The recording contract series; (part 7) producer's royalty

Producer's royalty

If a third party producer is employed whether by the label or the artist, he will be entitled to a royalty of anything from 2% to 5%, usually 4% (often called "points") of the retail price of PPD. This royalty typically comes out of the artist's royalty, if the artist does not negotiate hard for the label to pay it. In many cases, producers will ask for an additional upfront payment, before they start to work on the album. (In the UK this upfront payment is usually £3000 to £5000, for average jobbing producers, and in the US, about $20,000. Naturally, a more experienced and acclaimed producer will want a whole lot more). The record label will try to see to it that this expense is recoupable.

Thus, the artist's royalty will be reduced by an amount equal to the producer's royalty, if the opposite is not negotiated. In essence, it is the artist who is expected to pay the producer royalty from his own royalty share (even though it may be the label that initially pays him and insisted on using him). So where, for example, a producer is paid a three percent royalty and the artist 15 percent, the artist will end up with an actual rate after deductions of 12 percent.

Don't forget that the artist still has to pay his manager a percentage of all his earnings, have his advances recouped and, in the case of a band, possibly split royalty income four or five ways. The producer, however, will be earning a healthy three percent from the very first record sold (and will probably have received an upfront fee as well). So I would recommend that you do not allow the label to recoup from the artist's royalty income any advances paid to the producer.

Interestingly, in the UK, producer advances seem to be the responsibility of the label, which requires the artist to share them with it equally, generally speaking. In the US and South Africa, there is no convention, and different contracts say different things, thus obviously you should push for these costs to be footed by the company, if you can since production is a recording-related cost and should correctly be borne by the label. I would go even further and say that the producer's costs should not even be recoupable, since it is generally the label's decision as to whether one should be appointed or not, in the first place.

The Producer's royalty - the label would love to get you to pay for this, so watch out for it. I have not included producer's royalties in the royalty calculations in the previous article for the sake of simplicity, but they are more often seen in the contract than not. Look carefully for them in the recoupment clause as well.

Some other royalty reductions to watch out for

In almost all record contracts, the standard royalty is drastically reduced for all sorts of arbitrary reasons that are not logical. For example, a recording artist will receive a reduced royalty if a record is sold in a foreign territory, if it is "budget priced", if the record is released in a "new format of technology," (these days, by download - be very careful of this one), or if the record is sold through a record club.

This "record club" issue, as it is known, was a big one for many years, but record clubs are now generally defunct. The problem, however, is that the labels have continued with the "record club" philosophy of reducing the artist's royalties for various reasons. The recording agreement will usually state that certain types of record only receive a half rate royalty or, indeed, no royalty at all.

The major labels used to enter into major cross-licensing deals to get their catalogues into record clubs, such as Reader's Digest and Columbia House Record Club (now gone). For this, the record labels took big advances that they did not share with recording artists, and also paid artists a reduced 50% royalty rate (or even as low as 40%). More often than not, the same "philosophy" has been applied to direct marketing TV programmes, mail order schemes, "bargain basement" deals, "budget priced records" and other special offers.

While these practices are old and jaded, they have reared their head again, on the internet. Of greater concern is that this long-opposed practice is now being extended into online download sales. For example, MP3.com paid each of the major labels about $20 milliion in advances on blanket licenses, yet it seems that these advances were not shared with the artists, who were simply paid their normal (reduced) royalties later.

The argument was that online sales create lower revenues that physical sales, like record clubs, that should therefore carry a lower royalty for the artist. Technically, this is true, but why should the artist bear this entire responsibility? And in any event, he is receiveing his percentage off a far lower base (e.g. the 70% of R9)

Certainly, the profit from a legal download site will be lower than that from an album sale (song by song), but the artist is already bearing this burden, with the label. Some record labels have been seeing this as an opportunity to slash artist's royalty percentages from this revenue stream, often without slashing their own cut. This practice is regrettable and should be stamped out.