The recording contract series; (part 8) The "promotional copies" scam

The "Promotional copies" scam

Importantly, most contracts state that royalties are only paid on records sold. (Alternatively, a certain amount of records will be distributed as "free goods" when in many instances the recording agreement provides that the record company may include these records in "special merchandising programmes." Now this is, in theory at least, a reasonable and necessary part of the business, since labels need to give a few legitimate copies to retailers and radio stations to stimulate interest and airplay.

At first blush, all seems well with this, however, in these instances, the less honest record company can manipulate these give-aways in order to see to it that it gets paid for these records, but not the artist. Now there is a very important point to note here: Selling 100 CDs at R85 is the same as selling 85 CDs at R100 from the label's perspective, but the best of all is declaring that only 85 CDs were sold, at R85, and paying the artist the lower PPD percentage on 85 CDs instead of 100.

The label hides the additional income in its overall figures, and this cannot be picked up by auditors, because as far as they can see, only 85 albums were sold - not 100. By simply giving the retailer, at the lower PPD, 15 CDs that are actually sold by the retailer, the record company is, in a very devious way, just discounting the price of whole shipment of CDs by 15% and avoiding paying the artist on those CDs. It makes up the 'gift copies' discount in other orders from the retailer. It's fraud, but it happens a lot.

Even where (as sometimes still happens), the artist gets his royalty on retail and does not benefit from an inflated wholesale price, the label can still get him by declaring the discount in "promotional product" instead of Rands. So, by maintaining the individual retail price, but giving away one free CD in 10, the company is in fact avoiding paying the artist on these so-called "free records" when in fact, this is nothing more than a concealed discount to the retailer, who increases his margin accordingly. This was why the BPI and the MCPS had their fall-out, because British artists finally woke up after 20 years of being ripped off. This is an old trick, and one to watch out for, because South African artists are not exempt from the dangers of dealing with the dishonest record label.

Royalty reductions for foreign markets and singles

It is also usual for the royalty rates to be reduced in the contract for (a) sales outside the home market and (b) physical singles. There used to be some logic to this, since foreign intermediaries would require their cut for handling the physical product, and it was more expensive (per song) to manufacture a physical single than a CD. But this did not make the deductions acceptable or right, even for physical product. In my opinion you should at least attempt to negotiate smaller reductions.

The practice started in the UK and spread to the rest of the world. But now the practice of halving the artist's royalty for "singles" and "foreign sales" has spread to online digital single sales, and its incomprehensible. There is no logical reason why an artist should have halve his income per song just because it is singles that have been sold online rather than an album.

Foreign territories are the same. With instant digital transfer of information over the internet, is there any reason why an artist should get less for an online sale in a foreign territory than for one in South Africa? Not that I can see.

Physical product exceptions should therefore be treated differently to online product exceptions, because there are different cost implications at play.