Table Of Contents
Introduction
01) Definitions
02) Term
03) Recording Services
04) Distribution Agreements
05) Recording Procedure; Delivery Standard
06) Recording Costs
07) Rights
08) Name and Likeness; Merchandising
09) Sideman Exclusion
10) Side Producer Exclusion
11) Marketing Restrictions
12) Release Commitment
13) Advances
14) Tour Support
15) Compensation
16) Royalties
17) Musical Compensation Licenses
18) Accounting
19) Warranties, Representations, Restrictions and Indemnities
20) Legal and Equitable Relief
21) Notices
22) Failure of Performances
23) Assignments
24) Miscellaneous
25) Conclusion

Introduction
Most aspiring artists dream of a recording contract with a major label, believing they will have then won the lottery and will go on to make millions of dollars. But the reality is there is a long tough road ahead even for those artists that do eventually acheive those goals. I always jokingly tell clients to that getting a record deal is when their problems and hard work are just beginning. No matter how strong your feelings about big corporations and remaining independent, and despite it being the age of the Internet sales and CD burning, there is still no substitute for signing to a major label. As a result, the single most important thing you can do as an artist, regardless of if you are signing to one of the world's biggest or smallest labels, is to make sure that you are competently represented by legal counsel (and not just your dad's friend's neighbor, or someone who has done some entertainment deals). There are lawyers who specialize in music agreements, and because of the complexities and unique provisions of music agreements it is crucial you obtain the representation of someone experienced in handling such agreements. Never ever sign anything because you trust someone, or have a good feeling, etc.

This analysis is NOT intended to replace professional counsel; rather, it is to educate artists, attorneys, students, and anyone else who is interested on the basics of a record agreement. I always insist that my clients read and understand every contract from the first draft -- well before it is signed -- and I encourage them to ask detailed questions as to how it actually all works. If you are unfamiliar with a record agreement, some of the principles may seem outrageous or unfair, but be assured that these deals have grown up along with the industry, and that most major corporations do things very similarly. You may read quotes in the newspapers from artists that are suing their labels trying to get a better deal, saying that record contracts are slavery, etc. Be aware to a large extent it's all a publicity ploy to help them renegotiate. (If they really believed what they said, they'd want off the label all together, not just a better deal.) Another thing to remember is that record companies move very slowly when it comes to changing the structure of their deals, as we will see from some of the historical discussion.

It is important to know what you can and can't negotiate over. Even then, you and your lawyer need to pick and choose your battles. In this article I will try to outline what you can and can't get out of a label, what points you should insist on, and what not to worry about. Another thing to remember is not to get hung up on the numbering or structure of an agreement, or that some label's forms will have certain language or restrictions in one place, while others may have it in a different section.

I learned an important lesson in law school from a professor who is currently the head of a major label's legal department: when negotiating an agreement, never nitpick someone else's form, even if it's confusing and makes no sense. Don't change the names of terms because you don't like them unless there is some material reason to do so. Often with independent label's forms, the agreements will not be as well drafted as we'd like them to be. You will get further by working with what you have, and respecting the drafter and the other side, even if you disagree and think they are clueless. And remember that signing the deal is only the beginning of what we hope will be a long and productive working relationship -- so there is no point in having the negotiations become adversarial.

A note on this form: The particular agreement we are using is only 26 pages, although it contains most of the same provisions of major-label agreements. Major-label agreements can be as long as 60 or 70 pages, so don't be shocked if you get a first draft and it's more than twice the size of this example. Each form is slightly different, and when there are variations from the standard I will discuss those as well. To make it easier to understand, I will include the provision of the agreement we are discussing first, and then the analysis will follow.
Parties
[Record Company]

Dated as of
[Artist]
______________
Dear [Artist]:
The following shall constitute the basic terms (the "Basic Terms") of the agreement between you and [Record Company] d/b/a [Record Company] ("Label") regarding your exclusive services as a performing artist for the purpose of making Master Recordings embodying your performances for exploitation by Label throughout the "Territory" (as defined below) during the "Term" (as defined below). You are sometimes hereinafter referred to as "Artist". All references hereunder to "you and Artist" and the like shall be deemed to refer to you.


The very first line will list the parties to the agreement. This sounds straightforward, but can actually be quite complex. First of all, it is extremely important that you and your business representatives are clear on exactly who it is you are signing to, how deep their pockets are, and what their legal liabilities are. Artists may be signing to a major label, an affiliate label wholly or partially owned by a major company, a label that is distributed through a major label, a production company that has an A&R deal with a major or indie company, or an independent label (see other parts of this site for a discussion of the differences between these types of entities). Often an artist will come to me with a deal and can't exactly explain who the corporate entity is, or who's legally responsible. Find out before you agree to anything. Anytime you have the choice, always try to bind the biggest company you can to the deal. If you are signing to a smaller label owned by or distributed by a major, make sure that if the label folds, you are still signed to the major. This can be in the major label's interest as well. While they will want the option of getting out of the contract if the production company or boutique label folds and the artist is unsuccessful or very unrecouped (see discussion herein), they will also want to have desirable or successful artists bound under contract to them.

Similarly, when you sign with a label you can do so in several legal forms. For example, you can sign individually and directly, or you may establish a production company to furnish your services, or perhaps form a corporate entity that shields the band members. Sometimes an artist will set up a boutique label (which may be owned by either the artist, the label, or jointly). In any case, the time to get your business entity in order is before you sign a deal, and before there is any money to argue over. One of the reasons cited for U2's long-term success as a band is that they agreed when they were teenagers they would split all of the songwriting royalties equally, regardless of who wrote the songs (thus avoiding an imbalance of power and finances that has destroyed many other bands).

If you are in the position to sign a record deal, you should have not only experienced and competent legal advice, but also the advice of a business manager (accountant) who specializes in the music business. I almost always recommend that an artist set up a production company for the purposes of touring and signing to a label. Sometimes these should be two separate companies, but for most artists one will suffice. If you sign to the label as a corporate entity, LLC, or partnership, the label will require you, and other group members, to affirm the agreement personally, usually on an exhibit to the long-form contract. In some cases it may be simpler to sign directly to the label, but I'd rarely suggest this, and only allow a client to do this if they had no personal assets, weren't married and had no children, and were signing to the label as a solo artist.

Another issue for non-solo artists is to decide which band members will actually be signed to the label. This greatly depends on the way your band's business is set up, as well as the dynamics of the group (there are other useful and detailed discussions of this on the StarPolish site). In short, the label will usually want to sign all members of the band, and include provisions that if any member leaves and starts a solo career or different band, the label has a right of first refusal on that project. However, if there are two main members in a group, with rotating back-up, it may make sense to treat the other members as employees or independent contractors, and not have them signed to the label or be entitled to royalties.

Typically, band members who are not signed as part of a group are paid a salary or retainer instead. For some musicians this is a preferable situation, since the amount of money they will make is not speculative, and they are not subject to the financial risks that royalty-bearing artists are. Keep in mind that all members that are signed will be entitled to royalties (if earned), consent where required, etc., and if your band members are really more hired hands, you might not want them to have any say over matters concerning your agreement. Group dynamics and personalities are extremely important in this situation. To avoid creating any bad blood or problems later on, this is something that should be worked out early in a group's career, and not first brought up when the band is about to sign a record deal.

Minors
This is as good of a time as any to note a basic contract principle: Minors under the age of 18 can't legally be bound to personal services contracts. This would mean any artist under the age of consent would be able to nullify the contract when they came of age. New York and California and Tennessee will allow minors to be bound by record contracts provided the court ratifies the agreement after it is signed. This is a pain to do, but worth it to the record companies if they wish to sign minors.
Date
The date of an agreement isn't anything you need to give any thought to -- it's pretty self-explanatory, right? Wrong. The effective date of the agreement triggers various issues within the contract that we will discuss below, so when agreeing to an effective date make sure you think through the implications of that date (for example, when your first project is due, when options are due, or when various payments are due). Also, since record contracts are exclusive and the label usually owns all of the masters made by the artist during the term for perpetuity, it may or may not be in the best interest of the parties to back-date an agreement to include demos that were made for the label, or previous independent LPs, etc.
1. DEFINITIONS
1. DEFINITIONS.

As used in this agreement, the following terms shall have the meanings set forth below:

Sometimes the definitions are at the beginning of an agreement, but often they are at the end. Either way, I recommend reading them first the first time you are going through an agreement. I'm going to go through each one here and explain them, although some will be discussed in more detail in the applicable section. Many of these are standard and not negotiable, which is why they are set apart from the body of the contract. Many of the ramifications and issues with regard to these definitions will be discussed in the applicable sections, but its necessary to understand the basic terminology from the outset.

Masters
(a)     "Master Recordings" or "Masters" - each and every Recording of sound, whether or not coupled with a visual image, by any method and on any other substance or material, whether now or hereafter known, which is used or useful in the recording, production and/or manufacture of Phonograph Records.

Notice how broad this language is, and how it tries to cover any possible technology that may exist in the future. A Master is typically what we would describe as one recorded song, or one track. But Masters covers audio/visual works as well. A master could be a demo, despite its misleading name. Just know the definition is drafted to cover every recording of any kind.

Legal Entities
(b)      "Person" and "Party" - any individual, corporation, partnership, association or other organized group of persons or legal successors or representatives of the foregoing.

A corporation can be a legal "person." (See my discussion above about the parties to the contract).
Records
(c)      "Records", "Phonograph Records" and "Recordings" - all forms of reproductions, now or hereafter known, manufactured or distributed primarily for home use, school use, jukebox use, or use in means of transportation, embodying (i) sound alone; or (ii) sound coupled with visual images.

Again, the definition is as broad as possible to cover any new technology issues. Older contracts specified the companies' rights to make "records," and so when various formats came into being, such as cassette tapes, or CDs, it was arguable whether the labels had the rights to release the music on different formats. This issue has gone to court in the film industry, where there was a vast financial windfall being made by the studios when the home video market was invented and movies were then reissued for that market. In the past, physical copies of the films were never sold, so it was unclear how those rights granted applied. As the music and film industries have grown up, they have learned to contract for ALL rights in the works to avoid any future confusion for technologies and markets not yet imagined.

Advance
(d)      "Advance" - amount recoupable by Label from royalties (excluding mechanicals) payable to you pursuant to this Agreement.

An Advance is any money the label gives the Artist that is recoupable. Recoupment works like this -- the label has deep pockets and will advance you money in order to do certain things, such as make a record, money to live on while you are writing songs, money to buy musical or recording equipment, money to pay your musicians and tour manager when you are on tour if you can't afford it, etc. You need to pay back the advances out of your royalty earnings from record sales before you actually receive any checks from the label for record royalties. So as long as you are unrecouped, (meaning in debt to the label), any sales will go to pay off your unrecouped account balance.

Note the "mechanical" exclusion in the definition. If this is not included in a first draft, your lawyer should automatically add it in. (click here for an in depth discussion of mechanical royalties.)
Cross-Collateralization
One of the most important concepts in any record agreement is "Cross-Collateralization". Essentially, cross-collateralization means using earned income from one part of a deal to pay off unrecouped balances in other areas of the same agreement rather than being paid as earnings to the artist. Repeat after me: there can be absolutely NO cross-collateralization between record royalties and mechanicals (the exceptions to this rule will be discussed, but they are limited.) Also, there should be NO cross collateralization between a publishing deal and a record deal, even if they are with the same company. There also shouldn't be cross-collateralization for a leaving member if the label picks up their option, though this might be a more difficult point to win in negotiation. (click here for a further discussion of leaving members.) The label will say that any recording cost overages are to be cross collateralized against any earnings under the agreement, but again, you want to try to limit it to not apply to mechanical royalties. There will be cross-collateralization of record royalties between different LPs on the same contract, so if one project loses money, but the next earns some, you still have to pay back the previous unrecouped balance before the royalties will flow through.

Composition
(e)     "Composition" - a single musical composition, irrespective of length, including all spoken words and bridging passages and including a medley.

There are different statutory mechanical rates for different lengths of songs. Record agreements today routinely contain a waiver of the song length, meaning they can pay based on the cheapest rate no matter how long the particular song actually is. This only works when the songs are controlled compositions (click here for more information). However, when trying to charge back an artist for mechanical overage (click here for further detail) this limitation will again be important. Unfortunately, this is not negotiable.

Recording Costs
This provision is important to understand in general -- all costs for making the record are considered an Advance, and are therefore recoupable against record royalties. Some costs that are not Recording Costs -- and therefore not recoupable -- are manufacturing costs, label overhead costs, advertising, most marketing costs, and shipping charges. Artwork and color separations should not be considered recording costs and should not be recoupable. If you see these defined as Recording Costs, immediately have them stricken.

While all recording costs are Advances, not all Advances are recording costs. This could come into play in the "pay or play" clause (click here), and often when the label is doing reissues after the term, the question arises as to what they can and can't charge back to the artist's royalty accounts as Recording Costs. Earlier record agreements (up until, say, the 1980s) did not list out what was included in recording costs, which caused some confusion -- thus the list of itemized recording costs. If I am representing the Artist, I will try to add the right for the artist or their representatives to approve all recording costs in advance in writing. Usually you can get this during the term, but the labels will not agree that it apply after the Term, as it is often too restrictive and prevents them from exploiting their assets in a reasonable manner.

Album
(g)     "Album" - one (1) twelve-inch, 33- rpm long-playing Record or the equivalent thereof, or two (2) or more such Records, packaged as a single unit or the equivalent that contains no less than ten (10) Masters recorded hereunder and is no less than thirty-five (35) minutes in length, or such other definition of "album" as may be contained in the applicable Distribution Agreement.

Note that there are minimums for the number of compositions and length of the record but no maximums. This also specifies that if the Artist elects to release a so called "multiple album" or "double album", it only counts as one record (you will, however, need the label's permission to do so). This is relative toward reducing the Artist's recording commitment, toward the controlled composition clause, and other issues.
EP (Extended Play)
(h)       "EP" - A Record embodying four or more (4) Compositions that is not an LP.

Fairly self-explanatory: anything between a single and LP is an EP, and reduced royalty rates will apply.

Licensees
(i)      "Licensees" - includes, without limitation, any Distributor and any of Label's licensees.

This is to give the licensees and distributors the benefit of certain provisions in the agreement. Sometimes this is more specific and includes foreign subsidiaries of the same corporation, though it will arguably apply to them anyway.

Delivery
(j)      "Delivered" or "Delivery" - the actual receipt by Label and Distributor of fully mixed and edited Master Recordings made hereunder satisfactory to Label and Distributor and ready for Label's and Distributor's manufacture of Phonograph Records, and all necessary licenses, consents and approvals.

