This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Methods and Practices Part 2: Standard Recording Agreements (Part 3)
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Del curso dictado por West Virginia University
Today’s Music Industry
60 calificaciones
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De la lección
Recording Industry
Conoce a los instructores
Darko VelichkovskiMusic Industry Program Director
Music Industry
So, an artist who received a 20,000-dollar advance, with a label that spent a total of
220,000 dollars of the recoupable expenses on the project, will under a standard recording
agreement, as we have seen, receive his first royalty after about 330,000 albums were sold.
If 330,000 ever sell, of course. Until that time, the only funds the artist has to show
for in this deal is the 20,000-dollar advance. And may be the only funds, period, if the
company does not sell more than 330,000 albums of the project. And how about the label? If
more than 330,000 albums do not sell they are losing money too, right? The artist and
the label are in this together, right? Well, not exactly.
Let’s see what the company’s income is if, let’s say, only 100,000 albums sell,
and the company is contractually and officially unrecouped and “in the red” with this
project. The album is selling for 10 dollars retail, so we have one million dollars in
retail sales (100,000 unit sold = one million dollars). If the company has spent 30 percent
on distribution (which is kind of standard), that’s leaves us with 700,000 dollars. Minus
220,000 dollars they spent on the things we listed earlier – the artist’s advance,
recording production, and so on – brings us to 480,000 dollars. Minus whatever else
you might throw in – promo material, graphics work, publicity, marketing – let’s give
it another 180,000 dollars for that, to make it nice and even, and we have 300,000 dollars
in the bank still. Of profit. On an album that is contractually and officially unrecouped
and in the red, and will remain so until 330,000 units are sold. By the way, if that many units
sell, you can just triple all this math and see what the company’s profit is at that
point, where the artist is only about to start receiving his 73 cents per album sold. Let
me help you with that. That’s about a million dollars of profits for the label before the
artist has seen a single cent of the artist’s royalties.
And that’s not all. If the album does not recoup, meaning if the artist’s royalties
from which the recoupment is collected do not add up to the total amount of the recoupable
expenses for the project, the standard recording contract includes the clause which defines
and enables the company to do the so-called cross-collateral recoupment. Which means,
that no recoupable expenses are tied to a particular artist’s album under contract,
but to all the artist’s albums under contract. I know it’s not immediately obvious what
this really means, but stay with me here, and you’ll see how amusing it is, again
in a sad commentary on humanity kind of way.
For the simplicity sake we will stay with the recording contract example we already
used, and let’s stay with that hypothetical 100,000 units sold after all is said and done.
As you remember, in our example, at 100,000 units sold the company is not contractually
recouped…although it made 300,000 dollars in profits, but that’s beyond the point
here, and doesn’t count. What does count is that it has collected about 73,000 dollars
of official recoupments from the artist’s royalties (100,000 units sold times 73 cents
of royalties), and since the recoupable expenses are 220,000 dollars, as you remember, the
company is still owed 147,000 dollars from the artist’s royalties. 220,000 minus 73,000
is 147,000 dollars still owed. But no more units of that album are selling. No problem.
Enter the cross-collateral recoupment clause. Which gives the company the right to collect
the recoupable expenses for this album from the artist’s next album sales. Cross-collaterally.
So instead the accounting for the next album starting from zero again, it will start with
147,000 dollars owed to the company, by the artist, for that previous album, before even
the first unit is sold of the new album. So everything else being the same, the new album
would have to sell not over 330,000 units before it is recouped and the artist sees
the royalties, like the first album had to do, but over 530,000 units.
How is that? Well you already know how we came up with over 330,000 units having to
be sold for the original recoupment. We’ve done that math earlier. Here, in addition
to that, we have 147,000 dollars owed by the artist to the company from the first album’s
recoupments, which comes to over 200,000 additional units. 147,000 dollars divided by the artist’s
royalty of 73 cents, comes to 200,682 units. So with this new album the company has to
sell over 530,000 units before it is contractually fully recouped, and before the artist starts
receiving the royalties. Which is again highly unlikely, and the only funds the artist we
see is probably an additional 20,000 dollars advance, if he receives such an advance for
this album, like he did for the last one. So all in all, the artist has 40,000 dollars
total to show for, from both albums. 20,000 dollars advances times 2, right?.
And how about the label? What’s the score there in this scenario of the second album
and the cross-collateral recoupment? If the second album sold also just 100,000 units
like the first one, and all the expenses stayed the same, we can just double what the company’s
real profits are at this point. Which is about 600,000 dollars. Of course, officially, the
company is unrecouped and in the red, remember? It needs to sell over 530,000 units of the
second album to be officially recouped. So, although in our scenario the first album sold
100,000 units, and the second album sold 100,000 units, and the company made over 600,000 dollars
in profits, the artists has only received 40,000 dollars in advances and has not seen
a single cent, of the artist’s royalties, from the sales yet.
If you pushed that math all the way to the edge, where the artist is about to receive
the royalties, but has not receive them yet – to 330,000 units sold of each album, remember?
– the numbers become tragi-comical. Just about triple everything, and there you have
it. If each of the two albums really sold 330,000 units, a bit more than three times
of our original 100,000 units scenario, the company would have about 2 million dollars
in profits, while the artist still didn’t receive a cent from the artist’s royalties.
Courtesy of the sheer magic of the standard, major-label-recording contract. So if you
are ever offered a recording contract by a major record label, or have to consider one
on behalf of your artists, keep all of this in mind before you sign on the dotted line,
and make sure you know exactly what you are signing and what all the implications are.
Is there any wonder the artists are unsatisfied and seek better contracts? Is there any wonder
the majors are going though hard times, since this is how they have been treating their
artists contractually for a long, long time now? Don’t you think it’s time to start
changing these arcane and often unreasonable contractual standards, and stop selling the
bridges in the Arizona desert as great bargains? And we are. The recording contracts are changing
and becoming more realistic and reasonable. Throughout the industry. Especially in the
indies world. We’ll look at that issue a little closer, later on in the course.
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