look at the production company’s track record. Do they have good contacts with major record companies and do they have a history of getting deals for acts which they have signed? Alternatively do they have particular marketing skills which the Artist lack? If the answer to these questions is no then particular care should be taken before signing – especially if there are no advances to sweeten the pill – and thought should be given to finding ways to finance recording independently.

Recently production companies have begun to require that as well as assigning recording rights the artist should assign publishing and merchandising rights to them as well. Such demands should be treated with the utmost caution and resisted.

Whilst the variations in the form and content of Production Agreements are infinite the following Agreement represents a fairly typical example.

A brief explanation of the key clauses

Clause 1: Engagement & Exclusivity

As with most long-term recording agreements this clause commits the artist to providing exclusive services to the production company as a musical performer. The artist will not be able to record for anyone else during the term of the agreement without the permission of the production company and whilst under English law the production company cannot ask the Courts to force the artist to perform for them they can prevent the artist performing for anyone else.
If the artist play as session musicians it is usually possible to get wording included which will allow this but you generally have to ask as it does not usually appear in first drafts. This can be important where advances are low (or non-existent) and where this forms a vital part of the artist’s income.

Clause 2: Term & Options

Most production agreements are structured in the same way as recording agreements in respect to their term. Thus they tend to have an initial period in which recordings are made followed by a number of option periods. The options are always exercisable at the discretion of the production company. The reason why production agreements are structured in this way is that the production company hope to sign the Artist on to a record company and so it is easier if the agreement reflects the form that the company’s agreement with the record company is likely to take.

As with record companies production companies will want as many option periods as they can get (making it easier to sign the Artist on) while it is in the artists’ interest to grant as few options as possible. This agreement provides for 3 options which are really all that an Artist should commit to in this kind of production deal. Similarly the production company will want each period to last for as long as possible and the artist’s interest will be served by giving them only as much time as the artist thinks the company reasonably needs. In any event it is important to put a longstop limit on the length of any period.

Clause 4: Recording Procedure

It is likely that production companies will be reluctant to give the Artist any approvals over any aspect of the recording process. The reason for this is that they will not want to restrict the rights that they can offer to a third party record company. Therefore the most that the Artist is likely to get is consultation over such aspects as budget and choice of compositions to be recorded. It is however important to make sure that, even where an in-house studio is used and the production company are acting as producers, a budget is drawn up. In this agreement we have provided that no charge should be made for the use of in-house facilities (clause 4.3). Whilst this is what the Artist should aim to achieve it is comparatively rare for a production company to concede this. In the event that they refuse it should be made plain in the agreement upon what basis in-house facilities will be charged and this should be included in the agreement otherwise the Artist may well find that they are expected to recoup a fee of £1,000 per day by way of example for recording time spent in the production company’s own studio (which may otherwise have been empty).

Clause 5: Grant of Rights

It is important that the Artist realises that although most production agreements provide for the Artist to get at least half of the income the whole of the copyright in the recordings will belong to the production company. The production company will justify this by pointing out that they have to be in a position to assign the copyright to a third party record company. It is worth arguing that the recordings should only be licensed to the production company but they are likely to resist this on the grounds that it makes it harder for them to get a major record company interested.

As copyright owners the production company will be solely entitled, subject to any restrictions in the agreement (about which more later) to exploit the recordings throughout the territory of the agreement.

The territory of this agreement is “the world and its solar system”. Although it is often possible to limit the territory of recording agreements this is not usually the case with production agreements as, once again, the production company will say that they have to be free to offer these rights to a third party record company.

Clause 6: Release Commitment

Whilst it is often not the intention that the production company should release masters it is important to have a clause ensuring that somebody does - otherwise the artist faces the problem of being tied to an exclusive recording arrangement with none of their work seeing the light of day. This clause commits the production company to either secure releases in the UK for albums recorded or at least to enter into an agreement with a major record company whereby they are obliged to release at least one album. This agreement provides that only physical release of records shall count as release for the purposes of this and clause 11 (Re-recording restriction). This is something which may not be offered but should be asked for as it is very easy for a record company to put masters up onto a website and say that they have been “released”.

In the event that the production company fails to achieve the above the artist has here the right to have the unreleased masters assigned to them if they repay the unrecouped recording costs or (at the Artist’s choice) give the production company an override royalty upon such masters.