As certain rights are triggered from Delivery, this is very important. Artists who used samples, which can often be costly and time consuming to get "cleared" or approved, will not have their projects considered "delivered" until all the rights to the samples are cleared. The standard for "delivered" is unclear in this form, and I would probably try to clarify it if I was representing the artist. Leaving the standard vague is better for the label. Most agreements will say one of two things describing delivery: one, the record either needs to be "commercially satisfactory" (which gives the label a lot of leeway in using their judgment, so if they don't like it for any reason, they can consider it not delivered) or two, the record is "technically satisfactory" (which is a much less subjective standard, basically the record would have to be of the appropriate technical quality to be releasable.) However, my experience is that while many lawyers will argue over a commercially versus technically satisfactory standard, the bottom line is that if the label isn't happy with a record it doesn't matter what standard the agreement specifies -- and if they decide to reject it, they will find a way to do so.

Some labels routinely send an official Delivery Notice either to the artist or to their own files so they can keep track of these dates. Labels are sometimes hesitant to do this either as a standard procedure or specifically in certain cases because often after the delivery notice is sent and obligations are triggered, something will then arise that becomes a problem with the project. Examples include the label staff being less than enthusiastic about the project and wanting to do some additional recording or mixing, or the artist claiming that no samples were used when in fact some were included in the project and now require clearing (or even worse, that certain samples were unable to be cleared, or that someone believes something in the record infringes the rights of third parties). While I can't change the definition of delivery, I can often clarify whether the label is agreeing to send notice of delivery, and I can often try to change dates that are triggered by delivery (such as options) to be triggered by something more concrete. One additional complication is that without a delivery notice in the file, years later -- when none of the same people are working at the label and the A&R administration files have long been sent to storage or destroyed - it will be nearly impossible to determine when a particular record was deemed delivered. However, release dates are readily available in the company's computer system and elsewhere on the Internet.

Other things that may also be specified for acceptable delivery in various forms are that the tracks be recorded during the term, that the record not contain any songs previously recorded by the artist, and that the individual songs have a minimum/ maximum playing time.

Container Deductions
(k)       Container Charge" - the applicable percentage, specified below, of the basic royalty rate applicable to the Records concerned:

(1)      Analog or vinyl Records - fifteen percent (15%).

(2)      All other Records - twenty-five percent (25%).

(Container Charges shall not be deducted for Singles packaged only in stock paper sleeves.)

Container Deductions began with the advent of prerecorded cassettes, because plastic cassette cases were much more expensive to produce than the traditional cardboard and paper sleeves that vinyl LPs came in. Since cassettes were a "new technology" at the time, the labels started taking deductions for the extra packaging costs. In the age of cassettes, the standard container deduction was 15%. When CDs came to the market, vinyl LPs were still the main format of music, and cassettes also were a large percentage of the market. Plastic jewel cases were much more expensive than even the cassette cases, and they were only made in Asia at the time. As a result, container deductions on CDs went up to 25%, which somehow stuck in the agreements and is now standard across the board. (If someone offers you a lower rate, don't argue!) Now that CDs are the dominant sales format, and the jewel cases are cheaply made in the US, it doesn't make as much sense to take the deductions, but they are standard in most contracts. What has happened over the years is that as the accounting of royalties has gotten more complex, the royalty rates have gone up, essentially leaving the penny rate or the actual percentage of sales the artist earns in proportion, or even higher. As I will discuss below, I don't care how the royalty rate is calculated, I care much more what my clients are actually getting paid.
Controlled Compositions
(l)      "Controlled Composition" - a Composition which is written or composed, in whole or in part, by you, or is owned or controlled, in whole or in part, directly or indirectly, by you or by any Person in which you have a direct or indirect interest.

There are many important implications to Controlled versus Non-Controlled Compositions. (click here to skip to the Mechanical Royalties section.) If you'd like to read through this in order, just remember that a controlled composition doesn't have to be written by the artist -- it could be written by the producer, or published by a company the artist has an interest in, and it is still considered a Controlled Composition in any record deal.

Singles
(m)      "Single" or "Single Record" - a 7-inch or 12-inch Record (or the equivalent thereof) embodying thereon not more than two (2) selections on each side, or such other definition of "single", "l2-inch single" or "extended play single" as may be contained in the Distribution Agreement.

The royalty rates that are paid for singles and EPs are different than those paid on LPs, thus the distinction.

Records Sold
(n)       "Records Sold" - "Records Sold", and "Sales" shall be deemed to include One Hundred (100%) percent of those Records shipped hereunder for which label is paid and which are neither returned to nor exchanged nor treated as returned to Distributor under Distributor's then current policy. The following are specifically not Records Sold or Sales:

(i)      Standard free or bonus Records given away together with Records Sold for monetary consideration. If Records are shipped subject to a discount or merchandise plan, the number of such Records deemed shipped and Sold shall be determined by reducing the number of Records shipped by the percentage of discount granted.

(ii)      Free or bonus Records given away pursuant to special sales plans in addition to free and bonus records specifically provided for herein.

(iii)      Records which are shipped subject to a discount or marketing plan, or respecting which a discount was granted in the form of "free" or "bonus" Records are returned, the returns will be credited between royalty bearing and non-royalty bearing Records in the same proportion as Distributor's customer's account is credited.

Distribution of Records on a "no-charge" basis shall be as follows:

(i)      With respect to Albums, fifteen percent (15%) of such Records in any analog configuration and twenty percent (20%) of such Records in any non-analog configuration are deemed distributed on a "no-charge" basis; and

(ii)      With respect to Singles, twenty-five percent (25%) of such Records are deemed distributed on a "no-charge" basis.

(The calculations of Records deemed distributed on a "no-charge" basis pursuant to the foregoing clauses (i) and (ii) shall be deemed applicable, and such Records shall not be royalty-bearing, regardless of whether or not any such Records are in fact invoiced to customers on a "no-charge" basis.)

During World War II, shellac to make records was not available, as all industrial resources went toward the war effort. As a result, the formula to manufacture records was changed, and the records were subject to much greater breakage than before. As a result, the labels were paying royalties to the artists on records that were returned broken and not sold. That was the genesis of the long tradition of passing breakage charges along to the artist. At some point for convenience it became standard that 15% was automatically deducted for broken records, rather than actually counting them individually. To this today, there are automatic deductions for returned goods and free goods. The definition of Records Sold will be slightly different at each label, but the idea is to not agree to more than 15% deductions whenever possible. (Or simply adjust the royalty rate upwards to compensate.) Note this definition says "100%" of records sold, and then goes on to list the deductions. It's important to read the language carefully.

Free goods
Artists aren't paid royalties on promotional copies given away for free to radio stations, writers, and stores for in-store play. Labels and distributors typically offer discounts of about 15% to retailers and wholesalers. Now rather than take the hit themselves from paying the artists full royalties and discounting the product 15%, the labels realized its much smarter to give away 15% of the product for free, and not pay the artists royalties on these. In theory everyone benefits from this, but in reality the retailers and the labels are the primary beneficiaries. This is done industry wide, and there is no point in arguing over it. (If the free goods are at an unreasonable percentage, then I would insist on reducing them to standard levels.) This is one of those things royalty-tracking computer programs are automatically set to include (like container deductions) that are very difficult to reprogram.

2. TERM
2. TERM.

(a)      The term of this agreement (hereinafter, the "Term") shall commence as of the date above and shall continue for a first Contract Period ending on the date seven (7) months following the initial release in the United States of the Album delivered during such Contract Period, but in no event later than the date twelve (12) months following Label's receipt of notice of Delivery of all Recordings constituting such Album.

(b)       Label will have five (5) separate Options (each, a "Contract Period Option") to extend the Term for additional Contract Periods (sometimes, hereinafter, referred to as "Option Periods") on the same terms and conditions applicable to the first Contract Period, except as expressly noted to the contrary in this agreement. Label may exercise each of those Contract Period Options by sending the Artist a notice not later than the expiration date of the Contract Period which is then in effect (the "current Contract Period"). If Label exercises a Contract Period Option, the Option Period concerned shall commence upon the expiration of the prior Contract Period and shall continue until the date seven (7) months following the Initial Release in the United States of the Album Delivered in complete satisfaction of the Artist's Recording Commitment for that Option Period but in no event later than the date twelve (12) months following Label's receipt of notice of Delivery of all Recordings constituting the Artist's Recording Commitment for that Option Period.

(c )      Notwithstanding anything to the contrary contained in this paragraph 1, if Label has not exercised its option to extend the Term for a further Contract Period as of the date on which the current Contract Period would otherwise expire, the following shall apply:

(i)      You shall send Label written notice (an "Option Warning") that its option has not yet been exercised.

(ii)      Label shall have the right to exercise the option at any time until the date five (5) business days after its receipt of the Option Warning (the "Extension Period").

(iii)      The current Contract Period shall continue until either the end of the Extension Period or Label's notice (the "Termination Notice") to you that Label does not wish to exercise such option, whichever is sooner.

(iv)      For avoidance of doubt, nothing herein shall limit Label's right to send a Termination Notice to you at any time, nor limit Label's right to exercise an option at any time if you fail to send label an Option Warning in accordance with subparagraph 1(c )(i) above.


This is often one of the hardest provisions for people to understand fully. The basic gist of how the term is calculated is by project and not by time, because the recording process and promotion process can be an indefinite and hard-to-measure period of time. Going back almost 100 years ago to the earliest days of record companies, agreements were for a certain number of "sides," or songs. Back then, the recording process was considerably simpler and more immediate -- artists went into studios owned by the labels, usually in the same building as the label's offices, and played the music live, which was captured on a single monaural track. This practice continued through the forties and even until the 1950s. At that time, most record contracts were not even exclusive -- artists could record for many different record companies, even at the same time.

By the 1950s, however, contracts were more typically for a one- to five-year period, and were exclusive. Whatever recording an artist did during that time period would fall under the agreement, though some of the agreements would require a certain amount of recordings from the artist. Back then, the A&R staff picked the songs, hired the musicians, and arranged for the studios. They were the original producers, and the artists for the most part were simply singers or musicians. There was a cachet to labels signing big stars to exclusive deals, and the labels themselves were brand names. As the sixties wore on, many deals became for longer terms -- typically 2 to 5 years -- and sometimes for certain specific projects, such as the soundtrack to a film or a live record.

Rock "n" roll and the growth of the touring business changed the music business completely. Back in the Beatles' day, they could make and release several records a year (see other parts of this site for an in-depth discussion of the recording and promotion process). During the '70s and beyond, a large worldwide touring market developed, which extended the promotional process for each record for greater lengths of time. And as recording technology became more sophisticated, the length of the recording process greatly increased. In the era of mono or two-track stereo, there wasn't much that could be done to extend the recording process. In the era of digital recording, with sampling, 48-track recorders, Pro Tools, etc., the possibilities are endless -- and thus the typical recording time has been vastly increased.

As a result of these changes in the process, the way the term of the contract is calculated has changed, and today it is typically a combination of per-project basis and a time line. Having been responsible for tracking option dates at a major label, I often have a problem with the way this language is sometimes worded. Often it will be a certain number of months from the date of either acceptance or release, whichever is later -- and which is hard to pinpoint. I prefer to use the very specific language of "initial official U.S. release date" (sometimes even a release date can be "soft" and difficult to determine, see below for a discussion of release commitments), as that is more easily obtainable (even nine months later), or some other concrete date. Some contracts have additional language that states it is the end of the month following the nine months after release, so that all options are due at the end of the month. But again, this confusing language can easily make for errors of calculation, and more than once an artist and label have disagreed on when an option is actually due. I always try to simplify this language in whatever form I'm working with, so that there is no possible miscalculation or confusion of an option date by either side.

It can take a little as a few weeks to make a record, or longer than a year. Once a record is completed and accepted by the label, it can take anywhere from two months to a more standard four to six months before the record is released to the public. This may sound like a bad thing for an artist, but the more time the label has to set up the promotion and marketing of a record, the greater chance it has for success (for example, many publications have long lead times, so to get press to hit near a record's release can take as much as six months in advance). Therefore, it is often in the best interest of the artist to let the label take their time getting the promotional plan together. Typically the period between delivery of a record and its release will be very busy for an artist, as he or she will be taking publicity photos, designing artwork, doing interviews, possibly making videos, playing warm-up tour dates, etc. Additionally, because there are certain times of the year when records are not traditionally released (November through mid-January), or because certain release dates might be crowded with too many other releases, release dates are often pushed back, sometimes with short notice. Because of all these variable factors, the term of a record contract can be extremely difficult to measure.

Most record deals are for one record firm, occasionally two if the artist has a lot of leverage. Then the label has additional options for up to another seven (7) records. Sometimes the one or two options are for two records, or if an artist gets past a second or third option, then each additional option is for two records. The option is one-sided to the benefit of the label; the artist contractually has no option, as when they sign the deal they are agreeing to all of the options that the label may decide to exercise. On one hand this is extremely unfair to the artist, as the label gets to decide whether to keep the artist, and the artist has no say about whether they wish to stay signed to the label. But it's not as bad as it sounds, as most artists are thrilled to be recording for a major label and they understand the option process going into the deal. It is a rare but possible situation when an artist has some success but doesn't like the label and would like to be released. Since personal relationships are involved, if it came to that often a label would have no choice but to go ahead and release the artist from the agreement, with the provision of receiving financial compensation and profit sharing from the new label. However, the idea that a struggling artist potentially gets up to seven chances to be successful is usually a good thing, as it gives the artist the opportunity to build a career. The bad news is that most artists signed to major labels will not get past their first record, and of those that do, rarely do they get past the second one. Because the time frame for two or three projects can be a long one, often the artist has changed direction, sometimes the label has changed direction and staff, and the people who signed the band in the first place are no longer employed there.

Certain obligations, discussed herein, will survive the term. For example, the label's rights to your recordings, and therefore to commercially exploit them, usually survive in perpetuity. However, so does their obligation to account for sales and pay the artist royalties. A Re-Recording Restriction (click here for an explanation) also survives past the term of the agreement, although for a limited period. Because recording for a record label is a bit like having a child -- and in many cases you will be connected to a label possibly for the rest of your life -- use your gut instincts and don't sign to a label you have a bad feeling about. Make sure you are aware of any rights or obligations that survive the term of the agreement.

Let's take a look at the language above in 2(a). The option for the second LP (the date the label would need to commit to the artist to making a second LP, and be possibly obligated to pay certain money) would be triggered on a date seven months after the release, but no event later than 12 months from the acceptance. Now this second date is sometimes impossible to determine, unless the label is in the habit of sending acceptance/delivery letters to the artist (a practice many labels are wary of, for reasons discussed above). The problem with this language is that if a record is delivered in, say, October and the label does not put out any releases from November to January, it would take a few months to set up the record, and it might end up having an May release date. The option would then be due seven months hence - November -- which would be more than 12 months from the acceptance of the record. The idea of the 12-month limitation is in part to give the artist a limited amount of time they must wait to move forward with their career. A label wants as much time as possible to make up its mind about keeping the artist, and wants to see if the record is going to be successful. Because it can take up to year to promote the record, the option period may be triggered too soon. As an artist, all you can do is insist on a firm, easy-to-calculate date, although the labels loathe changing their standard language.

