Record Label Contracts & Agreements

A recording contract is a legal agreement that is most often made between a recording artist and a record label. When offered a recording contract with a label:

• Make sure you know how and when you will be paid. Ideally you will be given a cash advance in lieu of future royalties.
• Try to secure higher royalties after reaching a certain figure, or after the first year. Aim for a payment on 100% of all sales.
• Make sure you know what they want from you and remember they, not you, will own the recordings. You need to check whether they want you to record exclusively for them. 
• Ask what happens if you split up. In most cases each member will remain individually signed to the label.

Getting paid 

Royalties from sound recording 

• Try to secure higher royalties after reaching a certain sale figure
• Try to increase your rate of royalty with each new year of the recording contract
• Aim for payment on 100% of sales
• Get advice if a company insists on paying a half-rate royalty for ‘TV advertised’ product or compilations
• Try to ensure that you are entitled to receive 50% of any income paid to the record company by VPL (Video Performance Ltd)
• Beware of ‘hidden’ deductions for packaging or new technologies
• Pay particular attention to the royalty rates that apply to digital download sales and streaming revenue. Ensure these do not include any reductions.

Advances

Advances are a financial sign of good faith from the record company. They should always be non-returnable (and only recoupable from any future record royalties). 

If a long-term contract is offered, the advance should be large enough to provide the members of the band with a reasonable living wage until any initial costs have been met and royalties are being received. 

When to expect to be paid

Most companies will render a statement of account to their artists twice yearly, within 60 or 90 days of the end of June and December. If your royalty earnings are greater than the personal advances you have received and the recording costs you have incurred (in other words, you have ‘recouped’), then the statement should be accompanied by a payment.

Deductions

The MU feels that only the cost of recording and personal advances should be offset against royalty income. You should try to get references to ‘other costs’ deleted from an agreement, or at least make them subject to joint agreement.

Try to limit the number of remixes the company can commission without your approval or it’s possible that recording costs will spiral. Also, never agree to cross-collateralisation of advances against non-royalty income, such as PPL, or income from other contracts.

Record agreement length

A typical record deal with a major record company might be for one year plus four options, calling for five albums.

However, past judgements in British courts seem to have frowned upon the restrictive nature of long-term recording agreements and, especially with small labels who are unable to guarantee sufficient annual advances, you should aim for as short a deal as possible.

Recording ownership

It is important to remember that because the record company has initially commissioned and paid for the recordings, in the eyes of the law they are the owners and not you. The agreement will make this clear and assign all copyrights in the recording to them.

However, if you have made and paid for recordings yourself then you probably own copyright in them. So if a label expresses interest in releasing them you should think seriously about whether to assign your copyright to the label or simply grant them a licence to exploit the recordings.

If this situation arises, the MU generally always advises that you license your recordings and retain copyright in them yourself, unless there is a very good reason to assign them. Contact your Regional Office for advice, or if offered a contract that assigns copyrights you own, discuss it with the MU’s Contract Advisory Service.

A recording contract will require you to give consent for the company to exploit your performances contained on the recordings by selling records and authorising others to broadcast them. The MU feels that these consents ought to apply only to record sales and the right to give others permission to broadcast recordings. Vague ‘audio visual rights’ or ‘other uses’ should be subject to negotiation from time to time and not just signed away in the initial agreement.

Also ensure that session musicians sign the appropriate MU consent form and that a copy is sent to the Union.

Release commitment

Although it is often not the intention that the record label should release masters themselves, it is important to have a clause ensuring that somebody does, otherwise the artist’s work might never see the light of day.

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 artist should, however, seek to limit the effect of the restriction to recordings released during the term of an exclusive agreement, or within a short period thereafter.

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 (for instance, music publishers). Recording agreements will almost always contain a clause that warrants that the record company will be able to obtain such a licence.

Video rights

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.

Group provisions

Expect to see a clause in most record label deals spelling out what happens if one or more of the artists (assuming that they are a band rather than an individual) leaves, are expelled, or if the band splits.

Music production agreements

The number of so-called ‘production agreements’ being offered to artists has increased dramatically over the past few years. Production agreements are similar to recording agreements but differ in terms of what happens to the recording.

Third-party agreements

When a production company successfully sells on the recordings to a record company, the artist will be required to sign an ‘inducement letter’ with the third-party record company. This is an agreement between the record company and the artist whereby the artist agrees that, in the event of default by the production company, the record company 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. It is also likely that the production agreement will include a clause such as 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 the less favourable clauses will be deemed to be substituted.

It is often difficult to fight against these clauses, but it should at least 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.

What’s a 360˚ Deal?

Unlike conventional deals, a 360˚ deal sees record companies looking after everything from management to live shows and merchandise. This is comfortable for some artists, but others might take the view that the label is taking a cut of lucrative revenue streams.