It is also worth trying to secure a commitment to release in the major markets, (USA, France, Germany, Japan) but few production companies will give more than an obligation to use “reasonable endeavours” to secure such release as they, once again, are afraid to tie their hands.

Clause 7: Royalties

Royalties in this agreement, as with most production deals, are expressed as a percentage of “Net Profit”. Essentially the way the deal works is that all income (“gross income”) is put into a pot and, after all the expenses have been taken out, what is left (the “net profit”) is shared between the artist and the production company. The split in this agreement is on the low side and the artist should look to build in escalations to 60:40 our even 70:30 based on sale or for the second and subsequent albums. Included in the definition of “Gross Income” are VPL income (which, unlike PPL income, is not paid to the Artist directly) and any share of advertising revenue from online sales. It is unlikely that any record company other than a major will be paid any of this but it is a good idea to try to include it.

Clause 7.3.4 excludes mechanical royalties paid to the Artist from “expenses” – most production companies will be reluctant to grant this but it is worth pushing for it otherwise the Artist will effectively be paying half of their own mechanical royalty.

Clause 8: Advances

Advances under production agreements are often a matter of heated debate between the artist and the company. Many production companies are small and under funded (in some cases having no more money than the artist but having access to recording facilities and production skills) and so cannot afford to pay signing advances. Even those production companies that are not under-funded will often be reluctant to increase their exposure by giving the artist large sums of money. Obviously the amount of any advance will depend on the individual circumstances. In the specimen agreement the company agrees to share third party advances with the artist having recouped expenses and made a reserve against future expenses. This is really the worst that any artist should accept and, especially in the case of subsequent option periods, advances ought to be paid upon exercise of such option as the Artist has to have some money on which to live.

Clause 9: Accounting

This clause deals with the production company’s obligation to account to the artist. In this agreement accounts are to be prepared and delivered twice a year, which is usual but it is worth trying to get the label to account quarterly as this might aid cash flow.

Under English law artists would normally have six years in which to bring proceedings against the company for any discrepancies or inadequacies in the accounts. However production companies will always try to limit the time in which any objection must be made to incorrect accounts, often to as little as one year. From the artist’s point of view this period should be as long as possible but it really should not be less than three years.

It is also important to ensure that the agreement contains provision for the artist to carry out an audit of the production company’s books and for the company to pay the cost of such audit if a material underpayment is discovered.

Clause 11: Re-Recording Restriction

As with recording agreements Production Agreements almost invariably seek to prevent the artist from recording any song that has been recorded during the term of an exclusive agreement for a period after that agreement ends. The reason for this restriction is fairly obvious as it could be very damaging commercially for the record company if an artist was free to duplicate all of their performances on recordings whilst with the production company, in recordings made for another record company after the term of the agreement. The artist should however seek to limit the effect of the restriction to recordings released during the term or within a short period thereafter.

Clause 12: Mechanical Licences

The right to reproduce musical compositions is called the “mechanical right” and is one of the rights owned by the author of the composition or their assignees (i.e. music publishers). In order to manufacture records, the record company needs a mechanical licence from the owner of the mechanical right for which a fee is payable. This clause warrants that the record company will be able to obtain such a licence.

The mechanical royalty rate in the UK is negotiated between the BPI and the MCPS and is calculated as a percentage of the retail or dealer price of records. The position is similar throughout Europe, with rates set locally in each territory under the overall supervision of BIEM who represent the mechanical collection societies, and IFPI who represent the record company organisations. However in the USA and Canada the mechanical licence fee is fixed by statute with the rate varying according to the length of the composition and the year recorded.

Although the rate is set by statute, American and Canadian record companies have traditionally been reluctant in the extreme to pay the full rate but rather contract with artists to pay only seventy-five percent of the rate. So when a UK record company licenses recordings to American and Canadian record companies they have to ensure that on controlled compositions, (which are compositions owned or controlled by the artist performing them), they can obtain rates which the American and or Canadian licensee will pay.

