The recording contract series; (part 5) advances and recording costs

Advances and recording costs

In terms of the contract, most artists typically receive an advance (i.e. an up-front payment) on every new album they deliver, (although not always, if they have a bad contract). When an advance is paid, this will almost always, in terms of the contract, constitute a pre-payment of future royalties (which the artist only becomes entitled to if his records sell enough). In other words the company giveth, but the company taketh away later on, by way of the recoupment clause.

Precisely how much an artist will be paid in advance depends on a huge variety of factors including:

1. The record company's assessment of what a particular artist is "worth";

2. Whether there is more than one record company interested in the artist (allowing the forces of competition to "push the price up");

3. What the artist needs to survive (obviously a five-piece member group requires more than a solo artist);

4. The artist's track record;

5. The quality, experience and ability of the artist's management;

6. The negotiating abilities of the artist's professional advisors;

7. The record company's business practices (some record companies are more generous or flexible in negotiation than others);

8. The economic and/or business climate at the time, and in particular, the state of the music business and the sales potential of that artist's genre of music;

9. Whether the record company is a domestic, UK or American one. American record companies, for example are reputed to be "tighter" than their UK counterparts, whether the artist is signing to an independent, a major, a mini-major or an independent.

It is impossible to give any specific guidance on what a particular artist might expect to receive in advances. A new artist being signed to a "one album firm deal" might receive for the first album as little as R30,000 (e.g. most small rock bands) or as much as R1 million (such as larger, very popular afro-pop acts signing their first deal after already entrenching themselves on the live circuit, although this is indeed rare).

As far as I am aware, in the UK, the largest advance paid to a new artist thus far has been about £320,000. (In the USA, about $1 million). Of course, the figures are far higher for established artists. As far as I am aware, the largest advance paid to a South African artist was R1 million to Steve Hofmeyr, with the largest debut recording advance, a similar amount being paid to Mango Groove. (These figures could not be confirmed at time of writing).

An increasingly common trend is for labels to place a budget amount on each recording, and provide that the advance will be anything under that amount that the artist spends in recording. In other words, if the recording budget is R100,000 and the artist only spends R20,000, that R20,000 will be considered his personal advance. Put another way, the label will pay the artist an advance in the amount by which the recording fund exceeds the recording costs (including anticipated costs not yet paid or billed) for each album.

There is a very important distinction between "costs exclusive" and "costs inclusive" advances. Under the former, the record company pays the recording costs on top of the advances; with the latter, the recording costs are taken out of the advances. An offer of a R250,000 advance might on the face of it appear a very attractive offer but if this is a costs inclusive figure then, with an album quite possibly costing R200,000 or more to record these days, there would be a real danger that the whole advance is swallowed up by the recording costs. The result would be that there will be/is very little cash left to go into the artist's pocket. Clearly, from the artist's perspective, it is generally preferable to agree on advances that are costs exclusive.

If the label is insistent on only agreeing to pay a costs inclusive advance, then certain protections for the artist should be included in the agreement (for example, limits on the label's ability to re-mix the recordings and the artist's right to approve recording budgets and to control those costs). Remember - if your advance is costs inclusive, it is in your interests to keep the costs of producing the album down (without compromising on quality), so you should be given the right to be consulted on these costs before they are incurred. (On the other hand, if you want the money to be spent to ensure a higher quality product, then so be it, but remember that it will be deducted from your advance, or at very least, if the advance is costs exclusive, recouped from your royalties later).

The advance paid for the first album is usually a fixed sum of money or, alternatively, the advances may be calculated on a so-called 'mini-max formula.' Such a formula (also known as a "royalty earnings formula") typically provides that the advances for, say, the second album will be equal to two-thirds of the royalties earned from the sales of the first album with a minimum (or "floor") of X Rands and a maximum (or "ceiling") of Y Rands. The intention of such clauses is to penalise failure and reward success, i.e. the advance of subsequent albums is gauged by the success or otherwise of the preceding album.