Also, it's important to keep in mind that in practice, a label usually ignores the second part of the provision unless it is in their favor, giving them an extended period to exercise the option. This becomes significant if the artist is responsible for sending a notice of a missed option. Labels will frequently ask for an extension on the time to exercise the option, and generally it would be silly for the artist not to grant one, because it means the label is still deciding whether to give the artist more money and another chance at success. Artist's managers sometimes don't realize this, or see it as an opportunity to get more money from the label, which might be necessary -- but in my experience, the artist is better off agreeing pleasantly to any option extension request and not arguing about it, which otherwise may generate bad feelings at the label. The only time a missed option becomes a big deal is when the artist is very successful (i.e., a huge pop success) and is looking to either get out of a current deal, or would like to obtain more favorable terms. Then a missed option by the label is fair game as leverage for the artist.

Getting back to our sample agreement, Paragraph 1(b) tells us this deal is for five additional options, which would make it six records all together if it were to run full term. (Although most agreements will also contain standard Greatest Hits package provisions, which provide that if the artist makes X number of records for the label, they agree to provide two new tracks for a Greatest Hits package.) With regard to GH packages, I find it is usually in the artist's best interest to limit the number of GH packages the label can produce without your consent, especially after the term. Labels will not want to do this because it limits their ability to exploit their masters, but an artist's reputation can be deeply cheapened by many re-packaged GH albums (i.e. Elvis Presley) in the marketplace. Also, especially during the term, the artist can negotiate an advance for a GH package, and insist that it be flowed through regardless if the artist is recouped or not. Some agreements might specify that live projects be excluded from the LP commitment. An artist known for live performances, or who has been on the label a long time, will typically have a live record, or even two, as part of the required number of LPs to be delivered.

Paragraph 2(c) is the previously mentioned fallback for the label in case they make a mistake in tracking options. Because the option date is hard to calculate, in recent years the labels have shifted the burden to the artist, and given themselves a notice cushion if they miss the option. Paragraph 1(c)(iv) is a sneaky termination clause, which gives the label the right to terminate the agreement at any time. I would not agree to this as an artist, at least without some additional provisions and limitations such as the right to take any unreleased current masters with the artist, a specification that the label may not release any thereto recorded yet unreleased masters without the artist's consent, or a payment of some sort due in order to terminate the agreement. Note: This is where knowing your client and what is important to them can really make a difference.

Limits on the Term
Historically, the term of an agreement could be extended indefinitely if the artist failed to turn in a record. As in a famous case involving Olivia Newton-John, an artist could come back to the label years later and demand a large advance to make a record because the old contract was still in force. In another case, Tony Bennett tried to get out of a contract by delivering all the records left on his deal at once. To prevent this, the language will require each record under the deal to be delivered within a certain amount of time and at a certain amount of time from each other. If it isn't, the label will not be obligated to the artist, and typically sends out a termination notice.

California Seven-Year Statute
Among the other protections California provides its residents is the famous so-called Seven Year Rule. This rule is still being tested in the courts, and many cases are settled specifically to avoid a ruling on the issue, which the labels fear may not go in their favor. It is likely that the issue will eventually be decided by the California Legislature, but until then, this is the deal: In most industries, a company can't sign an artist to a personal services agreement for more than seven years. This rule, often called the Olivia DeHavilland Act, was originally written to free actors from long-term contracts under the old studio system, and to prevent their careers from being destroyed if the studios chose not be flexible or cooperative. In 1987, however, the recording industry petitioned and received a "special exemption" from the law that made the number of albums delivered to a record label, rather than time, the primary factor in deciding the conclusion of a personal service contract. As a result, an artist who had completed the required number of albums could be held to their recording contract for longer than seven years. In addition, the labels won the right to sue artists for damages resulting from undelivered albums. This is really an issue only when the artist is a California resident and is successful and sells records, yet is unhappy on a label and wishes to get out of their deal, since the label won't want to let them go under those circumstances. If they are happy and choose to stay, they have essentially waived the issue. Parties can also get around the issue by striking a new deal after the seven years so the term begins to run again. As many successful artists will renegotiate their agreements several times over the course of a relationship with a label, this issue is often moot.

3. RECORDING SERVICES
3. RECORDING SERVICES.

(a)      During the Term of this agreement, you shall furnish to Label your exclusive services as a recording artist for the purpose of making Master Recordings pursuant to the terms hereof. Except as otherwise set forth herein, during the Term of this agreement, you will not perform or render any services for the purposes of making Phonograph Records, Master Recordings or Videos (as defined below) for any Person other than Label.

(b)       Subject to your prior professional commitments, Label shall have the right to reasonably require you to perform at such times and places as Label designates for the production of films or videotapes featuring your performances of Compositions embodied on Master Recordings recorded hereunder (hereinafter "Videos").

Exclusivity

The recording services language contains the exclusivity provisions and gives the label the affirmative right for the artist to perform in videos. This language is not negotiable for most artists, nor is it usually a problem. The only time this may be an issue is if the artist feels strongly about not wanting to make videos - then, the language should read "with artist's consent". I also usually add in a line about videos being made at a mutually agreeable place and time, but of course this is done anyway as a practical matter. If the artist is also an actor, or also signed to another label as part of a group, then this should be modified (it is not uncommon, especially for rap and hip-hop acts, or producer/artists, to be signed to one label as a group, and to another as a solo artist). Again, it's important for attorneys to know their clients and what they have done and hope to do with their careers. If there are any extenuating circumstances, this language should be modified to suit the specific situation. However, for most artists, exclusivity is not a negotiable part of the deal.


Recording Commitment
4. RECORDING COMMITMENT.

(a)      During the first Contract Period, the Recording Commitment shall consist of a sufficient number of Recordings to constitute one (1) Album (the "First Album").

(b)      During each Option Period, Artist will perform for the recording of Recordings sufficient to constitute one (1) Album, cause those Recordings to be produced, and Deliver them to Label (the "Recording Commitment").

(c)      The Recording Commitment for each Contract Period will be fulfilled within the first three (3) months of the Period concerned.


This language is for less of a commitment by the label than it might seem. It is, however, a commitment by the artist to deliver the specified number of projects. Paragraphs 3(a) and (b) provide for one LP per contract period to be delivered to the label. In the definitions section, it will define an "Album" as between X and Y number of tracks, or playing for a minimum number of minutes. If as the project is being created it appears to be something other than the definition of an LP -- either shorter or longer -- it is in the artist's best interest to negotiate the specifics in writing. For example, if it appears to be a double LP, the artist might want it to count for two recording commitments, although the label will likely want it considered as one (there are issues with mechanicals here as well, discussed below). If the project is an EP or singles, the label will typically not count it as part of the recording commitment for a particular option. It's important for both parties to agree in writing about how these situations will be handled. This is where having an ongoing relationship with an attorney practicing in the music business is important to the artist.

Paragraph 3(c) is designed to prevent an artist from taking a year or more to start working on a record. But as discussed above, it is often an unrealistic time period to finish a record, especially since sometimes an option is exercised when the artist is still touring to promote the previous project. If I were an artist, I would argue to strike this language altogether. If it is left in the agreement, know that most labels will ignore it -- unless they chose to use it to drop an artist or not pay monies due during a particular contract period. For this reason, I'd send the label a waiver letter of this provision during each option period and insist they sign it. Also, artists should be aware that only officers of the company (i.e., Vice Presidents and above) may contractually bind an artist. So if you are working with an A&R rep who has a title such as Senior Director, for example, and they send you an email saying they spoke to their business affairs person and the label is agreeing to waive the three-month date (or any other provision, or agreeing to do anything), know it is not binding unless signed by an officer of the company.

4. DISTRIBUTION AGREEMENTS.
(a)     (i)     The First Album and the Albums to be Delivered during the Option Periods are referred to collectively below as "Standard Albums".

(ii)      A record company whose Records are distributed by one of the major "branch" distributors in the United States (i.e., presently [Distributor], BMG/RCA, WEA/WMG, EMD and UMG) is referred to below as a "Distributor".

(iii)      An agreement between Label and a Distributor to distribute Standard Albums (and Records derived therefrom) is referred to below as a "Distribution Agreement".

(b)      You hereby acknowledge that Label has entered into a Distribution Agreement with _____________ ("[Distributor]") dated as of _________ (the "[Distributor] Agreement"). You agree that the terms and provisions of the [Distributor] standard form recording agreement (which is annexed hereto as Exhibit "A") (the "Form Contract") will be incorporated herein. In the event of a conflict between the terms of this agreement and the Form Contract, the terms of this agreement shall control. During the period commencing on the date of execution of this agreement and ending on the earlier of (i) the termination of the Term of this agreement or (ii) Label's entry, if ever, into a Distribution Agreement with an entity other than [Distributor], you will, in the event of a default by Label in performing any of its obligations under this agreement, duplicate the notice of such default and send such duplicate notice to [Distributor] ____________, and to [Distributor]'s Senior Vice President, Business Affairs and Administration, at the same address, simultaneously with the giving of such notice to Label. You hereby acknowledge and agree that [Distributor] shall have the right to cure each default on behalf of Label.

(c)      In the event the Distribution Agreement or any successor Distribution Agreement entered into by Label with a Distributor (a "Successor Distribution Agreement" expires or terminates prior to the date on which this Agreement would expire or terminate if all options hereunder were exercised, then the current Contract Period and the Term of this agreement shall be automatically deemed extended for a period, until the date on which Label enters into a Successor Distribution Agreement with a Distributor. Notwithstanding the foregoing, any such suspension shall not continue for more than twelve (12) months (or six (6) months following receipt of the demos if earlier), provided that you cooperate with Label, at Label's reasonable request, for the recording of additional demonstration tapes or Master Recordings for use in securing a Successor Distribution Agreement. If, at the end of such twelve (12) month or six (6) month period as applicable, Label has not entered into a Successor Distribution Agreement, you will have the right to terminate the Term of this agreement by notice to Label. (Such notice may be given at any time after the expiration of such period, provided that you will not have the right to terminate the Term hereof if Label enters into a Successor Distribution Agreement prior to your sending such notice.) Upon such termination, all parties will be deemed to have fulfilled all of their obligations hereunder, except for those obligations that survive the Term (e.g., your representations, warranties, rights of consent and approval and Label's obligation to account to you hereunder for Records Delivered to Label).

(d)      You shall comply with all terms and conditions as may be required by any Distribution Agreement (and/or any standard form artist agreement incorporated therein) so as to enable Label to fulfill all of its material obligations under such agreement including, without limitation, re-recording restrictions; video production, commitment and exploitation; group provisions; side artist provisions and provisions relating to your right to produce Masters Recordings embodying the performances of other artists; and provisions concerning promotional activities. To the extent that any such terms and conditions contained in the Distribution Agreement are additional to those terms contained in this agreement, you and Label agree that the provisions of this agreement shall be deemed modified to add all such provisions of the Distribution Agreement, except that nothing contained in the Distribution Agreement shall be deemed to modify the Recording Commitment, royalty rates, marketing restrictions, release commitment and advance provisions contained in this agreement. You will sign any inducement letter or similar document required by Distributor as a guarantee that you will meet your obligations under this paragraph 4A(d) and under any Distribution Agreement and Label is hereby appointed your attorney-in-fact and may sign such document in your name. Notwithstanding the foregoing, Label shall give you ten (10) days notice before signing any document in your name, provided Label may dispense with that waiting period when necessary, in Label's judgment, to protect or enforce Label's rights. Artist shall not under any circumstances, be entitled to be paid any monies other than as specifically provided in this agreement. The term "Distribution Agreement" shall include, as the context requires, each and every Successor Distribution Agreement.

Distribution
This is a newer provision that has not been in many contracts for a long time -- I've not seen it in this form in a major label deal (sometimes there will be some passing references to terms of a distribution deal). Indie deals are more likely to have more articulated distribution clauses, since distribution may be the essence of a deal. A distribution clause may also be more relevant if the label is not owned by the same parent corporation as the record company.

The point of this provision is that there have been some accusations of "double dipping" by companies whose various divisions are each taking a piece of the action, and the labels want the various companies to be considered completely separate entities. Further, since the labels are sometimes forced to agree to certain provisions because of the terms of their agreements with distributors, they want to bind the artists to these terms as well. This is both good business sense, and for convenience purposes.

This particular provision provides for a "hold" on the term of the agreement if the distribution agreement expires. If I was dealing with a major label, I would, as the artist's lawyer, instead prefer language saying the label agrees it will at all times have a major distribution agreement in place. If I were the artist's lawyer dealing with an independent label, I'd say if they were without distribution, the artist could elect to terminate the agreement. If they simply switch distributors (as many indie labels do from time to time) there's not much you can do. I once had a client who got caught in this situation mid-project --there was no product in the stores and no one to ship it to them, and ads that had been placed by the old distributor were pulled at the last minute, leaving us with little in the way of a sales campaign. The visibility of the project was considerably compromised. However, we managed to find a way for the old distributor to sell us the remaining product in their warehouse at a greatly reduced rate, which the artist then was able to sell at gigs and via the website, thus turning a difficult situation into a cash windfall for the artist.

Paragraph (d) is overly broad and attempts to bind the artist to additional terms in the distribution agreement. I think that is confusing and counter-productive -- it makes much more sense for all relevant terms to be spelled out in the recording agreement. Specifically, I would insist on striking the bold language from this form. It is in the label's best interest to bind the artist to specific terms, and not have confusing conflicts between various agreements (plus, it prevents audits later on, which can be very costly to the label). Further, I've never seen a distribution agreement that includes any of those provisions, though they would be included in a standard form artists' agreement, which may be attached. Another instance in which a distribution clause carries significance is if the label is signed to another label for distribution, and not directly to a distribution company. It will depend on the artist's leverage as to whether they can successfully have that language struck.

5. RECORDING PROCEDURE; DELIVERY STANDARD.
(a)      You shall designate and submit to Label for Label's approval the producer of each of the Master Recordings, all other individuals rendering services in connection with the recording of those Master Recordings, or materials which shall be embodied in those Masters Recordings, the studios at which those Master Recordings shall be recorded, and the dates of recording of those Masters (the "Recording Elements"). You shall also prepare and submit to Label in writing for Label's approval a recording budget for those Master Recordings in such detail as Label shall require at least fourteen (14) days before the planned commencement of recording.

(b)      Each Master shall be subject to Label's approval as commercially and technically satisfactory for the manufacture and sale of Records.

Creative Control
This is a hotbed issue with many artists who do not understand the record business. I often hear of struggling artists who think major labels are bad places to be affiliated with because they are giving up "creative control," believing that they are essentially selling their souls to the devil. This is a completely incorrect assumption. In reality, the artist is signed to the label because the label admires their creativity and talents, and believes in their commercial viability.