For a new artist it is very difficult to get record companies to pay American and or Canadian mechanical royalties at more than 75% of the statutory rate or on more than ten compositions on an album or two on a single. As CD albums and singles usually contain at least twelve and three tracks respectively, the artist should try to ensure that there are escalations built in to the recording agreement so that after sales of a certain level, higher rates are paid on more compositions however in the case of a production deal it is extremely unlikely that the production company will want to tie its hands when it comes to securing a major recording deal and the best that is likely to obtained is the assurance in clause 12.4.

Another point to bear in mind is that American record companies are also reluctant to pay any mechanical royalty on free or promotional copies of records. This agreement however does not contain further reductions in mechanical royalty for such records.

By clause 12.5 the artist also warrants that the record company will be able to secure synchronisation licences enabling them to make videos and that where the videos are used purely for promotional purposes that this licence will be free of charge. This is standard.

It is very important that if an artist has signed a publishing deal prior to entering into a recording agreement that they ensure that their publisher agrees to the contents of clauses such as this. Most publishers insist, at the very least, on being given the opportunity to make representations in an attempt to mitigate the effects of a clause such as clause 12.

Clause 13: Videos

As well as the right to make records the production company will require the exclusive right (but not the obligation) to make videos. It is unlikely that the artist will be able to secure many rights of approval as the production company will not want to be fettered in the rights it can grant a third party. The costs of videos will be an Expense deductible from Gross Income.

Clause 14: Promotional Appearances

The production company will often require any expenses it pays to be paid back if the artist receives a fee for the promotional appearance. Whilst this is not unreasonable what should not be countenanced is the production company taking the balance of any fee and adding it to Gross Income.

Clause 16: Warranties and Undertakings

The warranties contained in this clause are standard and it is very likely that production companies may require other additional warranties or undertakings such as an undertaking to attend recording sessions on time and in a fit state to perform. Artists should give careful consideration to clauses such as this and make sure that they fully understand what they are warranting and undertaking and that they are able to perform them.

Clause 17: Third Party Agreements

This clause is very important and is where the artist acknowledges that the production company is likely to sign them on to a third party record company. It will almost certainly contain provisions whereby the artist agrees to sign an inducement letter if the same is required by any record company. An inducement letter is an agreement between the production company’s licensee and the artist whereby the artist agrees that in the event of default by the production company the licensee can enforce its rights directly against the artist. It is important that the artist be allowed to take independent legal advice on the terms of any such inducement letter and that the artist also has the right under the inducement letter to enforce its rights (eg to royalties) directly against the licensee if necessary.

It is also likely that the production will include in a clause such as this a “catch-all” provision which provides that if any of the terms of the third party agreement are less favourable to the artist than are contained in the production agreement then they will be deemed to be substituted. It is often difficult to fight against these clauses but, at the very least, it should be ensured that the record company cannot be entitled to a longer term or more options or a greater minimum commitment than is contained in the Production Agreement and if the licensee’s agreement with the production company end the terms of the production agreement should revert to what they were before.

The specimen agreement contains (in sub-clause 17.2.2) a provision that gives the artist the right to have the master re-assigned to them in the event that royalties due and owing are not paid. Whilst this clause may sound reasonable to most people it may be extremely difficult to persuade production companies to concede this - it is however still worth asking.

Clause 19: Group Provisions

This clause deals with what happens if one or more of the artist (assuming that they are a band rather than an individual) leave or are expelled or if the band splits completely.
The production company will want to ensure that they have the option to do one or more of the following:

i) retain the services of the leaving member(s)

ii) retain the services of the remaining member(s)

iii) terminate the agreement with respect to the leaving member(s)

iv) terminate the agreement with respect to the remaining member(s)

It is important to ensure that if a band splits, separate royalty accounts are maintained by the production company in respect of the leaving and the remaining members.

Clause 21: Miscellaneous

One very important point arises from this clause in that the artist should ensure that there are provisions for termination in the event that the production company becomes insolvent so that they have the opportunity to continue their career with another company.

Website

The specimen agreement does not contain wording assigning any website owned by the Artist to the production company. It is a good idea to register your website before you start negotiations and to resist pressure to allow the production company to take the site and URL. They will inevitably try which will almost as inevitably lead to them wanting to sell artist merchandise from it and thus impinge upon the Artists merchandising rights – this should be resisted. If it has to be conceded it is important to ensure that the ownership of the website and the URL reverts to the artist upon termination.