Specimen Recording Agreement

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Securing a Recording Agreement has traditionally been seen as the primary aim for most aspiring musicians. With the increase in the use and quality of home studios and distribution of music over the internet some now argue that the role of record companies, and hence of the Recording Agreement will diminish as artists decide that they do not need to tie themselves to agreements which have frequently been classed by artists as oppressive in order to get their music heard. However, the reality of the situation is not quite as simple as this as, even if artists do record the music themselves and put it up on their own web-site and even with the apparently miraculous promotional opportunities afforded by social media platforms and the comparative ease with which a database can be created to use as a platform for viral marketing they are still faced with a fundamental problem. That problem is that without the marketing, promotional skill and (some say more importantly) budgets of the record companies they are going to have a hard time attracting anyone to their sites to listen to their music. So for the foreseeable future it appears that record companies will still have a role in the music industry which means that Recording Agreements will also still be around.

What is more, as the business models of the record companies adapt to deal with the opportunities offered by digital distribution they are once again alert to acquire more and more rights from the artist and income streams such as merchandising, downloading and ringtones are featuring in their calculations.

The accompanying agreement is fairly standard and is intended to favour neither artist nor record company unduly. Although an unsigned band may feel pressure to secure a record deal in order to get their music heard they should be very wary of signing a bad deal which could in the end prove more detrimental to their careers than having no deal at all. Although it may be possible to prove before a court that a grossly unfair or one-sided agreement is unenforceable it can take a long time and an awful lot of money to do so and the result is never certain. It is therefore essential that before signing a Record Deal the artist takes independent legal advice from someone who is experienced in agreements of this kind. (Many record companies insist that artists take such advice before they sign and some will even pay for the advice or treat the cost as a recoupable advance but they are unlikely to do so unless you ask).

A brief explanation of the key clauses

Note this is not a comprehensive treatise on such agreements and does not replace the need to get independent legal advice on any agreement you are offered.

Clause 2: Engagement & Exclusivity

This clause is fundamental to the purpose of the Recording Agreement as it commits the artist to providing exclusive services to the record 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 record company.

Whilst under English law the record company cannot ask the Courts to force the artist to perform for them they can prevent the artist performing for anyone else.

Clause 3: Term & Options

In general, Recording Agreements will be structured as an initial period followed by a number of “option periods”. The options are always exercisable at the discretion of the record company. Each of the initial period and the option periods are usually referred to as “Contract Periods” and all the Contract Periods together are referred to as “the Term”. Agreements are usually structured, as here, with the length of each Contract Period being dependent upon delivery of recordings by the artist to the record company. It is important to ensure that, although the length of each Contract Period will depend upon the date of delivery of recordings that there is a long-stop cut-off (clause 3.3) so no Contract Period can continue for more than 2 or perhaps 3 years.

Traditionally, record companies will want as many option periods as they can get while it is in the artists’ interest to grant as few options as possible. This agreement provides for 3 option periods which would be considered fairly short for a major agreement with 4 or 5 option periods being more common. If the record company pushes for more option periods then it is a good idea to try to get them to commit to two albums for the later option periods. (It is worth trying to get this for the initial period or the first option period as it ensures that the artist will have more time to establish themselves without danger of being dropped by the label, but this is of course harder to get).

Clause 5: Recording Procedure

This agreement provides that the selection of material, producers and artwork for the recordings to be made under the agreement should be subject to the mutual agreement of the record company and the artist. Many agreements, especially for new artists, will give only rights of consultation to the artist which means that the record company will ultimately control even the artistic elements of the recording process. And even where mutual agreement is prescribed, the Company often insists on the final say in the event of disagreement.

Recording costs are generally financed by the record company. In traditional “points deals” (where the artist is paid a royalty calculated as a percentage of the retail or dealer price of every record sold) recording costs expended by the record company will be recoupable from the artist’s royalty. In deals such as this one (which are generally termed “net profit deals”) the recording and all other costs will be recouped by the record company from gross income before the remainder of the pot (net income) is divided between the record company and the artist. However in the event that sales are not enough to recoup the costs of recording, it is important that the artist should not be liable to repay (as a contractual debt) the record company any part of these unrecouped costs from their own pocket.

