The recording contract series; (Part 10) Recoupment (continued)

Some of the recoupable expenses a record company can claim include;

Music Video Costs

With specific regard to video costs, a battle has been going on between artists and labels for some time now, and the artists have won a partial victory – it has become accepted industry practice now for only 50% of video costs to be recoupable against artist royalties, with the other 50% being borne by the label. So, on video production at any rate, this is the very least you should be negotiating for.

The composer’s publisher will have a few things to say about the synchronisation fees which he would like the label to pay, for use of the song on video. He won’t care if you are paying half of the synch fees (half of which come back to you anyway), but it would be better for you to negotiate zero synch fees for the music video, unless you wrote it.

Although artists have won some ground on music videos, there has not been similar success with other costs. Generally, the label will insist (particularly with new artists), on recouping all advances, recording costs, production fees, promotion costs, tour support, stipends and so on. A big question is whether marketing costs should be recoupable.

The answer, of course, is that they should not be. This, after all, is what the record company is there for. If marketing costs are to be recouped from royalties, then the record company amounts to nothing more than an extremely expensive finance house, or bank. Again, it would be better, and cheaper, to simply take a personal bank loan and set up a website where you can sell the records yourself. (As you know, many bands have in fact done this.)

While the label’s financial muscle and cash injection are vital, the record company needs to be more than just a lender – it should be an expert in marketing records, therefore clearly, marketing costs should not be recoupable, and you should fight hard against recoupment of marketing expenditure. This is their job, and the costs should come out of their cut, without recoupment.

Please note, however, that particularly in the USA, “independent promotion costs” are distinguished from marketing costs and they are generally recouped. “Independent promotion costs” are expenses relating to people independent of the record companies who are contracted on a project basis to get airplay and special exposure for the artist (like a PR). If this comes up, as far as I am concerned, you should agree to no more than a recoupment of 50% of independent promotion costs (after all, the label has been telling you it can fully market, right? Then why should they bring in an independent person in to do this for them?)

Going back to videos for a second: if you look at video costs in their correct light, it is obvious that music videos are, at least partially, marketing tools (and that’s why the artists have won the partial victory above.) By that logic, clearly the same, or better, should apply to pure marketing costs, all of which should be borne by the label.

Please note, however, that music videos should be distinguished from “long form videos”, e.g. one-hour concert videos for DVD or TV release. These should be seen as product, so the label will nearly always want to take the artist’s right to such releases, and will do a PPD royalty calculation on each sale, just like a CD.

Most record contracts remain silent on the issue of division of ‘VPL’ income, which comes from the public performance of artist’s videos (e.g. on MTV). I personally believe that the contract should provide that the artist owns half of the copyright in the video (since he generally pays for half of the production costs). But getting a label to agree to this will be difficult, to say the least. The record companies try to own and control VPL between them, and therefore keep all the income for themselves, as owners of the copyright.

They just keep quiet about this income, and yet RAV (RiSA Audio Visual – in the South African context) is out there grabbing all that income for them right now. If performers let them get away with this in the contract, they will have no legal right to a share of this money. This is in spite of the fact that the artist will have probably paid 50% towards the making of the video. (He will, of course, still get his composer’s royalties if he wrote the song, but that is not the point.)

VPL is like needletime for videos, and it seems to me that labels should be sharing this with all the performers, just as they should have a share of needletime. Videos (both promotional and long form), require special attention in the agreement. Deal with them in the contract – go through every possible scenario, thrash it out and look for an equal cut of the net income created by DVD sales, synchronisation, video licensing and VPL.