The recording contract series; (part 1) introduction

It's just amazing, the mystique that surrounds "getting signed" by a record company. It is strong - so strong, in fact, that musicians dream about it all through their childhoods and into their adult lives, waiting for that "great" day when they will sign a document that will (in their minds at any rate) "break" them and "make them into stars". When that day comes, they break out the champagne and celebrate.

Well, I don't want to be the bearer of bad tidings, and far be it from me to burst anyone's bubble, but here are the facts: over 90% of record agreements fail and are cancelled; fewer than 20% of signed recording contracts actually produce a commercially-released album. And with those that do, the contract itself is in many cases, more bad news for the artist than good, due to its terms. Hardly any artists make any sales royalties whatsoever on their first album. Many end up financially indebted to the record label. It's generally not a pretty picture for new artists. And the reason? People seem to be prepared to sign anything to get a record deal.

I know that most artists need the involvement of a record company to get a commercial release (actually this is less so today than ever before). But the problem is that new artists get so starry-eyed that they tend to just look at the percentages (if that), and accept the other terms of the record contract, whatever they are. Due to their perceived lack of bargaining power, most artists do not even attempt to negotiate these terms, and herein lies the problem.

Generally, it is an A&R executive that "discovers" an artist and makes him a lot of very attractive promises. But the fact is that most A&R executives (at major labels at least), do not really have detailed contractual power. They are generally empowered to give "deal memo's", which are usually nothing more than letters of intent saying that a contractual offer will be made at a certain time (with some exceptions).

Picture the scene: you've been touring for a few years. A young A&R guy approaches you at a gig one night and says he's been following your progress and would like to chat to you about signing you. He's with Mega Records, a major label that has signed many huge artists. Extremely nervous, you have a few drinks with him and start talking about the "possibilities of the future". He tells you he "really believes in you and your music" and you know what? Maybe he truly does believe what he is saying to you. But all he can give you is the deal memo, which, I repeat, is often nothing more than an expression of intent to enter into a contract later or, to put it correctly, an invitation to do business.

Please note, however, that by way of exception, a deal memo can be transformed from an invitation to do business into a binding offer and contract, if the label puts a clause in to that effect. This happened to Ugandan rapper Keko, who, in July 2012, signed a 'deal memo' with Sony that had a clause in it, stating:

"The parties acknowledge their intention to prepare and negotiate in good faith a more formal and detailed agreement that shall contain the above provisions as well as other provisions that are customary for this type of agreement. Unless and until such more formal and detailed agreement is entered into this deal memo shall be and remain a binding and enforceable agreement between the parties replacing any prior or collateral discussions, negotiations or agreements."

That last part of the clause changed what would be a non-binding invitation to do business into a binding offer and (when signed by her), a contract, because Keko had signed it before consulting her legal counsel.

But presuming that the 'deal memo' does not have a clause like the above in it, it is simply an invitation to do business. With your knowledge of general Principles of contract from the preceding article series, you know that so far we do not have a contract, so all the glitz, glamour and idle promises made by the A&R executive are worth very little.

The real offer to contract comes when you finally sit with the label's legal department or CEO (maybe the A&R guy is there, maybe he's not), and the contract is binding. If you do not, you have made a counter-offer. Now, not wanting to be a downer, you sign without understanding what it is you are signing. (Hey, how bad can it be? We got signed!!! ) and then, depending on what contract you have signed, the nightmare begins.

My job is to help you avoid this nightmare, because you don't have to go through it. (And no, if you know the series of articles on the General Principles of Contract, I haven't forgotten the law of misrepresentation - it's just that the contract will undoubtedly protect the company against this, probably saying that "no reliance should be placed on prior statements by A&R or anyone else that are not reflected in the agreement." So bang goes the protection that the common law of contract normally gives you under misrepresentation.)

It is quite common for an artist to earn no money at all from recording royalties, and end up in debt to the record company. This is why the generation of other forms of income via touring or publishing and merchandising deals are so necessary. This has happened to hundreds of artists. For example, Toni Braxton, one of the biggest names in R&B, had to declare bankruptcy in 1998 even though she sold $188 million worth of CDs. She was bankrupt because of a prejudicial recording contract that paid her less than 35 US cents per album and cross-collateralised her earnings.

Now don't get me wrong - there are in fact some very decent record companies out there, and even some reasonable record contracts. But they are quite rare, and almost always applicable to an artist who has learned something about contract law, knows about music contracts and negotiates like a rabid hyena. (Independent labels (although not all) seem more prepared to give fairer contracts than the majors have traditionally been prepared to do, but the problem with this is that most successful independents end up being bought by the majors, so you're back at square one when the contract expires).

If you do not understand and negotiate each and every clause in your record contract, I can almost guarantee you that you will regret it later. So please pay attention.

A recording contract or record agreement is the contract that governs the relationship between an artist and the record company that will market (and distribute) that artist's musical and (usually) video output. The recording agreements being issued by the major record companies are now very long and involved documents, sometimes stretching to hundreds of pages. They are formidable documents, difficult at times even for experienced music lawyers to comprehend. While this series cannot make you into one of these lawyers, it will, hopefully, put you on the right path and help you understand the more important issues involved in the negotiation of Recording Agreements.

Major issues

An artist about to enter into negotiations for a recording agreement should look carefully at every term, but especially the following clauses:

1. "The Term" - (used in a different sense to the general contractual one above), i.e. how long the agreement will last, and whether the Recording Company will acquire "options" over you;

2. "The Product Commitment" - what the artist will be obliged to record for the Record Company;

3. "The Territory" - whether the agreement is worldwide or only for specified countries, areas or regions;

4. "Advances" and "Recording Costs" - what the artist will be paid in the form of advances (i.e. payment of money by the record company on signature and before delivery by the artist of the masters), and payment of the costs of recording and producing the master, together with other related costs;

5. "Royalties" - what the artist will be paid in the form of record royalties, what those royalties will be worth, and when the royalties will be paid;

6. "Recoupment" - the amounts that the record company will deduct from royalty payments to the artist;

7. "Creative issues" - The all-important question relating to who will have artistic control over the product;

8. "Record Company obligations" - what the record company will or should be obliged to do in terms of the agreement;

9. "Ownership" - The question as to who will own the recordings;

10. "Restrictions" - the question as to whether there will or should be any limitations imposed on the Record Company's freedom to exploit the recordings;

11. "Group Provisions" - if the artist is a group or a member of a group, what will happen if he or anyone else wants to leave the group and/or wants to record a solo album;

12. "The controlled compositions clause" - a special provision relating to the limits placed on the Record Company's payment to be made for each controlled composition (in mechanical royalties), i.e. a ceiling placed on mechanical royalties paid by the Record Company to the artist, who also happens to be the composer;

13. "Needletime Provisions" - what will happen if needletime split can be varied by the label? Who will pay it to you?

14. "Warranties" - The promises and guarantees that the Record Company will request you make;

15. "Termination" - how, when and at whose option will the contract come to an end?

And in the following weeks, we will undertake to discuss the major issues to be aware of in these clauses as well as other issues specific to the artist's recording contract.