A good analogy is the movie business. Films are a much more collaborative process than records, and no one would blink if an actor added his creative touch to the role he was playing. No one would say it's the director's movie; your job is to only do what you are told. As an actor, it is understood creative interpretation is what you do. The same thing is true to a lesser extent at a record company. The A&R staff are experienced creative forces -- sometimes they have been performers or songwriters themselves, sometimes they are producers, and sometimes they are lay people with a unique understanding of the creative process. Now every single situation is different, every set of relationships between an artist and A&R staff is unique. They can run the gamut from an artist being signed, going off and making a record on their own and turning it in completely finished for the label's approval, to the A&R person actually going into the studio with the artist, picking the songs, hiring the producers, selecting the studio, etc. The reality for most projects is somewhere in between. It often is a collaborative process, with each party bringing their talents to the table and working together to hopefully make a hit record. However, no major label is going to force an artist to accept their creative vision, because without the artist's cooperation for press and promotion, it makes the label's job of actually selling the music nearly impossible. Some artists will insist on specific language allowing them to have the final say on creative decisions, but there is no real need for it. Having good working relationships with the A&R staff is much more important.

The second part of the provision, about the masters being commercially and technically acceptable, is the plainest language for the label to be able to reject the masters on reasonable grounds. (click here for a discussion of commercially versus technically acceptable.) As labels pay for the masters, and have to spend a lot of time and money promoting them, they absolutely must have the right to consider reject sub-par projects.


6. RECORDING COSTS.
(a)      All Recording Costs paid by Label shall constitute Advances.

(b)      Each Album shall be recorded hereunder in an amount not in excess of a budget approved by Label in writing. You shall be responsible for Recording Costs in excess of the approved budget. Any such excess not otherwise paid by you shall be recoupable from any monies payable to you hereunder.
Recording Costs
This is a very simple version of language that can sometimes be more detailed. I like the straightforwardness and conciseness of how this is drafted. Recording Costs and Advances are defined above, please make sure you are familiar with what they constitute. As for the budgets being approved by the label, this is very standard, very non-negotiable language. I also like to make sure the artist (or appropriate representative) has written approval on the recording budget.

As for costs exceeding the recording budget, I don't believe in trying to pre-negotiate this issue, because the specifics of each instance are unique. What I believe is the most practical way to handle this issue is not in the initial contract, but as the recording commences, if it becomes apparent that at any time the project is obviously going over-budget, then the artist's lawyer and or manager should discuss the matter with the label try to work out a solution, which should absolutely be memorialized in writing with the label. Negotiating in advance, the artist has no leverage on this issue, but during the recording process, especially if the label is happy with how things are going, or it was their suggestions that caused the project to go overbudget, they are much more likely to make some sort of compromise.

Listed in discussion of Recording Costs is an analysis of what is and isn't considered Recording Costs. Below is an overview of the musicians' unions and how they relate to recording, since many new artists are not familiar with these issues.

Unions
Just as a broad overview, there are very complicated requirements for union payments for recording sessions for any label that is a signatory to the unions. A regular session is three hours, and special sessions are 1.5 hours. There are additional payments and fees for the session "leader" and for "arrangers". Royalty-earning artists earn flat scale no matter what else they do in the studio, the logic being they will get a share of any profits, and the union rules are designed to protect the hired musicians. Typically, recording sessions are much longer than this, and there is all sorts of paperwork that needs to be filled out on top of it. Luckily the A&R administration department at the label and the production coordinator usually handle these tasks. There are various payments to the Unions that must be made besides the scale fees to the musicians. These include payments to the pension and welfare funds, cartage fees for certain instruments to and from the recording studio, etc. All of these are considered Recording Costs as well.

While we are on the topic of Unions, there are two other points that don't really apply to recording but which are good to know. One is that the AFM approves all record contracts for their members or for labels that are signatories. If you are a musician signed to a label that has an agreement with the AFM, you must join the union, but the label's A&R Administration department will do it for you. This is for the artist's protection, but it's a mere formality, usually done well after the deal is signed, and I've never heard of the Union disapproving a contract. The second point is that union payments due for record sales should never come from the artist's share -- the label should always pay those directly.

7. RIGHTS.
Each Master Recording made under this agreement will be considered a "work made for hire" for Label within the meaning of U.S. Copyright Law. As between you and Label, those Master Recordings, from the inception of the recording thereof, and all Records and other reproductions made therefrom, together with the performances embodied therein and all copyrights therein and thereto throughout the Territory, and all renewals and extensions thereof, shall be entirely Label's property, free of any claims whatsoever by you or any other person, firm, or corporation. Nothing contained in the Agreement shall be understood to convey to Label the ownership of, or the right to publish or administer, the copyright in any musical composition embodied in any Master. Label shall, accordingly, have the exclusive right to obtain registration of copyright (and all renewals and extensions) in those Master Recordings, in Label's name, as the owner and author thereof. If Label shall be deemed not to be the author of those Master Recordings or those Master Recordings are deemed not to be "works-made-for-hire", this agreement shall constitute an irrevocable transfer to Label- of ownership of copyright (and all renewals and extensions) in those Master Recordings. Artist shall, upon Label's request, cause to be executed and delivered to Label transfers of ownership of copyright (and all renewals and extensions) in those Master Recordings and any other documents as Label may deem necessary or appropriate to vest in Label the rights granted to Label in this agreement, and Artist hereby irrevocably appoints Label its attorney-in-fact for the purpose of executing those transfers of ownership and other documents in Artist's name. Without limiting the generality of the foregoing, Label and any person, firm, or corporation designated by Label shall have the exclusive, perpetual and worldwide right to manufacture, sell, distribute and advertise Records embodying those Master Recordings under any trademarks, trade names or labels, and to lease, license, convey or otherwise use or dispose of those Master Recordings by any method now or hereafter known in any field of use and to perform publicly Records and other reproductions embodying those Master Recordings, all upon such terms as Label may approve, or Label may refrain from doing any or all of the foregoing.

Rights
There are many issues packed into this paragraph. These issues may be in different agreements with varying names in different forms. I will break down the discussion issue by issue below.

Work for Hire
There is technically no work for hire in sound recordings under copyright law. Prior to 1976, there was no copyright in sound recordings at all, and the rules for sound recordings were governed by property rights (for the ownership of the physical masters) and individual state laws. There has been a copyright in the musical compositions since the 1909 Copyright Act. Since 1976, there is an actual copyright in both the compositions (the so-called mechanical rights, which we will discuss below in depth) and the master recordings. Because the labels always controlled the masters under property law, after the copyright law was changed the work for hire language was added to record agreements for the avoidance of doubt. The artists were the "creators" of the works, but because the rights belonged to the labels they attempted to contract around this. In case this wasn't sufficient, the rights section of contracts will also contain a transfer of all rights to the record company. However, lately there has been some controversy over whether sound recordings can be subject to WFH. The Work For Hire provision of the Copyright Act lists the types of works subject to WFH, and sound recordings are not among them. The situation is not yet resolved, so this provision is still subject to debate.

The second sentence of the paragraph is further clarification with regard to ownership and the copyright laws. The third sentence is an exception for the mechanical portion of the copyright, or the ownership of the composition (which will be discussed further below). The sentence about transferring ownership is also with regard to the confusion over the works for hire law. This has been part of the standard language in record contracts since the changes made to the '76 Act. Further, it addresses the differences between the laws in Europe (and other parts of the world) and the Berne Convention.

Exploitation of Masters
The sentence that begins with "without limiting the foregoing" enumerates the label's specific rights in the masters, though in as broad of language as possible. This clause is intended to help avoid doubt by either of the parties. In older contracts that used language giving the labels the rights to make records, it was hard to conclude the rights included newer uses of masters, i.e. ones that couldn't be foreseen at the time, such as synchronization licenses, CDs, Internet downloads, etc. And labels have gotten into trouble with the language that implies they had an affirmative obligation to actually make and sell records or exploit the masters (as sometimes this is prohibitively expensive to do so), so the language has been modified over the years to give the labels the option to exercise their rights, or not, as they see fit. The language about any trademarks, trade names, etc., was because older contracts used to specify that the artist was being signed to the Columbia Records label (which eventually became a variety of labels), or the RCA/Victrola label, for example. As times changed -- and the logos and sometimes names of the labels changed, or as labels merged or expanded -- the companies wanted the freedom to release particular artists on different labels. This was especially true in the '70s when reissues first became a big business, and later, from the '80s to present, when jazz, classical, and catalog labels were created. Sometimes the labels wished to reissue masters at a budget price, and sometimes just the opposite -- such as a "gold remastered" series, where masters are reissued in a better, remastered version, or with bonus tracks, etc.

Public Performance Rights
Currently, under U.S. copyright law there is no right of public performance for Master Recordings. However, there is in much of the rest of the world. Should there be a public performance right for masters, the labels, as owners, would like to be able to keep 100% of these funds, while the artists, as the performers, would like to have these funds flow through to them (or at least have a share of such monies). As there is a public performance right for masters in some parts of the world, if I represent the artist I usually add language requiring the label to pass through the artists' share of such funds (understanding that the label will most likely insist that those funds apply to the artists' unrecouped balance).
8. NAME AND LIKENESS; MERCHANDISING.
     (a)       (i)      Label and any person, firm or corporation designated by Label shall have the perpetual right throughout the Territory to use and to permit others to use the Artist's name (both legal and professional, and whether presently or hereafter used by the Artist), likeness, other identification and biographical material concerning the Artist, and the name and likeness of any producer or other person rendering services in connection with Master Recordings recorded by the Artist for purposes of trade and advertising. Label shall have the further right to refer to the Artist during the Term as Label's exclusive recording artist and the Artist shall in all the Artist's activities in the entertainment field use reasonable efforts to cause the Artist to be billed and advertised during the Term as Label's exclusive recording artist. The rights granted to Label pursuant to this paragraph with respect to the Artist's name, likeness, other identification and biographical material concerning the Artist shall be exclusive during the Term and nonexclusive thereafter. Accordingly, but without limiting the generality of the foregoing, the Artist shall not authorize or permit any person, firm, or corporation other than Label to use during the Term the Artist's legal or professional name or the Artist's likeness in connection with the advertising or sale of Records.

(ii)      Label will make available to you for your approval any pictures or other likeness or identification of the Artist or biographical material about the Artist which Label proposes to use for packaging, advertising or publicity in the United States during he Term of this agreement. Label will not use any such material which you disapprove in writing within five (5) business days from the time such materials are made available to you, provided you furnish substitute material, satisfactory to Label in its sole and reasonable discretion, in time for use within Label's production and release schedules. In any event, Label shall not be required to incur expenses beyond those customary for one (1) photograph shooting for each Album hereunder. This subparagraph will not apply to any material previously approved by you. You shall have the right to submit photographs, likenesses and biographical material of Artist and your submission of same shall constitute your approval thereof. No inadvertent failure to comply with this subparagraph will constitute a breach of this agreement, and you shall not be entitled to injunctive relief to restrain the continuing use of any material used in contravention of this paragraph provided, however, that Label shall use reasonable efforts to cure any such breach on all manufacturing runs involving materials used subsequent to Labels receipt of notice of its breach.

(b)      It is hereby expressly agreed that, as between Artist and Label, Label shall exclusively own and control all materials comprising the artwork (including, without limitation, art, photographs, graphic designs, etc.) and other items created or used in connection with the exploitation of Records hereunder, including, without limitation, all copyrights and the right to secure copyright throughout the world and in perpetuity. Notwithstanding the foregoing, you may retain the copyright and the right to secure copyright in any artwork or related materials supplied by (and paid fifty percent (50%) by) you which were approved by Label after having received reasonable prior notice of your desire to retain the copyright in such materials.

Name & Likeness
The first sentence of this paragraph, and indeed the whole concept, is non-negotiable. What is negotiable is that any pictures and bios, and any nicknames or "akas," must be approved by the artist within a reasonable amount of time. A good lawyer will immediately add a provision for approval in writing, and the label will counter with some time limits, and a stipulation that if the artist (or artist's rep) does not respond within the allotted time period, consent will be deemed given. This is for the convenience of the label, allowing them to continue doing business should the artist be unreachable or chose not to respond. The label will wish to limit the approval right to only during the term of the agreement. It is important from the label's perspective that they are able to properly and reasonably exploit masters in perpetuity, and that they have the tools to do so. Because there are limits on the use of an artist's name, image, and biographical information in the trademark laws (both Federal and local) which provide for a right of privacy and a right of publicity, it is important for the label that they maintain this right via contract. The time period for consent is usually no more than five days, and shorter for certain uses. As for the rights being exclusive during the term, if the artist has previously been signed to another label and they have any continuing rights, this would not be possible to grant, so it would be important to note any exceptions (or if the artist was a celebrity in another field, such as acting, then many other parties may have the right to use his or her name and likeness, in which case the exclusivity scope would be limited to the field of music). The last sentence of paragraph (a)(i) includes another concept: use of the artist's name and image for advertising of records. It does not limit the artist's right to be in say, a Gap ad. If the artist were signed as part of a group to another label, this would need to be modified.

The first sentence of (a)(ii) further limits to the United States the approval right. This is a practical matter, since in each territory the record company is essentially a separate entity, often operating in another language. Because of the time difference -- and often different release dates in Europe, as well as language barriers -- it's often not practical to get consent for each individual country. However, as a practical matter the bio and photos that go out to every country come from the domestic label's international department, and thus would be pre-approved by the artist anyway. International superstars will want consent over material in every country, and especially over advertising layouts and campaigns worldwide. If the artist has a good manager, the manager will have a hand in all of this anyway, so contractual approval is not essential -- but good working relationships are. Sometimes this approval is not included in a first draft, and the artist's lawyer must add it. The paragraph goes on to include a marketing/ budget limitation, providing for the label to pay for only one photo session. The idea is if the artist is difficult and needs to re-shoot, the label would have the right to make such costs recoupable. The last sentence of this paragraph is protection for the label against unreasonableness, since an artist could claim that a mistake is detrimental to their career (in which image is everything), and try to sue the label for a mistake. Artists (both successful and unsuccessful ones) can be notoriously temperamental, so the label tries to limit the causes of actions the artist may have against it. Obtaining or fighting an injunction is an extremely expensive proposition, so the label wants to insulate itself from having to defend such a cause of action.

Merchandising
This paragraph does not actually contain "merchandising" language. Briefly, the concept of merchandising that some artists may never actually make any money from selling records, but will make money selling T-shirts on the tour. The reason for this is that records can cost a lot to make and market, concert tours are expensive to mount, but merchandising is almost pure profit. A touring singer-songwriter may use the money from T-shirts to live on, while an artist like Britney Spears or NSync can spawn unlimited amounts of merchandising opportunities -- everything from clothing to posters to dolls -- earning millions of dollars in licensing fees. The label, which works hard to develop the artist and their image, and invests much financially in doing so, feels they should share in the payoff of any giant merchandising bonanzas. An artist will feel the opposite, that it is their image and talent that is selling products, and that the label should not share in this area financially (and that the label benefits much more than the artist from the record sales that would accompany such success).

