Recoupment is a business concept regarding repayment from royalties otherwise payable to a party which has a very significant impact on most every contract in which one party is paid an advance and another pays the advance. It is an important term which is included in artist production contracts, recording and distribution contracts, as well as producer’s contracts. Simply put, recoupment is a contract term through which the party advancing money is entitled to pay itself back. How it pays itself back, what it pays itself back for, from where, and when are, the more fundamental aspects.

Oftentimes, a production company may pay an artist an advance upon signing, and then commit itself to pay for the recording costs. The production company will pay itself back (reimburse themselves), from royalties and other sums that are payable to the artist by the production company from record sales and other income. No further royalties shall be payable in any event unless and until all advances have been recouped. This means that the artist will pay the production company back, for the entire production cost from royalties otherwise payable to the artist, before the artist receives any future royalty income.

Any advances paid to an artist, producer or production company, will almost always be recoupable by the party paying the advance. Advances do not only consist of money paid upon signing of the contract. Many production contracts have language that states that all costs, sometimes referred to as “recording costs”, shall constitute advances recoupable from royalties payable hereunder. Be sure to watch these figures carefully. They should all be enumerated and listed as “advances” on the royalty statement.

Recording costs are all the costs incurred in the course of producing and recording masters which includes the costs of studio time, musicians fees, union payments, instrument hire, producers’ fees and advances and the costs of tape editing, mixing, remixing and mastering, and other similar costs customarily regarded in the industry as being recording costs. In some instances a recording and/or distribution company will advance the artist, producer or production company sufficient funds, subject to an approved budget, to produce masters.

Music video production costs are generally recoupable, although many production companies will agree to pay itself back only half from artists’ record sales; the other half only if the produced video earns itself income. Be sure to watch these figures on your accounting statement – – mistakes do happen.

In the event an artist fails to appear or is late in appearing at any recording session, the production company may be entitled to treat the costs and expenses as additional advances which are recoupable from royalties. These costs may be bumped into one recording cost entry on the periodical accounting statement.

In some instances, a recording/distribution company may engage independent promotional personnel for radio, sales or publicity purposes. Whether or not the company is required to do so by contract, it will seek to have the costs recouped from royalties. Thus, the artist may be amazed by negative numbers added to their accounting; remember, this is where the “recoupment” gets its power.

By: Bruce Colfin and Jeffrey Jacobson

© 2007 Jacobson & Colfin, P.C.