Recording Agreement Explained Part 3: Royalties

Okay, so the recording contract. The thing most musicians dream and strive for. So well done, you are now presented with one. It is important not to get carried away. First off, THE RECORD COMPANY IS NOT THE ENEMY, so approach with caution not angry scepticism. You need to take a deep breath and consider what all that legal jargon is trying to say. I mean, your music is your baby; you want it taken care of.

The Money Thing:

Yes, this is the thing that makes the world go around and you will be brimming with excitement at the prospect of all those royalty payments.

The Royalties will come from either Net Receipts from the exploitation of the recordings or a percentage of the price the records are sold to dealers (i.e. distributors). Now, the amounts the label and the artist will receive will vary according to the way in which the recordings have been exploited to make a profit and the percentages agreed between parties. On a Net receipts type of deal, the label and artist will usually get a fairly even split regarding the actual sale of the albums or EP, usually 50/50. For other ventures, such as synchronisation licenses and printed sheets of music, the proportion of profits will usually be higher for bands, around 70% of the Net Receipts.

The basis of this split is that the label has invested their time and effort into making the recording itself, its production, distribution etc. The synchronisation deals rely more heavily on the talent of the artist themselves and final product, which impresses the third party licensee.

As mentioned, another way of account royalties in respect to record sales whereby a label offers the artist a percentage of the dealer price for every record sold (PPD – Published Price to Dealers). For this type of royalty accounting a label will customarily pay for promotional costs from his share of income as opposed to ‘Net Receipts’ type of deals where all costs are recouped from income before applying the 50/50 split. As guideline, a basis royalty of more than 18% of the dealer price calculated on 100% of records sold with deductions for packaging of no more than 20% would be considered OK.

There are some catches as to when an artist will receive these royalties. If a band receives an Advance before the recording is made, you may be able to afford Tesco finest sausages but it ain’t free money. It’s an advance on future earnings! Additionally, and this is when reading the document is very important, Budgetary Expenses provided by the record company for promotion and other things may be due back to the label. In both instances, this money is effectively owed to the label and will need to be earned back through net receipts until paid in full at which time the artist will start to receive the royalties.

Sorry, killed your money buzz.

by Julia Bell and Juan Lopez.

Image source: Yale Law Library

[notice_box]For quality recording contract templates please visit The Music Law & Contracts website[/notice_box]