Merchandising companies started back in the '60s, the most famous being Winterland, which was a division of legendary promoter Bill Graham's empire. Back then T-shirts cost a couple of dollars and were viewed more as a marketing device than a money making proposition. The economics of merchandising have changed considerably since the 1960s, and prices have risen dramatically. The t-shirt that now costs $2 to make can go for anywhere from $25-50 on the concert tour and via internet sites, with a significant profit margin. With the advent of corporate conglomeration that began in the 1980s and continues today, the successful merchandising companies merged or were bought out by bigger companies and record labels, or the big companies started their own. Today, most of the Big Five [labels] own a merchandising division.

Most record agreements with a major (and less so with an indie) will contain a provision that gives the corporate conglomerate/parent (either the label itself or a sister merchandising company) a right of first refusal for merchandising, or it may give the label the rights and pay royalties to the artist. As this is often an artist's only way of making significant money (especially if they do not write their own songs), the artist will want to retain these rights to later license to the highest bidder. Many artists want to be in control of anything that contains their name or image, which is another important reason to retain these rights. Any decent artist's lawyer will immediately strike a merchandising provision from a form agreement.
Ownership of Artwork
What paragraph (b) actually addresses is the ownership of artwork. Unless the deal is a licensing deal, where the masters revert back to the artist or production company at some later date, the label always owns the artwork. In reality, it is usually paid for and created by the label (with artist's input) though in some cases, especially with smaller labels or superstar artists, the artist may create (or hire someone to create on their behalf) the artwork that surrounds the project. This may include more than just the LP packaging - for example, singles artwork, promo singles artwork, advertising layouts, etc. This provision assures that the artwork is owned by the label, and often this provision will specify that the artwork was created by the artist or someone else as a work for hire in order to immediately address that ambiguity in the copyright law. This provision is important because in some cases, the LP cover can be as famous, as evocative and as associated with the project as the music, and to reissue a particular record without that famous artwork would be a detriment to the label.

9. SIDEMAN EXCLUSION
You may perform as a background musician ("sideman") accompanying a featured artist for the purpose of making Phonograph Records for others, provided:

(a)      You have then fulfilled all of your material obligations under this agreement, and the engagement does not interfere with the continuing prompt performance of your obligations to Label.

(b)       (i)      Artist will not render a solo or "step-out" performance, and

(ii)     The musical style of the recording will not be substantially similar to the characteristic musical style of Recordings made by Artist for Label.

(c)     Artist will not record any material which Artist has been recorded for Label.

(d)     (i)     Artist will not accept the sideman engagement unless the Person for whom the recordings are being made agrees in writing, for Label's benefit, that:

(ii) Artist's name may be used in a courtesy credit to Label on the Album liners used for such Records, in the same position as the credits accorded to other sidemen and in type identical in size, prominence and all other respects; and

(iii)     Except as expressly provided in section 14A(d)(i) above, neither Artist nor Artist's name (or any similar name), nor any picture, portrait or likeness of Artist will be used in connection with such Recordings, including, without limitation, on the front covers of Album containers, on sleeves or labels used for Singles, or in videos, advertising, publicity or any other form of promotion or exploitation, without Label's express written consent, which Label may withhold in its unrestricted discretion.

(e) Before Artist accepts the sideman engagement, you will notify Label of the name of the Person for whom the recordings are being made and the record company which will have the right to distribute the Records.
10. SIDE PRODUCER EXCLUSION.
Artist may serve as a producer for the purpose of making Phonograph Records for others, provided:

(a)     You have then fulfilled all of your material obligations under this Agreement, and the engagement does not interfere with the continuing prompt performance of your material obligations to Label; and

(b)      Artist will not produce recordings of any material which Artist has then recorded for Label, and will not agree to be restricted from recording the same material for Label if Artist is a writer or co-writer of such material; and

(c)     (i)     Artist will not accept the producing engagement unless the Person for whom the recordings are being produced agrees in writing, for Label's benefit, that:

(ii)     Artist's name may be used in advertising, label and packaging credits comparable in size, prominence and placement to the credits generally accorded to record producers; and

(iii)     Except as expressly provided in section 10(c)(i) above, neither Artist nor Artist's name (or any similar name), nor any picture, portrait or likeness of Artist, will be used in connection with such Recordings, including, without limitation, on the front of any Record package or in any advertising, publicity or any other form of promotion or exploitation without Label's express written consent, which Label may withhold in its unrestricted discretion.

(d)     Before Artist accepts the producing engagement you will notify Label of the name of the Person for whom the recordings are being made and the record company which will have the right to distribute the Records; provided your inadvertent failure to so notify Label shall not be deemed a breach of this agreement. Upon notice from Label, you shall cure such failure on a prospective basis.
Sideman Restrictions
The label signed the Artist exclusively, so in theory it doesn't have to let them perform on anyone else's records. However, for the convenience of the parties, there has been a traditional exception, within a limited scope, that the artist may in fact play on other records, or even produce other records, as long as they follow the label's guidelines.

How this works in practice is that most of time the label's legal department will get a call from another label saying one of their artists is releasing a record, and one of the label's artists performs as a sideman, requiring an "appears courtesy of" credit. The labels will then generate a contract for the artist's performance (if it's simply playing guitar or piano, or singing background vocals, for example, usually no money exchanges hands other than the artist being paid union scale for their participation.) However, if the performance is more significant - for example, a duet -- and does not fall within the sideman exceptions, the labels will negotiate a financial- and often royalty-sharing arrangement which will be memorialized in an agreement. Because of the backlog of these types of agreements and their relative unimportance to the labels, usually there is a long delay in getting the agreements drafted and signed. But as the labels are putting together label copy for the artwork of the project, they will ask the label lending the artist out for its exact courtesy credit. Sometimes there is animosity between labels when one denies its artist the right to perform on other label's projects, or for not enough cooperation on soundtracks or other compilation projects. Then, one label will say, "Sure, Sheryl Crow can do a duet with Kid Rock, but you must agree in writing that we get one of your superstars for a project when appropriate." The bottom line is it's a business built on favors and diplomacy.

Producer Exceptions are a little more complicated. If my client has produced projects in the past and was likely to continue to do so, I'd insist on carving out this exception in advance. The label may not agree, however, and it would depend on any other agreements the artist had as a producer. If my client was a heavy superstar producer as well as an artist (common in R&B and hip-hop) the label might insist the artist also agree to produce artists on their roster, either exclusively or not, depending on the situation (and the artist may not wish to work exclusively with one label.) Again, it is important for the lawyers to know their clients, and for the artists to communicate accurately to their attorneys.

11. MARKETING RESTRICTIONS
(a)     During the Term, in respect of Records manufactured for sale in the United States, Label shall not, without your consent:

(i)     Couple Master Recordings made under this agreement embodying the featured performances of Artist with recordings not embodying Artist's performances except with respect to promotional Records.

(ii)     Sell Albums derived from any of the Master Recordings as "cut-outs" within eighteen (18) months after the initial release of the Recording concerned on Records in the United States.

(iii)      Sell Albums derived from any of the Master Recordings as "Budget Records" within twelve (12) months after the initial release of the Recording concerned on Records in the United States. Sell Albums derived from any of the Master Recordings as "Mid-price Records" within nine (9) months after the initial release of the Recording concerned on Records in the United States. In the event that Label sells any Budget Record or Mid-price Record within the 12-month and 9-month periods provided in the preceding sentence the royalty accruing to you in respect of Net Sales of such Record shall be the amount of money equal to the royalty applicable to a Top-Line Record release pursuant to subparagraph 9(a) below.

(iv)     Use the Master Recordings on "Premium Records". (A "Premium Record" is a record produced for use in promoting the sale of merchandise other than Records, which bears the name of the sponsor for whom the Record is produced).

(v)     Release "outtakes" on Records.

Label shall use reasonable efforts to cause its licensees outside of the United States to comply with the provisions of paragraphs 7A(a)(iv) and 7A(a)(v) hereof; provided, however, that Label shall not be deemed in breach of this agreement by reason of the unauthorized acts of Label's licensees.

(b)     If Label determines during the Term to edit or remix any Master Recording for inclusion on any Standard Album, or resequence, any Standard Album, produced under this agreement for release on Records in the United States, it shall accord you a period of seven (7) days in which to do that work at your own expense unless that delay would interfere with a scheduled release. The work described in the preceding sentence will be performed on the basis of a budget mutually approved in advance by you and Label. The first sentence of this paragraph shall not apply to resequencing for the purposes of equalizing the running time of tracks on Records in non-disc configurations.

(c)     During the Term, except with respect to Label's productions of Videos hereunder, Label shall not license Master Recordings recorded hereunder for use in television or radio commercial advertisements (other than for advertising records hereunder), without your prior written consent, which consent you shall not unreasonably withhold or withhold for financial reasons (e.g. in order to obtain payment of a designated amount in respect of such use).

(d)     No inadvertent failure to comply with this paragraph 7A shall constitute a breach of this agreement, provided that upon receipt of notice from you that we have not complied with the foregoing, we shall use reasonable efforts to correct such failure on a prospective basis.

Marketing Restrictions
This language may be in different places in different forms, and under different headers -- often it is in the royalty section -- but it will always be included. As there are royalty issues relating to each of these terms, it may be easier to discuss them at the same time. However, since they are in different parts of this form, I'm going to come back to each of these when discussing royalties. These aren't as much "marketing" restrictions as they are manufacturing restrictions.

(a) First of all, there are two limitations in this first sentence: these restrictions only apply during the term, and only in the United States. If this is your first record deal, you are going to have a hard time getting around these, especially the U.S. restrictions. You may be able to include Canada, if the label has a division there. The reason is that it's very hard for the labels to control their international counterparts and or licensees, and often the label does not even know what is being done in various territories (despite complicated inter-company agreements that provide for consent provisions for the territory from which the masters originate). Again, language and customs barriers, lack of adequate staff, high turnover of staff, not to mention time lines and general communication issues, make this very difficult to keep track of all of the foreign subsidiaries. It is easier to get rid of the limitations of "during the term," but when negotiating a complicated record deal, an artist must pick their issues and battles.

Further, if the artist has any success at the label and stays long-term, they will typically renegotiate the agreement at least once. These restrictions are the types of issues (besides money and royalties) that can be dealt with at a later time.

We will now look at each individual restriction and what it means.

Cut-Outs
A Cut-Out is literally a record that has been deleted from the distributor/ label's current sales catalog, and they are no longer manufacturing new copies of the record. Typically this cut-out inventory is sold off at very discounted prices (to the wholesalers -- it may or may not be discounted to the consumer). The point of this restriction is that the label must keep the record available to the wholesalers for 18 months after release. Otherwise, if a record bombs a label could immediately cut it out of the catalog and not manufacture any additional units, and sell off the inventory without paying the artist, or at vastly reduced prices (also, cut-out titles don't show up on Soundscan, as their bar codes are punched out). So by restricting when they can cut out a title, the label is agreeing to a give the project a reasonable amount of time to succeed and to be commercially available. Some artists will insist on further restrictions with regard to cut-outs. There are many variations, but the basics may include that the label may not cut a record out of its catalog at any time without the artist's permission, and/ or that the label must offer all cut-out stock for sale to the artist before selling it off to the liquidators.

Top Line Labels
Royalties are paid on either the wholesale or retail price of a record. Over the years, labels have started specific brand-name labels for putting out catalog records at discounted prices, or new records that are part of "developing artist programs" that carry reduced prices. Top Line is defined as the label's main brand names, such as Columbia, RCA, etc. A budget label might be Bluebird, which was originally a jazz label in the 1940s and '50s, but which was revived many years later as a discount catalog label within the BMG family. The idea of the budget label was to appeal to a cost-conscious consumer, one that might not buy older music at full price.

The point of these restrictions is both marketing and financial. From a marketing perspective, in theory it would look less than positive for an artist's work to be released on a label other than a Top Line label (i.e., the minor leagues versus the majors) or for it to be sold as a budget record or mid-priced record when first released. Sometimes, however, there are legitimate reasons for doing so. For example, to get a band started on a grassroots level, or for credibility, (especially with a punk or hardcore artist), a label might put the record out through independent channels, or on a different label initially for credibility purposes.

From a financial perspective, the label pays a lower royalty rate or percentage on budget and mid-price records, so the artist will want a consent requirement for the label to do this. Again, there are nuances of the concept, which can include consent for a period of time, during the term, or across the board. Labels will be reluctant to grant these restrictions, because they restrict their ability to use their own business judgment, and so they may insist on consent "not to be unreasonably withheld" or other reasonableness standard.

Premium Records
Premiums were created in the '50s as a sales incentive for people to buy other products, such as turntables and especially car stereos, often as giveaways or gifts with a purchase. Premiums are still used in various forms today, such as a sampler CD that comes with a magazine. Also, the catalog departments of the major labels will create custom premiums for various corporate clients. There is a fine line between promotional items and premiums -- and labels will always argue a project is promotional in nature, because they often will not need consent for. If the label receives any money for the project, then arguably it is a premium. How the artist gets paid on this (or if) is in the royalty section of the agreement.

Outtakes
Outtakes are tracks and alternate takes from recording sessions that do not end up on commercially released records. Often they are incomplete -- either not mixed, not overdubbed, or even not complete performances. Generally, artists do not want unfinished or incomplete work to reach the public without their consent - for them; it's like seeing supermodels without their hair and makeup done. Outtakes are sometimes used for greatest-hits projects, boxed sets, or bonus tracks on reissued records. Most labels will agree not to use outtakes without the artist's consent.
Remixing/Editing
When the recording process was much more simplified, this was not an issue. Now that there are 48- and 64-track analog and digital studios, there is no limit to what can be done with masters. Indeed, dance records often take original masters and completely reinvent them, something that is common in hip-hop as well. Because there is the technical capability to do this, an artist will not want the label to be able to mess with their artist vision in such a potentially dramatic way, and as a result will want restrictions on the label's rights to remix any records. A good lawyer will make this provision last in perpetuity, so that if the label wants to remix a record after the term, they must still consult the artist. If the act is a pop act, where the artist simply sings or performs on a record that someone (or many others) create, it will be more difficult to get these restrictions. The last sentence was added into record agreements with regard to cassette tapes, as commercial cassette tapes were often a different length than vinyl LPs, and sometimes where the side would "flip over" would be at a different point on each format. As a result, for each format it might be necessary to put a different number of songs on each side. This is not as relevant now that cassettes are rarely manufactured, and CDs are only one-sided. However if a new format, such as double-sided discs, emerged, these provisions would be important to allow the label to reissue catalog projects on the new technology. Sometimes the agreement will allow the label to do "radio edits" as well, which can be for time (since radio stations won't play songs that are too long) or to edit out objectionable language for radio and TV play.

