The recording contract series; (part 14) Swings and roundabouts

The “Ten Per Cent Reserve”

Record companies often sell “on consignment”, which means that retailers can return what they do not sell. In order to cover themselves against this (and just as a general protection), record labels like to include a “ten per cent reserve” clause. In terms of this clause, the label is entitled to hold back a portion of your royalties, usually 10%, as a reserve, until all sales are verified.

Thus, you might, overall, only get paid on 90% of actual sales, since this figure is hard to track, and retailers are able to return records at any time. So there is a constant “grey area” and labels often tend to just hold on to the ten per cent indefinitely. Watch out for this. It is up to you to make sure that this reserve is liquidated (paid out) at regular intervals, and that you receive your entitlement in full. When negotiating the contract, do not allow for the reserve to be kept for more than twelve months.

Warranties

The record company will ask you to make certain warranties in the agreement (see definition under the ‘General principles of contract’ series of articles, in previous blogs). These can include warranties as to originality, capacity to contract, right to record the material furnished, ownership of copyrights, ownership of URL’s, brands, logo’s, band names, and so on. The issue of band/artist name is becoming a more and more thorny one, because, quite frankly, the world is running out of attractive words or phrases that can be used as band names. This happens all the time, and one must be careful when naming one’s band.

Creative issues – “Commercially Acceptable”

Of obvious importance is the fact that the label, whenever possible, will try to avoid a commitment to actually release the finished product. They will try to see to it that the decision whether the album is released or not, will depend on their own “acceptance.” By inserting this provision, the company can reject delivery of an album by relying on quite precise conditions contained in the clause. Usually, the company will want the contract to state that each album must be “commercially acceptable” (in its sole discretion). My advice to you is to try to have this clause omitted, or to tone it down, at the very least, to “technically acceptable by normal industry standards.”

By way of example, new artists are usually contractually required to deliver recordings which are “artistically (or commercially) and technically satisfactory” to the record company. The words “artistically” and “commercially” are designed to give the record company, the subjective right to reject the recordings (either in demo or even in master form), if they do not like them from an artistic point of view. This can be a terribly emotive issue (and one that may lead many Artists to sign to independents rather than majors given that independents often tend either not to impose these clauses on their artists or, at the least, are more sympathetic to the artist on an artistic level).

One Clause Depends On The Other (Swings and Roundabouts)

The recording contract needs to be seen in its entirety, because one clause may well define the effect of another clause, and any burdens imposed on you on one clause, should be tempered by a concession in another. You cannot see each clause as separate and independent, but rather take the contract as a whole and aim for overall fairness (some say you should “win on the roundabouts what you lose on the swings”). Everything in a recording (or any other) contract is negotiable, depending on the bargaining power of the parties. So negotiate. Where you have lost ground on one clause, use that as ammunition to negotiate for more ground on another.

A good example of this overall approach is the way you handle the creative issues clause. While this is not in strict terms, a financial issue, it is a very important one to most artists. If you have not done that well, for example, in negotiating percentages or recoupment, you should be aiming for greater creative control (unless you feel, of course, that the label has a better understanding of what the record should look and sound like than you or your manager do).

Can you imagine the invidious position you would be in as an artist if you were signed to a label that imposed a long restraint on you, could decide whether or not to release your product, owned the copyright in perpetuity and also had creative control over the releases? You may as well not be there (and you probably won’t) when you and your recording and career end up in “File 13.” This is not to say that you should be aiming for the record label to have no creative input.

This will hardly ever happen, because most labels, when investing in an artist, will want to give significant input into the direction taken. This may be a good thing, depending on which label you are signing to, or it may be a very bad thing. In the issue of creative control, the choice of label is crucial. In the Progressive Rock world, prog rock bands line up to get signed to labels like Radiant and Inside Out, because these labels are known for understanding and supporting the non-commercial nature of this music. Try getting this from Sony or Universal and the recording experience will be a very different one (until, of course, prog returns as a big commercial seller, which could actually happen, as in the 70’s where bands like Yes and Genesis worked with majors).

Creative control has been an issue for many artists. One example has been that of the artist NE-YO. The film “Behind the Music: NE-YO”, tells NE-YO’s story of having to deal with being moulded into a certain image that he did not like. “The label had a hardcore approach as to how he was going to be marketed. They wanted him to be a hip-hop artist, but he wanted to be an R&B artist.” NE-YO went on to cancel his record deal because he knew who he was and he did not want to be an artist in the style that “the machine” wanted him to be. The rest is history. Just like NE-YO, you need to have some creative control over your image if that is important to you.

The creative issues of most concern to artists can be summarised as follows:

• Selection and content of songs and music style; • Selection of producer • Selection of musicians • Selection of studio and engineer • Re-mixes, compilations, best/of’s and live releases; • Control of image, artwork and photographs • Control over videos • Selection as to public relations choices (e.g. what causes to be associated with)

Recording agreements will usually specify who (whether the record company or the artist/artist management) will control these factors.

There are several alternatives that you will find in various recording contracts, depending on who the artist and label are:

1. The record company has the unlimited right of control on all the above issues;

2. The record company has control, subject to having “good faith consultations” with the Artist;

3. The record company and the Artist will “mutually agree” on the creative issues and in the absence of a mutual agreement, where there is a stalemate, the matter might be referred to an arbitrator, or the record company and the artist might alternate with a “casting vote”. This means that the artist and label will meet on one or more of the creative issues, and try to reach a reasonable agreement.

Where they cannot agree, for example, on what the CD cover graphic should look like, the matter will be referred to an independent arbitrator (like another well-known music marketer not involved with the project). Or the contract might provide for another compromise: namely the “alternating casting vote”, whereby in a stalemate, the label will get the deciding vote on one creative issue, and the artist on the next, alternating as they go. This solution works well in many contracts;

4. The artist has complete and unfettered control over creative issues. This, of course, very rare. Almost every label wants to be involved to some extent in the creative process. Again, depending on what label we’re talking about, this may be a good or bad thing. But rightly or wrongly, labels feel they are experts in music marketing (they are supposed to be, after all) and want at least some control. There are very few artists that get complete creative control in their agreements, although it has, of course, happened with “bigger” acts who can pick and choose their label. But some “smaller” acts have also acquired complete creative control, due to more understanding independent labels involved, or simply because this was a non-negotiable term for them. Examples include British band The Mars Volta, Trent Reznor, Radiohead and the Beastie Boys. Robbie Williams has succeeded in this regard, as did Coldplay, who were given complete creative control in their contract with Capitol, but were for some time in limbo due to the sale of EMI (Capitol’s holding company) to Universal. Complete creative control by the artist is unlikely but possible. In South African recording contracts it is extremely rare.

Usually most agreements will contain a “mix and match” of the above alternatives. Because a new artist is very unlikely to achieve complete control in most cases, the new artist should be very happy with a mix of consultation and mutual agreement rights. At the end of the day, however, the artist’s working relationship with the people at the record company is the most important factor: if the relationship is good, all these issues will be discussed and worked out amicably without having to resort to the contract and its clauses; only if that relationship breaks down and/or either the artist or the label is unnecessarily stubborn on a particular point, should it be necessary to refer to these clauses and, if necessary, an independent arbitrator or casting vote