Clause 6: Delivery

As was pointed out above the length of each Contract Period is tied to the delivery of recordings by the artist to the record company and this clause deals with what the artist has to do before recordings can be considered to be “delivered”. There are 3 main points of which to be aware in this clause.

i) Standard of Recordings This agreement provides that recordings to be delivered must be “technically satisfactory” which is self-explanatory and fairly uncontroversial. Record companies will often try to insist on wording to the effect that recordings must be “artistically” and/or “commercially” satisfactory or of a style commensurate with previous recordings or demos. Wordings such as this - and anything subjective like “in the opinion of the company” - should be avoided if possible as they provide record companies with an excuse not to accept or release recordings, however many labels will insist on such wording.

ii) Samples Most agreements provide that recordings will not be considered “delivered” until any samples contained on them have been cleared so it is important for the artist to be aware of this and not to include samples which they have not cleared. If samples are to be used in the recording process a detailed list of origin, relevant Artist, record companies and music publishers should be made to assist the later process of applying for clearance.

iii) Label Information & Mechanical Licences Where the artist has recorded its own songs mechanical licences should not be a problem but it is important to ensure that where a cover (i.e. recording of a song not written by the artist or member of the artist) has been recorded that they will be available (see Clause 14 below).

Clause 7: Grant of Rights

By signing the Recording Agreement the artist agrees that the copyright in all recordings (including videos) made during the term will belong to the record company. (This should not be confused with the copyright in the underlying compositions recorded which will generally belong to whoever wrote them or to their publisher). Unlike publishing agreements which often provide for the copyright in compositions to be assigned back to the songwriters after a number of years, record companies almost invariably require the copyright in recordings for the life of such copyright which is currently 70 years from first release

As copyright owners the record company will be entitled, subject to any restrictions in the agreement (about which more later) to exploit the recordings throughout the territory of the agreement. This clause also contains an assertion by the artist of its moral rights. If the record company does not agree this then at least insist on being credited as artist on all releases.

The territory of this agreement is “the world and its solar system”. Although it is common for recording agreements to cover the whole world it is not unknown for artists to sign to different labels for different territories. For example it is not unusual for artists in the UK to sign to a domestic label for Europe and to an American label for the rest of the world including North America - the permutations are endless. The reason for splitting territories may be that if an artist is signing to a smaller label they may not be confident that the label have the resources or marketing skills to promote the band in, say, the United States. An advantage for the label is that if the territory is less than the whole world the advances it has to pay the artist will almost certainly be reduced.

Included in the grant of rights to the record company are rights in relation to artist websites. By the time that they are signed most artists will already have a website and it is not unusual for the record company to require that the ownership of the domain name is transferred to them. In the specimen agreement the provisions relating to websites are not particularly onerous with the company requiring a non-exclusive right to operate an artist website. Any attempt by the record company to take exclusive rights should be resisted or, if that is not possible, exclusivity should only be for the term of the agreement and, ideally, rights should revert to the Artist when the agreement expires.

As will be seen from the specimen agreement the record company has the right to sell merchandise and concert tickets from the website. It is important that the Artist does not allow this to be used by the company as a back door to gaining merchandising rights which could then be used to recoup advances and expenses. It is therefore important when faced with a clause such as this to establish where the merchandise that the company proposes to sell is coming from.

Clause 8: Release Commitment

This clause commits the record company to releasing albums and singles delivered to them by the artist. If they fail to do so in at least the domestic market, the artist will have the right to terminate the agreement. Securing a commitment to release records is very important and the rationale of this clause is fairly obvious in that if the artist is not allowed to record for anyone else during the term of the recording agreement they need to do all that they can to ensure that material they record for the record company actually has an opportunity to reach their audience. The specimen agreement is drafted so that release of masters online will not count as a release for purposes of the release commitment. Record companies will resist this but, until online sales become the norm it is worth arguing for.

As mentioned above this clause gives the artist the right to terminate the agreement if the record company does not release minimum commitment recordings in the UK. It is unlikely that a record company will agree to a right of termination arising over failure to release in other territories with the possible exception of USA and so provision is made for recordings not released in “major markets” to be licensed at the request of the artist.

Clause 8.3 provides a mechanism by which material unreleased in the UK can be assigned to the artist in the event that they terminate the agreement. Whilst many record companies will not include such a clause it is always worth asking and can make things easier in the event that the agreement is terminated. In the specimen agreement the clause is drafted so that the artist is obliged to make an override payment to the company if the recordings are released by a third party. It is worth trying to negotiate, as an alternative, the right to repay the recording costs instead of having to pay an override. In addition although the override royalty in this case decreases once recording costs have been recouped there is a strong argument that, at that stage, it should cease altogether. This will of course depend upon the artist’s bargaining power.

Clause 9: Royalties

In this Agreement, which is a “net profit” or “50:50” deal, the artist’s royalty is actually a share of the net profits from the exploitation of the recordings. This type of agreement is used by many of the independent and smaller record companies but most major record companies offer a “points” or “royalties” deal where the artist royalty is a fixed percentage of the price of records “sold”.