Sync Licenses
Under the copyright law, someone wishing to use a master for any purpose must get a license in writing from the owner. There are two different kinds of licenses: a master license (which is the right to use the master, say on a compilation record), and a sync license, which gives the licensee the right to "synchronize the master with visual images" such as in a film, on television, or in a television commercial.

What this specific paragraph says is that with regard to licensing master recordings for advertisements or television uses, the label must get consent, except that the artist can't say he/she will do it only for X amount of money. It excludes music videos, since the artist must let the master be used for music videos by contract, and at no cost to the label. I'm not crazy about how this is worded, as it is overly vague -- I prefer that the label have an affirmative right to do this, if at all. If an agreement does not include the right to license for synchronization, it may be interpreted that the right is included in the grant of masters. Old record agreements did not include this language, and it is generally assumed the labels have the right to license old masters that they own (what rate, if anything, they need to pay the artist is another story. Some labels simply keep 100% of the income, while others pay the same standard 50% split rate they pay artists who do have these provisions in their agreements).

Sync Licensing is complicated, and like many of these issues there is the creative side and the financial side. First, the creative side is whether an artist will allow their work to be used in commercials or other mediums at all. Many artists will insist on approval for all such uses, including internationally. The middle ground is that they will allow their work to be used for certain types of products, with the standard exclusions of X-rated films, political endorsements, and tobacco and feminine hygiene products -- and perhaps alcohol products. At the very least, I insist on this language in any artists' agreement.

The financial side has several facets to it as well. Most sync licenses are for flat fee payments (for example, $1,000). Frequently, there are additional payments in the licenses for additional uses, such as a TV show paying $100 for a use, but another $300 if the show is ever issued on home video, and $400 if it is put into syndication. Tracking these payments is a big job for a label, and often there will be at least one person or a whole department responsible for processing licensing requests, drafting the agreements, trafficking them around, and tracking and collecting the fees.

Anytime a fee is received on a flat-fee basis, most artists are paid (or credited anyway) a standard 50% of the fee received by the record company (although they usually have the right to take administration costs and overhead off the top, many don't actually deduct these fees). If the language says the label can take an administration fee, I try to cap that fee in the agreement at 15%. As the majority of artists are unrecouped, they will never actually see this money -- it just goes against the unrecouped balance on their royalty statement. Now if an artist must have consent for sync licenses, it gives them some leverage. If there is a big fee from, say, a movie use, the artist can use the consent as leverage to have the fee "flow-through" to the artist, meaning the artist's share would be paid directly to the artist rather than going toward the artist's unrecouped royalty balance. Sometimes a label will tie the issues together and agree to consent so long as the artist is recouped, but not before (the idea being that it isn't fair to not allow them opportunities to make back the money the label has invested in the artist).

The last paragraph, (d) is basically a catchall, saying we'll try our best to comply, but if we don't, your options are limited -- all you can do is send us a letter.

12. RELEASE COMMITMENT
Provided you have fulfilled all of your material obligations under this agreement, Label shall release each Album recorded in fulfillment of the Artist's Recording Commitment in the United States within three (3) months following Delivery of the Album concerned. If Label fails to do so you may notify Label, within ninety (90) days after the end of the three (3) month period concerned, that you intend to terminate the Term unless Label releases the Album within sixty (60) days after Label's receipt of your notice (the "U.S. Release Cure Period"). If Label fails to release the Album in the United States before the end of the U.S. Release Cure Period you may terminate the Term by giving the Label notice within sixty (60) days after the end of the U.S. Release Cure Period. On receipt by Label of your termination notice, the Term shall end and all parties shall be deemed to have fulfilled all of their obligations hereunder except those obligations which survive the end of the Term (e.g., warranties, re-recording restrictions and obligations to pay royalties). Your only remedy for failure by Label to release an Album in the United States shall be terminated in accordance with this subparagraph. If you fail to give Label either of those notices described in the foregoing provisions of this paragraph, within the time periods specified, your right to terminate will lapse.
Release Commitment
This is one of the only clauses in the agreement that actually affirmatively obligates the label to do anything for the artist. An artist's focus is on getting a record made and released. Most labels do not offer release commitments without asking for it, but if they do, the language typically has loopholes. When it comes down to it, it is much more important that the label love the record and want to support it than that they are obligated to put it out. This language only addresses the U.S. release. However, international release commitments can be important for certain artists. Say the artist is a U.S.-based band that plays Celtic music -- it would be very important to an artist like this to have a release commitment in Ireland, and perhaps other parts of the U.K. Or say the artist is a folk singer with a following in Norway. Or if it's dance music, it might behoove the artist to have a commitment to put it out in Germany, where many dance records break first. In actuality, three months is a short amount of time to release a record from delivery date -- though not unheard of. Usually there will be a notice and cure period (notification of the problem, and period to remedy it) if the label misses the release date. The idea of a good release commitment clause is that if the label chooses not to release a project, the artist should either be able to buy it back (and usually put it out him/herself or via an indie label) or be able to shop it to another label for a pre-agreed-upon fee and override royalty (meaning the new label would pay the old label a royalty on all sales, usually from record one). And from the label's perspective, the idea is if they don't believe in the project, either that they can not release a record, and make the decision to eat the costs, or that they can let the band go and have a way to earn some of their money back.
13. ADVANCES.
(a)     All monies paid to Artist or on Artist's behalf or to or on behalf of any Person representing Artist, other than royalties and mechanical royalties payable pursuant to this agreement, shall constitute Advances. You agree that the Advances hereunder include the prepayment of session union scale as provided in the applicable union codes, and Artist agrees to complete any documentation required by the applicable union to implement this sentence. Label may recoup Advances from royalties (other than mechanical royalties, except as otherwise specified hereunder) to be paid to you or on your behalf pursuant to this agreement.

(b)     The amount of the Recording Fund for the First Album Delivered pursuant to your Recording Commitment for the Initial Contract Period shall be ($ ) Dollars, payable ($ ) Dollars promptly following the execution of this agreement to _____________ and the balance as set forth in paragraph 8(d) below.

(c)     For each subsequent Standard Album, if any, the amount, if any, by which the sum designated below as the Recording Fund exceeds the Recording Costs for that Album:

(i)     For the Standard Album required to be delivered during the first Option Period, if any, the Recording Fund shall be the Formula Amount, but no less than ($ ) Dollars and no more than ($ ) Dollars.

(ii)     For each Album required to be delivered during the second Option Period, the Recording Fund shall be the Formula Amount, but no less than ($ ) Dollars and no more than ($ ) Dollars.

(iii)     For each Album required to be delivered during the third Option Period, the Recording Fund shall be the Formula Amount, but no less than ($ ) Dollars and no more than ($ ) Dollars.

(iv)     For each Album required to be delivered during the fourth Option Period, the Recording Fund shall be the Formula Amount, but no less than ($ ) Dollars and no more than ($ ) Dollars.

(v)     For each Album required to be delivered during the fifth Option Period, the Recording Fund shall be the Formula Amount, but no less than ($ ) Dollars and no more than ($ ) Dollars.

The "Formula Amount" for a particular Album recorded and Delivered hereunder in fulfillment of your Recording Commitment shall mean an amount equal to sixty six and two-thirds (66.33%) percent of whichever of the following amounts is less: (A) the amount of the royalties credited to your account on Net Sales Through Normal Retail Channels in the United States ("USNRC Net Sales") (as defined in the Form Contract), of the immediately preceding Album delivered hereunder in fulfillment of your Recording Commitment after deduction of reserves for returns and credits; or (B) the average of the amounts of such royalties so earned by you hereunder on the two (2) immediately preceding Albums delivered hereunder in fulfillment of your Recording Commitment. In either case, the amount of royalties with respect to any preceding Album shall be computed as of the end of the month immediately preceding the month in which such the Album concerned is to be Delivered and will be determined by Label's or Distributor's most recent "trial balance" as of such date (taking into account Label's reasonable good-faith estimate of so-called "pipeline" royalties).

(d)     With respect to each Album (other than the First Album), Label shall pay to Artist seventeen and one half percent (17.5%) of the applicable minimum Recording Fund promptly following receipt of written notice indicating that recording sessions for the applicable Album have commenced in accordance with the terms and conditions hereof. The balance of each Advance payable to you under subparagraph (b) or (c) above (after deducting all Recording Costs), if any, shall be paid to you promptly following Delivery to and acceptance by Label of the applicable Master Recordings in accordance with all of the terms and conditions hereof, reduced by the amount of any anticipated costs of mastering, re-mastering or re-mixing of any Master Recordings for inclusion on an Album and the estimated amount of any Recording Costs incurred but not yet billed to Label; any such amounts which are deducted but not incurred shall be remitted to you.

(e)     Notwithstanding anything to the contrary contained herein, fifty (50%) percent of all sums paid or incurred by Label in connection with the independent promotion and marketing of records hereunder shall constitute Advances.
Advances
An Advance is a legal definition in music agreements typically defined as any money the label gives the artist or other third parties that is recoupable against the artist's royalties. Throughout a record contract, there will be different payments that will be defined as Advances. The label essentially acts like a bank, and gives out money to the artist for various things (or pays for things on behalf of the artist), such as funds to live on, equipment purchases, recording costs, and tour support if there is a deficient. In return, the artist "pays back" the label (without interest) from the money earned via record sales. We will define and discuss mechanical royalties below, and why they are excepted. (click here to jump to that section)

The second sentence regarding Union payments is something all artists should be aware of. Most labels (all majors and many - though not all - indies) are signatories to the AFM and AFTRA agreements. The unions came to power in the '40s and '50s when most music was performed live, both at events and on the radio and television. Because the Union had a lot of power (with the muscle of the Teamsters behind it) it was able to insist on minimum requirements for musicians' services. Prior to this, musicians were often paid very little or not at all, and had no one to protect them. Currently, one important service the union provides is health insurance for qualified member musicians who would otherwise have no access to reasonably priced health care. Union dues can be expensive for struggling musicians, and it can be costly to pay the required scale payments for musicians playing on records. I do usually recommend most artists join the unions if they are not members, and that they use the full protections and services offered by it. As for the actual payments (and cumbersome paperwork) that the union requires for performers on a record, the A&R Administration Department of the label will handle that. But you should be aware when looking at recording budgets and advance payments that it is mandatory that some of that money be paid to the union on behalf of the musicians. The A&R administration staff can better give you a breakdown of actual payments on any given project.

Recoupment
The last sentence of this paragraph seems simple enough, but this is the key to how an entire record deal works. Anything that is considered an Advance (and this can cover a wide range of items, from recording costs, to some marketing and radio promotion costs, to artwork costs, to your rent, to tour support) is all recoupable from the royalties earned from record sales. We will get into this in more detail when we discuss royalty rates below.

In a nutshell, you don't actually get paid any of the royalties you earn until you pay back the money the record company has essentially loaned you, or spent on your behalf. One troubling concept for many artists is if you are essentially ultimately paying for the costs of recording your record, why does the label own it? Well the simple answer is that they are giving you a lot of money, upfront, with no collateral, and with no interest. So they are taking a large risk that they will never earn back their money. Additionally, the label may expend many more dollars (sometimes millions) that are not recoupable to make your record a success. And you only have to pay any of it back if the project earns it. Plus, if the project is a success, the artist will benefit from "profit sharing" via royalties. So it seems reasonable that they would own the only tangible property, the masters, in exchange. To some this seems unfair on the surface, but if an artist feels strongly enough, he/she can do a licensing deal where the artist retains ownership of the masters and lets the label license them. However, you will not get the kind of money and support you would otherwise. An artist trying to make and sell a record on their own, without the deep pockets of a label, will not have the access to the half a million dollars or more that making and promoting a record can cost, not to mention the extensive national and local staff of experts the labels retain. The bottom line is that for an artist it is very important to understand exactly what it is that is being charged to, and be paid back out of, your royalties.
Recording Funds
The biggest portion of the Advance typically comes from the recording fund. An artist and label (and their lawyers) will agree in advance what the fund will be, as well as a formula for the rest of the records due under the agreement. In reality it's useless to worry that the money for a fifth record under your deal might not be enough, since most artists don't get past the first or second record with a label. And if you have the kind of success that keeps you signed to a label longer, typically the advances get renegotiated. If an artist sells two million copies of their first record, they are going to want a big chunk of cash upfront for their next project. Most labels agree to this because they want to keep the artist happy.

Min-Max Formula
The basic idea is that you agree on a definite Advance for the first record, but the second through the last record depends on your success. You agree in advance on the range of money the label will give you for each of these projects, so you are guaranteed the minimum amount if the label exercises your option. The majority of the time, the artist will get the minimum amount for their next project because even if they've sold a decent amount of records on the last project, they are usually still unrecouped (meaning they have not paid back the label for all of the previous advances). The formulas at each of the labels may be worded slightly differently, but the concept is that if two-thirds of your royalties equal more than the minimum floor amount, then they will give you a bigger percentage of the range. I've always found these formulas to be tricky to figure out -- and fairly useless -- but they persist in the label agreements. More typically, the artist and label agree on the amount of the advance for each project if it is more than the minimum. If the artist sells millions of records, the amount of the advance is renegotiated, so it's not worth worrying about this formula.

Payment
Paragraph (d) provides for 17.5% of the total to be paid to the artist upon commencement of recording. Now as an artist's lawyer, I would modify this to say upon exercising of the option this money is due upfront. Usually the purpose of this is to give the artist money to live on either while writing songs, during pre-production, or actually recording the record (as well as the time period between when the record is done and it's released, though often the label will advance the artist more money if necessary during this time). The luxury of having a label to help support you while not having a day job to concentrate on your art is one the most overlooked parts of signing to a major label. Further, this language provides for the balance of the funds to be paid once the record is accepted and delivered.

