Contacts and contracts – why an artist can go gold one day and be flipping burgers the next (III)

Of course, the artists have to pay to make the record, albeit not directly:

All recording costs incurred by the record company under this Agreement with respect to masters as to which royalties are payable (or the proportionate share of costs allocable with respect to masters embodying the performance of the Artists hereunder and the performance of other artist or artists) shall be charged against royalties, payable hereunder. All advance payments made to the Artists by the record company under this Agreement shall also be charged against royalties hereunder.

So, as we’ve already seen, any costs the artists incur in making their “masters” get charged back against the artists at the rate of the royalty.

The document I have (the music industry expert comments), bad as it seems, is actually a renegotiated contract made after the artists became a mighty force in popular music. This made deciding the royalty rate a somewhat contentious issue. What the parties ultimately agreed to is actually pretty interesting. The earlier contract had had a sliding scale, and all music recorded before the new contract was signed and for a year after ward still fell on that scale, which started at 10.5 percent and went to 12 percent.

However, all music that was recorded after that time gave the artists “a royalty of twenty percent (20%) with respect to so-called singles and a royalty rate of eighteen percent (18%) on albums, except the royalty rate on sales of albums subsequent to [the theoretical expiration date of the contract] shall be twenty percent (20%).” Of course, albums that combined music recorded before the agreement accrued royalties at the old rate of 10.5 – 12 percent. Since the band broke up not too long after the 20 percent rate kicked in, they didn’t get to enjoy that greater rate for very long.

Now, one of the things I found most interesting about this contract is that it paid the royalty based on 100 percent. Back in the glass-and-lacquer days, only 90 percent of any given shipment actually arrived in sellable condition, so royalties were generally calculated based on 90 percent of sales. Long after the glass and lacquer disappeared from the recording scene, and even into the days of plastic-coated aluminium (i.e., CDs), that 90 percent figure continues to appear in contracts. So that 100 percent seemed like a bright spot in an overwhelmingly dismal contract until I read a few words further. Where most contracts say that they pay based on the domestic gross sales, this one paid on domestic net sales.

Now, in Hollywood, they have a phrase for percentage points paid on the net. They call them “monkey points,” because you’d have to be a monkey to take them. A careful accountant can make sure nearly any but the most profitable projects doesn’t show a net profit.

Beyond this, there is a grocery list of things on which the record company will not pay royalties:

– “No royalties both for records and publishing shall be payable on sales of promotional records.”

– “No royalties, both for records and publishing, will be paid by the record company on records given to distributors in the ratios of the normal industry practice on one hundred fifty (150) ‘free’ records with every five hundred (500) records purchased.”

– “No royalties… shall be payable with respect to records given away or furnished for promotional purposes on a nonprofit basis to disc jockeys, radio and television stations and networks, motion picture companies, distributors, reviewers, customers, and others.”

– “No royalty shall be payable with respect to records given to members of record clubs as bonus or free records as a result of joining clubs and/or purchasing a required number of records.”

This last one is particularly telling. One of the first things most artists do when they have the clout to renegotiate their contracts is to get that clause out of there. For example, Hootie and the Blowfish’s major label debut Cracked Rear View sold 16 million copies or so. They never made a cent from at least three million of them that were sold through record clubs because they had this clause in their contract. It was removed before they released their sophomore effort.