Sound Recording Deals and Production Contracts

By Bruce E. Colfin

In this article I review some of the basic provisions which should be included in most every recording deal. The recording deal or production contract is the basic agreement between artist and those individuals (producers, engineers, studio owners) who feel strong enough about the commercial potential of the artist to invest their time, money and sometimes expertise, to sign the artist to an exclusive production contract for the purpose of recording master tapes of the artist’s musical performances. These small independents who then own the master tape and exclusive rights to the artist are generally the parties who seek “THE RECORDING DEAL” with a major or major independent recording and/or distribution company for the recording services of the artist. Sometimes, these small independents take the greater risk or duplicating and distributing their own product.

This article is not intended as the definitive review of recording contracts. It is intended as a primer to give those artists or neophyte production company executives, a better grasp of the variables at play and definitions of some of the terms of art. In future issues I will explore more terms and conditions.

Generally, unless the recording artist has some clout, leverage, or a track record, the recording or production agreement is a one sided affair. The production company is usually responsible for paying the costs of the production of master tapes, these costs included recording costs, musicians, payment to any unions, all studio tape, editing, mixing, mastering and engineering costs; all costs of travel, per diem, rehearsal halls, non-studio facilities and equipment, rental and transportation of instruments; all costs occasioned by cancellation of scheduled recording sessions; and all other costs and expenses incurred in producing master recordings which are customarily recognized as recording costs in the recording industry.

All of these production costs are subject to recoupment by the company from the artist’s royalties before the artist receives any further money. This means that the production company gets to pay itself back, from the artists’s royalty income from record sales. In some instances this may include the artists’s publishing income, if the production company has a publishing affiliate to whom the artist is also signed. If the artist did not receive an advance upon signing or delivery of the master, then it may be a long wait for payment of royalties, if there is any payment at all, even if the record sells. Of course, if the records do not sell, the artist is generally not responsible for payment of the production costs because the production agreement should be at the company’s financial risk. If you are the artist, or his representative, be very cautious of the company that makes the artist responsible, from other sources of income, or as a loan, for the payment of production costs as part of its contract.

Even though the artist is eventually responsible for the pay back of the production costs, it is generally the company’s choice of studio, material to be recorded, producer, engineers, other artists, arrangements, and accompanying artwork, amongst other important considerations. Finally, the production company will seek, in its sole discretion, to determine whether or not a master tape is technically and/or commercially satisfactory. If it is neither, the company will require the artist to continue until recording until it is satisfactory. Of course, it is much easier to determine if a recording is technically satisfactory. When I represent the artist, I try my best to remove commercial satisfaction as a condition of the company’s acceptance of a master. It is too subjective. Who really knows whether a recording is good enough to be presented for sale. The music marketplace and its fads are too unpredictable.

How long does a production agreement last? The production company obviously wants as long a time as possible to have an artist tied up so that it may recoup its costs over time and possibly make a profit. It also wants the ability to continue producing the artist in the event a major or major independent recording and/or distribution company signs the artist directly or through the company as a result of the recording of the masters. Quite often, an artist does not become popular until its second, third or subsequent albums. The production company does not want to lose the opportunity to earn from any of the artist’s albums, including the resurgence of sales due to new found popularity.

Many production agreements call for an initial time period or term, plus a series of consecutive options which may extend the contract for successive time periods which may total as many as seven years in some instances. The initial term of time, as well as the option periods, are usually no less than one year each, but may be more to include the time necessary to record the subsequent albums. The options to extend the contracts are generally exercisable, if at all, by the production company. This gives the company a means to terminate the agreement. The options may be exercised automatically unless the company gives the artist notice to terminate, or they may be exercised by notice to the artist. If the artist has any degree of leverage he or she will try to require the production company to provide proper notice of its intent to exercise its option to continue.

There is generally a commitment of a minimum number of recordings to be produced and recorded by the artist during each period. This minimum may be increased if the production company deems it necessary. Live albums are usually not considered to satisfy the minimum recording commitment. Of course, if I represent the artist I argue to include live recordings if they are released. I also seek to have the production company provide a commitment to release in the marketplace recordings

What are points? Everybody has talks about them but exactly what are they? I generally define them as a percentage of a percentage. The first percentage being the royalty per dollar paid on records sold at retail price. The second being a percentage (between 85% and 100%) of the amount of records actual sold at retail. The second percentage and the “point” system came about because in the old days, when disc records broke, artists where paid based upon that breakage factor. So, if the artist is being paid eight (8) “points” and the record company is paying royalties base upon ninety (90%) percent of the records actually sold at retail price, then the artist is entitled to 8% x 90% or a royalty of 7.2% of the amount received from records sold at retail price.

Quite often, a production contract will state that the artist and the production company will split the entire amount actually paid to the company from the third party recording and/or distribution company. This gives the production company the opportunity to pay the artist based upon the amount of income it actually receives instead of guaranteeing a particular percentage of net sales of records at retail. Of course, as I stated above, the artist will not receive any royalties until the production company recoups its costs and expenses.

Copyright 2008 Jacobson & Colfin, P.C.

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