Funds vs. Budget
There used to be a big distinction between a recording fund and a recording budget in a contract. A fund is when the label gives you a chunk of money, you come back with the finished record, and you pay all the costs yourself, and you can keep any extra money. A budget is when they pay all the costs according to a pre-approved budget, and give you a portion of the money as an advance. For independent records, this is often still the case. However, most major labels have their A&R administration department deal directly with the various recording costs. Some major artists will go off on their own and work in their own studios, or have their own production coordinators for various reasons, and they will try to negotiate for larger chunks of the fund in advance or at various junctures in the recording process. The label will always hold back some of the money in case the recording isn't going as planned and they need to spend money to continue working, or to fix things. They will book and pay for the studios, musicians, producers, unions, equipment rental, etc. This is frees the artist and producer from a lot of headaches, and often because they do this all day long, they are very knowledgeable about the people and costs and can get the best deals. The idea is if you can come in under budget (never happens!) you get to keep whatever is left (though you have to pay out commissions to your manager and lawyer.) But today there isn't such a significant difference in the actual wording of "recording fund" versus "recording budget" as many projects are actually made as a hybrid of the two. Unless the client feels very strongly, I wouldn't worry about the technical difference of a Fund vs. a Budget.
Over Budget
A recording budget is always drawn up and approved in advance of commencement of recording a project. Sometimes demos are done first, and there will be a separate budget for them, though they will ultimately come out of the recording fund for the record. The head of A&R at the label or the president of the label (or both) will sign off on the budget. However, sometimes projects go over budget. Depending on who's at fault and how it happens, the label will usually approve additional funds to complete the project. But even if it's the excess budget is 100% the label's fault, these funds will be fully recoupable from the artist's royalties. I always insist that the artist have the right to sign off on any recording budgets as well, and that any recording money not be spent without the artist's representative's written approval. This is an important point for maintaining control over expenditures, and to ensure the artist is in the loop on every dollar spent. Many artists don't want to be bothered with this, but if they ignore it they will likely regret it later, and be left confused and upset when they don't have a record deal, are remain unrecouped and don't' know why, or when they sell a lot of records and don't see a dime in royalties because they were so far in the hole to start with. It is also important to be aware that if a project goes over budget, typically the label will have the right to take those overages out of both record royalty earnings AND mechanical royalties, another significant reason why an artist must remain vigilant over budget approvals.

Recoupable Promotion
Paragraph (e) was added to agreements during the payola scandal of the mid-1980s, when labels stopped using independent radio promoters due to a large-scale Justice Department investigation. However, there were some projects that were caught midway during their cycle that would have suffered greatly from having the indie promotion plug pulled at that time. Legend has it that Jon Landau, Bruce Springsteen's manager, who was working on his Born in the USA project at the time, said that if the labels weren't going to hire the indies, he would directly. Bruce Springsteen had deep pockets and was able to afford to shell out himself to do this, and the success paid off for him handsomely, with the biggest record of his career. However, in the aftermath of the Justice Department investigation, what happened was that previously, the labels had absorbed 100% of the independent radio promotion costs, and these can be extremely significant. (And they have sharply risen over time). Suddenly not only were the artists picking up these costs, but they were laying out the money to do so. Most artists could not afford to do this, and it didn't seem fair that such a large chunk of the marketing and promotion costs were suddenly being borne by the artists. So the labels came up with a compromise position as the scandal blew over -- they would resume hiring the indies, but 50% of the costs would be recoupable from the artists. In this way, they could argue to the government that it was the artists who were hiring the indies, and they were laying out the money as an accommodation. The result, however, was an unexpected recoupability windfall for the labels that has been impossible to chang.

Radio promotion is complicated [see the article on Radio Promotion], and it's a business of sophisticated tradeoffs. I was lucky enough to work at a major label doing national radio promotion earlier in my career before I went to law school, where I was responsible for working with many indie promoters.

Because spending in this area can get out of control -- and become very complicated, such as when money spent on behalf of one artist actually benefits another -- it is important that an artist (or more accurately, their manager) have some control on these costs. However how to approach this problem both from a practical position as well as a contractual one is tricky. ] In fact, a good, experienced manager knows that he/she must listen to the label's expertise on which indies to hire, how much to spend, how long to work a particular track. But it is sometimes hard for the manager and artist to know when the label's interests may differ from their own. But too often I've seen clueless managers make demands for or against indie promotion and manage to alienate the promotions staff. It important for managers to work with the label in this area and exercise the utmost diplomacy.

As an attorney, I put this principle into action several ways. Every artist and every label staff is different, so it's important that the attorney and manager know the strengths and weakness of the label's promotion staff before they negotiate a contract. (Which of course are subject to change over time.) Basically, while there are many variations, I will typically insist on a cap for recoupablity for each single. The manager must approve any money spent over this cap in advance, in writing. (For example, if I put a $50,000 cap on recoupablity for indie promotion per single, any fees paid to indies over $100,000 - remember, the artist's share is 50% -- would have to be signed off on.) Depending on the label's and manager's expertise, I might also insist on approval of all hiring of independents. What the label does in this case is to send the manager a letter saying it would like to hire these indies, at this rate per week, for this many weeks. Sometimes the time will then be extended and the indies will be kept on. Now I have seen artists demand that they be guaranteed that specific indies will be hired, or that the campaign will be X-number of weeks, but I think this is pushing it. I think each project is different, and the specific requirements and timing can be best be assessed at the time and not in advance via the contract. Now if the artist is signing with a fully completed project -- especially to an indie label -- an agreed-upon-in-advance marketing plan is often a material part of the deal. In that case, it makes more sense, because the needs of a finished record can be much more properly assessed.

The broad language of promotion and marketing costs can be widened to include other types of independent marketing (such as retail or specialty) and independent publicity as well. The label typically pays these costs, so I think it's important to try and narrow this section as much as possible. It's important that the attorney understand these marketing needs, or get a good assessment from the manager to address these issues in advance.

14. TOUR SUPPORT.
(a)     You will undertake a personal appearance tour of at least fifteen (15) major record markets in the U.S. in conjunction with the initial U.S. release of the First Album.

(b)     Within a reasonable time before the plans for the tour are completed, you will notify Label of the complete itinerary, specifying the details of each engagement (including the time and place of each appearance). Each item of the itinerary will be subject to Label's approval and you will not make any binding commitment for the tour or change any element of it without Label's prior written consent.

(c)     Provided you complete all of the material terms of the tour as approved, Label will reimburse you in the amount by which the direct, out of pocket costs incurred by you in connection with such tour exceed your revenues from such tour, provided that such reimbursement will not exceed ($ ) Dollars. Such reimbursement will constitute an Advance.
Tour Support
Not every agreement will mention tour support, and if it does it often is more to obligate the artist to tour than to require the label to give them money. Tour support typically involves two separate components. One is that the artist agrees to go out and promote their record, to be available to the label for press, promotion, and performances. The other is that the band actually mounts a tour where they go on the road and perform paying gigs. While the former offers great exposure for the band, it can often be costly, especially if the artist is a band with multiple people, who also typically require more support staff (such as musical techs) than an individual artist. The label pays for all press and promotional tours, which usually should not be recoupable. The label will also typically put out the money for the band to go on tour for paying gigs if the band can't cover its costs -- however, these funds are recoupable. Sometimes an up-and-coming artist will get a great opening slot on a bigger tour. Because these positions are highly coveted -- they will expose the newer artist to the bigger artist's fans -- they often pay very little, sometimes only $500 per night (even if the tour is in a big shed or arena). Although some production (and sometimes some travel) costs will be picked up by the headlining artist, many times the record company will agree to pay the artist's additional expenses in an effort to break the band with a wider audience. Be aware that headlining acts will sometimes require the opening band's label to support the tour in other ways, such as paying for advertising, ticket buys, etc. --and these costs should NEVER be recoupable! Tour support is always agreed on by both parties in advance, in writing. If I am representing the artist, I always insist the artist have approval over every dollar of tour support (i.e. that the label cannot just charge things to the royalty account without the artist knowing about it -- which does happen). If I'm the label, I don't mind this provision because I know that we usually get signatures in writing anyway for all tour support that will be recoupable. Again, depending on the artist's needs, often a certain amount of tour support for the first record will be agreed upon in advance. The promise of tour support is often part of what the label uses to entice the artist to sign with them in the first place - and tour support can ultimately make or break an artist's career.

15. COMPENSATION
(a)     The aggregate amount of compensation paid to you under this agreement shall not be less than the "Designated Dollar Amount" (as defined below) per Fiscal Year. "Fiscal Year", in this paragraph, means the annual period beginning on the date of commencement of the Term, and each subsequent annual period through the seventh such period, during the Term.

(b)     If you have not received compensation equal to the Designated Dollar Amount under this agreement for a Fiscal Year, Label shall pay you the amount of the deficiency before the end of that Fiscal Year; at least forty (40) days before the end of each Fiscal Year you shall notify Label if you have not received compensation equal to the Designated Dollar Amount under this agreement for that Fiscal Year, and of the amount of the deficiency. Each such payment shall constitute an Advance and shall be applied in reduction of any and all monies due or becoming due to you under this agreement. Label may not withhold or require you to repay any payment made to you pursuant to or subject to this paragraph.

(c)     As used in this paragraph, the "Designated Dollar Amount" shall be:

(i)     Nine Thousand ($9,000) Dollars for the first Fiscal Year of this agreement;

(ii)     Twelve Thousand ($12,000) Dollars for the second Fiscal Year of this agreement; and

(iii)     Fifteen Thousand ($15,000) Dollars for each of the third through seventh Fiscal Years of this agreement.

If in any Fiscal Year the aggregate amount of the compensation paid to you under this agreement exceeds the Designated Dollar Amount, such excess compensation shall apply to reduce the Designated Dollar Amount for any subsequent Fiscal Year.

(d)     You acknowledge that this paragraph is included to avoid compromise of Label's rights (including Label's entitlement to injunctive relief) by reason of finding of applicability of California Law, but does not constitute a concession by Label that California Law is actually applicable.

California Law
This provision is typically only included in a record agreement if both the label is based in California and the governing law is California, or if the artist lives in California, regardless of where the label is based. Labels that are based in L.A. but have offices in N.Y. are often governed by N.Y. law, to get around the California restrictions, which I will cover below in the "boilerplate" section of the contract. (click here to jump to that discussion)

Because the entertainment industry is based in California, there are very specific laws there that have been passed to protect artists and entertainers. One of the relevant ones to our discussion is that if an agreement for artists' services is to be exclusive, the company signing the agreement must guarantee the artist a certain amount of compensation per year. The amounts in the form above are the current annual minimum payments due under California law. The idea is that the artist must make enough money to survive in order to be able to sign an exclusive agreement (though obviously, these amounts are unrealistically low). Record contracts typically do not pay salaries or guarantee compensation, but in order to comply with the law they add this provision if necessary.

The last sentence of paragraph 13(b) above is tricky. The label calls these payments "Advances," which would mean they are recoupable -- but under the California law they are not allowed to use these payments as loans or make them repayable. Therefore, they attempt to contract around it -- in other words, if you earn it back, we withhold it from monies you earn in the future, but otherwise we can't require you to repay us. Now most labels have similar wording, but I'd be concerned if I represented the label if this issue ever went to litigation that the courts may not uphold this provision. .However, as all the labels have had much expert advice over the years on this topic, until or unless the law is clarified the language remains.

If you are an artist, or lawyer representing a client, who may be subject to California law, it is important to remember that the label must have this language for the agreement to be exclusive. Further, if you have some band members based in CA and some in other locations, the CA residents only are afforded this protection.

16. ROYALTIES.
(a)     Label will pay you an "all-in" royalty, calculated in accordance with the Form Contract, and computed at the applicable percentage indicated below of the applicable wholesale-based Royalty Base Price (as set forth in the Form Contract) in respect of Net Sales of Records (other than Audiovisual Records) consisting entirely of Master Recordings made under this agreement and sold through Normal Retail Channels:

(i) United States:

Album Concerned:

First and Second Standard Albums      %

Third Standard Album                %

Fourth Standard Album                %

Fifth Standard Album                 %

Sixth Standard Album                %

Singles                          %

Long-Play Singles                     %

EPs                               %

(ii)     Foreign:

(1)     Canada: 85% of the otherwise applicable U.S. rate, without regard to any escalations.

(2)     U.K.: 80% of the otherwise applicable U.S. rate, without regard to any escalations.

(3)     Germany, France, Belgium, the Netherlands, Luxembourg, Japan and Australia: 75% of the otherwise applicable U.S. rate, without regard to any escalations.

(4)     Italy, Greece, Portugal, Spain, Denmark, and Ireland: 66 2/3% of the otherwise applicable U.S. rate, without regard to any escalations.

(5)     Rest of world: 50% of the otherwise applicable U.S. rate, without regard to any escalations.

(b)     Notwithstanding anything to the contrary contained in subparagraph (a) above, with respect to top-line USNRC Net Sales of any Standard Album in excess of 500,000 units, your basic royalty rate applicable to such excess units only shall be prospectively increased by one (1%) percent, on an album-by-album basis. Notwithstanding the foregoing, with respect to top-line USNRC Net Sales of any Standard Album in excess of 1,000,000 units, your basic royalty rate applicable to such excess units only shall be prospectively increased by one (1%) percent, on an album-by-album basis.

(c)     The royalty rate on any Compact Disc ("CD") Record will be eighty (80%) percent of the otherwise applicable rate. The royalty rate on any Mid-priced Record will be seventy-five (75%) percent of the otherwise applicable royalty rate. The royalty rate on any Budget Record will be sixty-six and two- thirds (66b%) percent of the otherwise applicable royalty rate. The royalty rate for any Record in a New Technology Configuration will be seventy-five (75%) percent of the otherwise applicable royalty rate hereunder. Notwithstanding the foregoing, the royalty rate for any Record in a New Technology Configuration will be eighty (80%) percent commencing with the accounting period following the accounting period during which the number of Records sold pursuant to this Agreement in the United States in any such New Technology Configuration exceed twenty (20%) percent of all such sales in the United States.
Royalties
This is the part you've all been waiting for -- how the artist gets paid. First of all, as there are two copyrights in a record, it follows that there are two separate royalties that are earned from record sales. The Basic royalties are generated from the sales of the master recordings, and are paid to the artist signed to the record label for their performance on the master recordings. This entire section is devoted to that portion of payments. The second royalty - the Mechanical royalty -- is earned is for the compositions, or the actual songs, and is paid to the writers of the songs. We will discuss Mechanical royalties in the next section (click here to jump ahead.) For the purposes of this royalty discussion, it does not matter if the artist wrote the songs or not.

Many artists -- and even attorneys -- are hung up on the percentage of royalties they get. But it is completely irrelevant. What matters is what's called the "Penny Rate", which is the actual dollar amount per unit of sales the artist earns. Figuring out the Penny Rate, and how royalties are calculated, is a complicated process. Therefore, we're going to break it down issue by issue, and then I will take you through the formula to calculate an actual penny rate.

Basic Royalty Rate
Let's start with the "Basic Royalty Rate," which is usually defined in the agreement. The basic rate is the flat percentage (without any other calculations) that the artist is paid on sales. There are two different ways to figure this rate: either on the retail selling price, or on the wholesale price of each unit sold. Most European and other foreign territories calculate on the wholesale price -- i.e., the price retail stores or other outlets pay to the distributor. For many years, the majority of U.S. record companies used the retail selling price, but there is currently a trend in the U.S. to calculate on the wholesale price instead. This sample form uses the retail price, but we will discuss both. In general, wholesale percentages are roughly between two-thirds and double what the retail rates will be.