Essentially the way this deal works is that all income (the gross income) is put into a pot and, after all the expenses have been taken out, what is left (the “net profit” or “net income” or “net receipts”) is shared between the artist and the company. The split in this agreement is 60:40 in favour of the artist which, for a new artist, may be a little ambitious with a 50:50 split being more common. However it is worth trying for 60:40 especially in the later option periods and on no account accept less than 50:50. The essence of this arrangement is that the Artist and record company benefit equally from the risk/reward available from successful sales of records with the Artist providing the talent and the record company the money to realise that talent.

Were this a points deal it is likely that the record company would want to pay the artist online royalties at the same royalty rate as they pay for CDs based on their Online Net Income. This should be resisted and the artist should argue for a rate of at least 50% of such Online Net Income as the record company will have no packaging, pressing or distribution costs. (Tales are told that some record companies try to levy a packaging charge on online sales).

It is also important to ensure that online income includes the record companies share of any subscription payments and with the advent of business models such as Spiral Frog, online advertising. This will be very difficult to achieve but, increasingly will be worth the effort.

Included in the Gross Income in the specimen agreement is the record company’s share of VPL income. Unlike PPL income none of this VPL income is paid direct to the artist and although record companies will resist this it is, again, worth pushing.

Clause 10: Advances

Advances are usually paid by record companies under “Net Profit” agreements in the same way that they are paid under points deals. The only technical difference is that in this instance they are an advance of the artist’s share of Net Profits rather than of royalties. Advances in recording agreements are always non-returnable although they are recoupable from Net Profits. The amount of the advances has been left blank in the agreement as this will depend entirely upon the status of the artist and negotiating skills.

Advances for Option Periods are often based upon what is known as a mini-max formula where the actual advance payable is calculated as a percentage (usually between 66% and 75%) of royalties generated over the preceding year of the Agreement (or some other period of time) subject to agreed minimum and maximum (hence “mini-max”) payments set out in the Agreement.

Clause 11: Accounting

This clause deals with the record 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 record companies always try and 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 record company’s books and for the company to pay the cost of such audit if a material underpayment is discovered.

Clause 13: Re-Recording Restriction

Recording 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 is that it could be very damaging commercially for the original record company if an artist was free to re-record all of that company’s recordings, for another record company. The artist should however seek to limit the effect of the restriction to recordings released during the term or within a short period thereafter, for example 6 months. As with the release commitment the artist should try to ensure that recordings released only online should not be caught by the re-recording restriction.

Clause 14: 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 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 licences recordings to American 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 licensee will pay.

For a new artist it is very difficult to get record companies to pay American 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. Often this will not be possible as the record company will already have a licensing deal in place with an American label or if they do not will be reluctant to commit themselves to paying full mechanical royalties as this may prejudice any licensing deal they may be offered. If this is the case, the best that can be hoped for is wording similar to that appearing in clause 14.4.

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 contains provision for such royalties on fifty percent of free goods. The artist should try to ensure that these provisions apply only to “controlled compositions” and not to recordings of songs by third parties. It is also worth ensuring that the definition of “controlled compositions” applies only to compositions written or controlled by the artist and not any third party producer over whom they may have no control.

By clause 14.5 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 14.

Clause 15: Videos

As with clause 5, this clause is reasonably “artist friendly” and it may be that the record company wants to make all of these decisions itself giving the artist only rights of consultation. It is really a matter for negotiation. It also obliges the company to release a video for not less than two singles released per period. Many record companies will not commit to this or will only commit in the event that a single reaches a certain place in the chart.

Clause 18: Warranties and Undertakings

The warranties contained in this clause are standard and it is very likely that record 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 20: Group Provisions

This clause is only relevant where more than one individual is signing the recording agreement. Where this is the case the agreement will bind the artists “jointly and severally” which means that each member of a band will be liable for the acts and defaults of the other members and that each individual is bound to record company by the exclusive recording agreement. This clause deals with what happens when one or more members leaves a band.

The record 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 record company in respect of the leaving and the remaining members. Care should also be taken that the record company does not use these provisions to gain extra albums or reduce royalty rates as is often the case and the specimen would not so permit.

Clause 21: Miscellaneous

Two very important points arise from this clause. Firstly, the artist should ensure that there are provisions for termination in the event that the record company becomes insolvent so that they have the opportunity to continue their career with another company. Secondly, the record company should not be able to assign the agreement without the consent of the artist, this gives the artist control over who runs their career but will be resisted by many record companies.