The recording contract series; (Part 15) The record company’s obligations

Believe it or not, there are some, as long as you negotiate them and put them in the contract. However, when reading any recording agreement, you will undoubtedly be struck by the fact that these agreements generally impose fewer obligations on the record company than on the artist. Why? Because artists will sign anything to become famous.

The Release Commitment

This is the most important clause, as far as the label’s commitments are concerned. The main reason to sign with any label is to have your music released. And yet, you would be amazed to know that many record deals do not even impose on the label the obligation to release the artist’s material. In fact, the label will try its best to insert a clause clearly giving it the absolute choice as to whether to release any recordings made under the agreement at all. It sounds ridiculous, doesn’t it? Well, that is what you will find in many contracts, despite all the other clauses, including recoupment and cross-collateralisation, also operating in the label’s favour.

Why would a label choose not to release an album of good material? Other than just not liking it, or running out of money (the two most common reasons), there are several other possible reasons:

• The label is sold to or merges with another company. This is a very common occurrence. Remember it is not just the independents we are talking about here: where there were at one time six major labels in the late 1990’s, today there are just three;

• The artist’s A&R representative or management leaves the label. An A&R executive’s personal passion for an artist is a vital cog in the record industry’s machinery. With staff changing like the wind at most labels, the loss of an A&R person often leaves the artist in the wilderness, or facing a future lower down on the label’s list of priorities;

• A “bigger” artist on the label’s roster decides to put out an album, shifting the label’s marketing priorities and budget. Do not think you, as an artist, are only competing with artists at other labels. In a far more real sense, you are competing with other artists signed to your label, for money and attention; this happened to singer Sky Ferreira, whose label refused to release her new album because it did not want to release two female singer/songwriter albums at the same time;

• The labels feel the artist is still being developed, and the music is not yet ready for radio or streaming. Labels that sign artists prematurely do neither themselves nor the artists any favours, especially when the resulting album is not good as the demo. Sometimes, new artists are teamed up with big-time producers or co-composers, and the chemistry is not there, resulting in the label reconsidering the release. This actually happened to Lady Gaga who, before signing to Interscope, her current label, was signed to Def Jam with no resulting release;

• The label wants to “create a demand” for the artist. Human psychology is a funny thing – people always want something that they cannot have, and music is no different. What better way to create a demand than by making people wait for an anticipated release, especially with the hype that the internet makes possible? It is a frustrating strategy, which, when labels get it wrong, can cause damage. The film industry does this too.

• The artist has been mismanaged, or management falls out with the label. If the label and the manager do not see eye to eye, the artist has a problem. If the management is weak, the artist has a problem anyway.

• The label is too focussed on its competition. An artist’s release can easily be delayed because of competition between the labels. If a certain kind of sound is suddenly in demand, as happened with Grunge, labels might rush to sign similar artists – indeed, in the 1990’s, just about every band from seattle was signed overnight. Labels do this either to profit off these similar-sounding bands themselves, or (much worse) to simply sit on them and claim them. Many labels have been known to sign artists just to get them off the market. It is despicable, but true.

What can be done about all this?

Due to the inequity of this situation, artists and their management are starting to reject this state of affairs, and many (but by no means all) agreements now contain a so-called “Release Commitment”. This is a clause that obliges the label to release the product, at least under certain terms and conditions.

The starting point, of course, should be to oblige the record company to release each album. (This is very important, because, although the nature of the release might not be what the artist expected, he does at least get the guarantee of a release) But, of course, the questions will be asked: how many copies, where, and over what period of time?

And very importantly, you should also negotiate a “reversion clause” - i.e. that the copyright in the recording reverts to you if the label does not release the album according to the terms of the release commitment. The label’s reply, of course will be that it paid for the recording, so why should it release the copyright to you without being paid an “override fee” (Perhaps by the label you intend taking it to?). And herein begins the negotiation. It is up to you to get the best release commitment that you can.

Let’s explain this by way of example. Release commitments can include the following possible terms:

1. Release within a home territory (South Africa), in a quantity of say 10,000, within 90 days of the master being delivered, and in a foreign territory (e.g. Nigeria), in a quantity of say 20,000, 180 days of the master being delivered; failing which:

1.1. the term of the agreement should automatically end so that the artist is free to sign to another record company in the territory or territories where the release did not take place as stipulated; and

1.2. a reversion of the rights in the unreleased album goes to the artist in any and all territories where release did not so take place, in order that another record company may release it, in return for the artist paying the record company an agreed “override” royalty of say 3% of PPD (bearing in mind that the record company will have paid for the album to have been made).

2. A release within the “major territories”, in quantities listed per territory in an annexure, within, say ninety days of the local release (which shall take place ninety days from furnishing the master), failing which a “reversion clause” similar to that described in 1.2. above should apply.

Other Commitments

The artist may also request the record company to agree to additional obligations such as:

1. a commitment to make, say, at least two promotional videos per album;

2. a commitment to spend at least R100,000 in marketing the first album, increasing compoundly by 10% for each subsequent album;

3. a commitment to conclude licensing deals in other territories listed, at particular royalty rates;

4. a commitment to achieve secondary exploitation of the recordings listed and any other provisions which might be suitable for the artist in that particular phase of his career.

Discontinuance and insolvency

When recordings go out of print or are no longer available, this typically happens either because the label has decided that continuing to sell (or distribute) the record will not be profitable, or (in the case of a licensing deal) the licensing agreement with the artist has expired, it has been known for labels to stop distribution as a punitive and vindictive measure, if an artist fails to comply with his contract, or as a strategic measure if negotiations for a new contract prove difficult.

Record labels can also become bankrupt just like any other business, and their masters and copyrights are then usually sold or traded by the liquidator as part of their assets. Occasionally these are purchased by the artists themselves, but when not, who knows what the future holds for the artist? Record labels are often sold, even majors like EMI (sold to Universal in 2012, leaving many artists, including Pink Floyd and Coldplay, in a state of flux).

Recording artists signed to a failed label can find themselves in limbo, unable to record for anyone but a company that is out of business and thus cannot sell or distribute their records, and with their existing works unavailable for sale. Even worse, they might end up indirectly “signed” to someone they know nothing about, or is not even in the music industry.

For this reason, it is vital to include a clause that reverts the copyright in the recordings to the artist if the label goes insolvent. It is also a good idea to make provision for the sale of the label as well: when one label buys out another (or a label is purchased by an outside party), any existing copyrights and contracts held (and masters, if owned by the label) normally go with the sale. This might benefit the artist, but not always, therefore it is better to give yourself the choice in this event.

Discontinuance and insolvency are as much about relationships as they are about contractual safeguards. It is important to provide for this in the contract. If you are signing to a label, and you have built up a relationship with the executives, it can be very damaging to your band if that label changes hands and new faces are suddenly staring you across the table. A good example of this was the band Little Caesar.