The recording contract series; (part 4) exclusivity and territory

Exclusivity

The company will undoubtedly insist on being granted, to the exclusion of all others, unlimited and exclusive rights to manufacture, distribute and sell all records produced from the master recordings, and the right to license other companies to do so. (Millions of contracts like this are in existence, and thousands of disputes have resulted - too many to highlight any in particular). But many companies, in addition to this, seek to grant themselves the exclusive right not to do any of the forgoing even if they choose not to. You should of course, resist this.

The Territory

It stands to reason that the label will try to reduce its risk and responsibilities everywhere in the contract. Included in this will be the markets in which the company is required to release the product. As a rule, therefore, labels will attempt to provide that they release the album in as few major territories as they can get away with.

Nevertheless, the label will still want to reserve the right to release the artist worldwide in whatever territories it sees fit (once things look good and the risk is reduced). This is not fair, and you should therefore negotiate hard to have your product released in as many territories as possible, as early as possible.

For new artists, the agreement will usually be worldwide but for established artists (and some new artists in a particularly good negotiating position), the territory may be limited. For example, the territory might include South Africa and Europe, but it might exclude North America, thereby allowing the artist to conclude a seperate agreement with another record company in that excluded territory. There are pros and cons to this.

If the local company has an American office or, at least, particularly good overseas (in this case American) licensing contracts, it might be better to sign a worldwide deal. (Remember, though, that if the label sub-licenses you to another company in a particular territory, the pie becomes smaller and your royalties are likely to be reduced, in order to help pay the licensee company).

Where the company does not have overseas offices, and does not have potential licensees, artists should be very aware of this and should try to limit the territory in the initial contract until the record company succeeds in proving its overseas marketing power. This would enable the artist to sign to different companies in different territories. This is called a "split-territory deal" (and should be distinguished from a licensing deal, where the record company, as opposed to the artist, appoints the foreign company).

A "split-territory" deal has another major advantage in that it gives the artist two seperate royalty streams, i.e. if sales in North America are high and the sales in the rest of the world are low, then the royalties on those North American sales will still be paid through to the artist rather than being used by the record company to subsidise the poor sales elsewhere. Split territory deals do, however, have their complications.

For example, releases in the different territories have to be co-ordinated; each of the two record companies will limit their contributions to artwork, video production and recording costs (i.e. they will try to get the other company to pay for these things); and legal fees have to be spent on the negotiation of several agreements rather than just one agreement. Generally speaking, split territory deals should only be entered into by artists that have enough strong management representation or organisational infrastructure to deal with these potential problems.

In practice, it often happens that an artist will sign a world-wide deal with a label that only has local marketing presence, but licenses the artist to other record companies in other markets where it does not have such presence. This raises the very common scenario of international licensing agreements.