Maryland Bar Bulletin
Publications : Bar Bulletin : May 2009

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Entertainment and Sports Law :  

Representing entertainment clients – recording artists, in particular – has the potential to be extremely fun and rewarding. However, before negotiating a recording contract there are several important provisions you need to understand.

Term of Agreement and Options

The first main point of a recording contract is the length of the agreement. The contract commences when signed and may expire six to 12 months after the artist has delivered his creative material, or it may expire six to 12 months after the commercial release of an album. A recording artist is normally required to deliver between 35 and 55 minutes of creative material to fulfill his contractual obligation.

Recording companies usually insist on options that may extend the term of the contract another four to six albums. If a new artist is in high demand, the initial contract may be a two-firm deal in which the option for the second album will be exercised if certain sales milestones are reached with the first album. Option terms usually favor the major label to the detriment of the artist. Recording contracts for artists are analogous to NFL player contracts. Most NFL player contracts are a series of one-year, non-guaranteed contracts that may be terminated by an NFL team at any time. This emphasizes the importance of an NFL player’s signing bonus, since this is his only guaranteed compensation. In the recording industry, an artist’s signing bonus or advance is also his only guaranteed compensation.

Advances and Royalties

Recording companies are essentially music industry venture capitalists who only invest in your client, the artist, because of the potential for a significant return on their investment in the not too distant future. It normally costs several hundred thousand dollars to produce a finished commercial album. Due to the enormous costs associated with creating an album, the label is intent on recouping their investment as quickly as possible. Therefore, you must be particularly aware of all the costs that the label is able to recoup before your client receives a royalty check. These costs may include recording, video and producing costs, promotional expenses, equipment purchases, product packaging, touring expenses, etc.

Social fads, the state of the economy, timing and sheer luck play critical roles in determining commercial appeal, so it is highly recommended that you maximize your client’s initial advance, since there is a high rate of failure in the industry and a possibility that the advance may be the only money that your client realizes for his work.

Advances are normally paid upon signing the initial contract and when the artist reaches various milestones outlined in the contract. A new artist may receive no initial advance or several hundred thousand dollars. Like almost every answer a lawyer provides, the reason for the wide range is that “it depends” on numerous factors that may include the popularity of the artist and his potential commercial appeal. Make no mistake, the record company will recoup every single cent of the advances paid and its other expenses before your client sees his first royalty payment.

Royalty percentages, like advances, have a wide range. Generally, a new artist’s royalty percentage will range from 10 percent to 16 percent of the wholesale or retail price of an album. As with the advance amount, the royalty percentage depends on numerous factors. It is highly recommended to include royalty escalators in the agreement. These clauses will protect your client if the album is a commercial success. Royalty percentages may change depending on the format of the finished product and may be different for sales outside of the United States.

Some Other Points to Consider

Every recording contract contains warranty and indemnification clauses. In these provisions, your client warrants that the work he delivers does not violate or infringe upon the rights of any other party, and that if he is found to have violated these clauses he is fully responsible for all costs associated with the breach. As you know, it is easy to file a groundless lawsuit and that they can be very expensive to defend. Therefore, it is highly recommended that you negotiate terms that state that the record company is responsible for legal expenses defending your client’s delivered work until there is a legal judgment against your client for infringement.

It is also advisable that your client own his official domain name and website. It is important that your client retains these rights and is able to transfer them to another label in the future without any encumbrance.

Do not forget to sample your client’s music and watch their live performances. Watching your clients perform live is a great way to create a stronger bond with them, and they will appreciate you taking a personal interest in their music.

Bradley S. Shear is the Managing Partner of the Law Office of Bradley S. Shear, LLC, in Bethesda, Maryland. His principal areas of practice are general business matters and entertainment and sports law.

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Publications : Bar Bulletin: May 2009

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