A starting royalty rate calculated on a retail basis will be anywhere from 12-14%, escalating with each record and with various sales plateaus, usually topping out around 18-20%. A wholesale rate will ultimately be about the same Penny Rate, so it starts at around 20-22%, going up to as high as 30% or more for superstar artists. Typically, the royalty rate goes up one-half a percentageeither every record, or more commonly, every other record, so , you would go from 14% to 14.5% and so on. Singles rates figured on the retail price start at 10%, and go up to about 15%. The wholesale rate is often figured on an "uplift" price, which is calculated as 130% of the wholesale selling price.

Now, most artists are very concerned with getting the absolutely best deal from the beginning. Again, this is a newbie's mistake --and a waste of negotiating power. Early on, you have no track record, no sales to speak of (unless you are switching labels mid-career, or have achieved significant sales on your own or via an indie label, which is a different story). The reason it's a mistake is because if you have enough success to actually recoup, almost without failyour attorney is going to go back to the label and renegotiate for a higher royalty rate, a bigger advance, and anything else that may be relevant to you as an artist that has achieved a certain level of success. For example, I've actually seen renegotiations that include a provision for the label to pay for plastic surgery for the artist, or for the label to assume the cost of a children's nanny for an artist who was recording and touring, or giving the artist a chance to produce other projects and have them distributed by the label. Every label renegotiates with successful artists because they want to keep them happy, and because usually it's the right thing to do (but that's not to say to say the labels will give in to outrageous demands).

And in the event you don't recoup, then the worst thing is that you do so at a slower rate, with a lower royalty rate, which is fairly moot. I'd much rather worry about getting tour support, a decent advance, and other things my client needs from the label to hopefully achieve success than using my leverage in arguing for a higher royalty rate.

All-In
All-In means that the percentage the label pays you is the total royalty they will pay to outside parties. So if you negotiate a 3% or a 4% producers' royalty, that comes out of your share, as it would if you owe another label an override royalty (very occasionally, the current label will pay another label the override royalty from their share, but that is not easy to get them to agree to). The musicians share the total percentage, so if you've agreed that a producer gets 3%, and you have a basic rate of 12%, the artist would get 9% (and if there were five members of the group, they'd split that evenly). For example, if you are part of a band in which only two members are signed to the label but you've agreed to pay two other of your band members each 2%, the two signed members would be left with 5% to split (and that's before other commissions due, such as your manager and lawyer). So you as the artist could end up getting a smaller percentage than anyone else!

14(a), the exception for Audio-Visual records, means that home videos and other similar formats are paid in accordance with another section, which will we discuss below. Note that home video/DVD sales are figured on the wholesale price, and that producers and mechanical royalties are figured all-in on videos.


Net Sales
See definition of Records Sold (click here)
Formats
Note that singles and EPs will have a lower rate than albums. These rates are more standard and less negotiable. A single rate calculated on the retail price is typically 10-12%. Because singles never recoup due to high promotion costs, I wouldn't worry about the singles rate much, unless you are representing a pop group. If the artist puts out an EP, you can always attempt to renegotiate the rate at the time, though EPs are rarely released commercially -- and again, not really worth worrying about.

Territories
The Basic Rate applies to the U.S. only. Every other territory will be paid at a reduced rate - and there is some logic to this, as the label must share the profits from foreign sales with the local version of the record company. However, the artist is paid on the money the label receives, so you are paid on a smaller number, and then a smaller percentage as well. Again, this is the kind of thing that artists might think unjust, but it is so ingrained into the way the music business is structured that its impossible to change. Sometimes the artist has leverage to get a higher rate rate in Canada, or in specific territories where they have a big enough following. The highest international rate will be about 90%, and often as low as 50% of the basic rate. Also, in this form the escalations are deducted, and I would argue to change that, but you might have to wait until you have asales history and get that on the second renegotiation. Again, I'd only argue over this now if you suspect there will be significant international sales - say, if the act is a pop or dance act or a boy band, is from another territory, or has a large following somewhere overseas. If you are a singer-songwriter, I wouldn't worry about your sales percentages in Indonesia!

Escalations
13(b) is the sales plateau royalty escalations we discussed above. These are standard and not negotiable.

CD Rate
The first sentence of 13(c ) is a holdover from the mid 1980s, when CDs first came into the market and were called a "new technology." At the time, there weren't many plants to manufacture them, and they were only made in Asia, not domestically. They were also a small percentage of the total sales market, trailing cassettes and vinyl. Because of the increased costs to make the CDs (and eventually, to build manufacturing plants in the U.S.) and cost differences in warehousing, the need for new equipment, etc, the labels were paying the artists a reduced royalty rate on CD sales. Now this rate has stuck in the agreements over the last 20 years, despite the original reasons for the deductions becoming irrelevant. As I've said above, I don't care how you get to your particular penny rate, as long the ultimate rate is reasonable. That being said, any decent lawyer will immediately insist that the artist get paid on 100% on CDs, since after all they are now the dominant format. If the label refuses, that's fine -- just up your other rates until you are happy with the penny rate. The CD rate is one area most labels will move on.

Budget and Mid-Price Rates
The 75% and the two-third rates are standard across the board and are not negotiable. In fact, the way the programs that calculate and track royalties are written, certain things are not changeable. Many outside lawyers, even those who are experts, have never been in-house at a label and worked with the royalty departments. If you've ever seen these complicated computer programs the labels use to track royalties, which are custom-written for the labels and cost millions of dollars, you will understand that the computer automatically calculates certain things. One of those things is that if a record is cataloged as a mid-price or budget-price album, the computer will automatically calculate the royalties at those reduced percentages.

What you can do as an artist is put in restrictions pertaining to when and how the label can sell your product. The most restrictive provision would be that they may not sell any product at a reduced price without your written consent. A more reasonable provision -- somewhere in the middle ground -- would be that they may not sell your product at budget or mid-tier prices at any time prior to 18 months after its initial U.S. release. A lesser but still-negotiated position would be that the label must notify you if it sells any of your product during the term of the agreement at either a budget or mid-tier price. Now realistically, during the term the label is going to tell the artists' representatives about this. It's after the term, however, that the artist will wish to control at what price levels the label can sell its product -- but this is hard to get them to agree to. As for controlling the price points in any foreign territories, it is nearly impossible, as the domestic label rarely knows if this is done, much less be in a position to notify the artists, especially after the term of the agreement. Most labels will not agree to any control over this in foreign territories because they know they can't fulfill this restriction.

New Technologies
The last sentence of 14(d) deals with "new technologies". As we discussed in the CD rate section, the labels typically will pay reduced royalties on new technologies. Some of the reasons for this are legitimate, and some are simply historical. An artist won't have much control over how they get paid here, but they can try to differentiate or limit the deductions.

The number of formats on which recordings have been sold for the last hundred years is very limited, but has continued to evolve. Originally music was sold on tin cylinders that played on a Victrola. In the 1920s records were invented, first 78s, then 45s (what we know today as vinyl singles), and eventually 33s, or long-playing vinyl albums. For a short period in the '70s, 8-track cartridges, a forerunner to the audio cassette, were sold. With cassettes being phased out and the vinyl LP relegated to relatively small numbers of vinyl-loving audiophiles and dance DJs, the CD has become the overwhelmingly dominant format. Of course there have been other formats - such as Philip's short-lived Digital Compact Cassette (DCC) and Sony's Mini-Disc - that have appeared on the market, but little pre-recorded material was released on them. Today, however, there are several new possible formats, and a mind-boggling number of possible electronic distribution vehicles for music. However, for the foreseeable future CDs should remain the main format (whether purchased traditionally or downloaded and recorded at home). The main reason for this is the industry's awareness of a consumer backlash toward constantly changing formats and the need to purchase new and different playback hardware, as well as toward escalating costs of the software. CD players and recorders are now both inexpensive and ubiquitous in homes, computers and car stereo systems. Despite the drive toward new technology, it is important for the industry to not lose sightof the consumer.

Penny Rate
Let's look at the formula to figure out an actual penny rate. Here's a sample using made up numbers::

FORMULA = Retail List Price - less packaging x Basic Royalty rate - less CD rate, less records sold percentage, less Producer's share.

I'm going to use simple numbers here. If the Retail List Price is $18.95, and the royalty rate is 14%, here's what it looks like.

     $18.95 (x .75) [25% container deduction] = $14.21
     $14.21 (x .90) [90% CD rate] = $12.79
     $12.79 (x .85) [15% Free Goods reduction] = $10.87
$10.87 (x .11) [our 14% basic royalty rate, less 3% to a producer] = $1.20 PENNY RATE

So according to this formula, for every record sold the artist would earn $1.20. (Excluding legal, business management, and management commissions that they may be obligated to pay.)


17. MUSICAL COMPOSITION LICENSES
(a)     You hereby grant to Label and Label's designees an irrevocable non-exclusive license, under copyright, to reproduce each Controlled Composition on Records and to distribute those Phonograph Records in the United States and Canada.

(b)     Mechanical royalties shall be payable for each Controlled Composition on Net Sales of Records and at the following rates:

(i)     "United States Mechanical Rate": seventy-five (75%) percent of the minimum statutory royalty rate (without regard to playing time) provided for in the United States Copyright Act in effect as of whichever of the following dates is earlier: (i) the date of completion of Delivery of the Master Recordings constituting the Album project (or other recording project) concerned; or (ii) the date of expiration of the time within which the Recording concerned is required to be delivered under Article 3 above.

(ii)      "Canadian Mechanical Rate": seventy-five (75%) percent of the prevailing rate agreed upon by the Canadian recording industry and the Canadian music publishing industry or its mechanical collection representative in effect as of the applicable date specified in paragraph 10(b)(i) above; provided, however, in no event shall the Canadian Mechanical Rate be greater than the applicable United States Mechanical Rate.

(iii)     Notwithstanding anything to the contrary contained herein, solely in the event USNRC Net Sales of any Standard Album exceed five hundred (500,000) units on an album by album basis, the phrase "eighty-seven and one-half (87.5%) percent "shall be substituted for the phrase "seventy-five (75%) percent" in subparagraphs (i) and (ii) above. Notwithstanding the foregoing, solely in the event USNRC Net Sales of any Standard Album exceed one million (1,000,000) units on an album by album basis, the phrase "one hundred (100%) percent" shall be substituted for the phrase "eighty seven and one-half (87.5%) percent" in subparagraphs (i) and (ii) above.

(iv)     The maximum aggregate mechanical royalty for all Compositions on any Album, including Controlled Compositions, shall be limited to ten (10) times the amount which would be payable on the Album if it contained only one (1) Controlled Composition. The maximum aggregate mechanical royalty shall be limited to two (2) times that amount on any Single, five (5) for EPs and three (3) for Long-Play Singles or any other Record which is not an Album, EP or Single. If the aggregate mechanical royalty rate applicable to all of the Compositions embodied on any Record hereunder shall exceed the applicable maximum aggregate royalty rate set forth above for that Record, then the aggregate mechanical royalty rate for the Controlled Compositions, if any, contained thereon shall be reduced by an amount equal to such excess. If the aggregate mechanical royalty rate applicable to all of the Compositions embodied on that Record shall, even as reduced in accordance with the immediately preceding sentence, still exceed the applicable maximum aggregate mechanical royalty rate for that Record, then you shall, upon Label's demand, pay Label an amount equal to the additional mechanical royalties payable as a result of that excess and Label may, in addition to all of Label's other rights or remedies', deduct that amount from any monies payable by Label hereunder or under any other agreement between you and Label.

     (v)     Mechanical royalties on Net Sales of Records which are not sold through Normal Retail Channels shall be calculated in accordance with the Form Agreement.

Mechanicals
This is probably the single most important part of the agreement for an artist who writes his or her own songs. Songwriting is the one area where artists can actually seemoney. Many writers, in addition to signing with a record label, also are signed to a publishing company (click here to go to the Music & Copyrights article).

Music Publishing
The publishing and songwriting aspects of the business have evolved significantly over time. In the early days of the record business, songwriters were generally not the performers of their songs; Instead, songwriters were employed by the music publishers (who made their money selling sheet music) to sit in an office and write songs. Then song pluggers, who worked for the music publishers (often on commission), would go out and try to convince A&R men to have artists to perform the compositions. The publishers were very powerful because they controlled the access to new songs and had a powerful lobby, and thus were able to get many protections both legally under the copyright law, and traditionally via contracts. These topics are addressed elsewhere onStarpolish, but the basics are important to understand with regard to our discussion.

In today's era, it is often that the artists themselves write the songs, either alone or with producers or other collaborators. For artists that don't write, songs by outside writers will be used, but the mechanical provisions of the agreement are still important. Because there are inherent contractual limitations to the amount of money the record companies will agree to pay the music publishers, any overages come out of the artist's record royalties.
Statutory Rate
There is a statutory rate any manufacturer of a product containing the composition must pay to the owner (ie, the music publisher) of the composition (part of this is then shared with the songwriter). For almost 70 years -- from 1909 through 1977 -- the statutory rate was 2 cents. The 1976 Copyright Act provided for steady escalations in the rate, which as a result has since increased significantly. From 1978-81 the rate was 2.75 cents, then in 1981 it went up to 4 cents. The statutory rate, which is in effect through 2003, is currently 8 cents for songs under three minutes, and goes it goes up 1.55 cents for each additional minute (or fraction thereof). Currently, the rate is slated to increase for 2004-2005 to 8.5 cents, then rising to 9.1 cents in 2006. Canada's rates are similar, although slightly lower.

Basically, the record company must pay the publisher for each "mechanical reproduction" (i.e., record, CD, or download) of the song. The rate the label pays at is fixed in perpetuity via the record agreement, from one of three dates: the date the song was recorded (which the labels would prefer); the date delivered to the label (this is often a bit harder to determine, and, as discussed earlier, can be tricky to confirm), or the date of commercial U.S. release (which the Artist would prefer, as the latest date possible gives the artist the benefit of any recent rate escalations). So for a record recorded in 1956 and sold today, the labels pay the songwriter based on a rate of 2 cents in perpetuity.

The money is not paid directly to the songwriters, but to the publishers representing the writers. This is true no matter how many different people have written any particular song. Some writers will retain their own publishing and hire a company to administer it for them. Music publishing administration requires a lot of paperwork, so it is very rare for artists to take on this responsibility directly. Unlike record royalties, the publishers get paid from "record one" (meaning the first sale). Second of all, though only tangential to our discussion, the publishers also get paid for the performance of a song. Powerful performing rights societies, such as ASCAP, BMI, and SEASAC in the U.S., emerged to handle and administer these rights (for more on these organizations, click here).

Controlled Compositions
Record agreements refer to something called "controlled compositions." Every form will define this in its own language, but a controlled composition is a very broad term that means anything written in whole or in any part by any of the artists signed to the label, the producer of the record, or in any way that the artist or producer have any interest in or control over, which could mean for example, they own the publishing company that publishes the songs. (This language was added when some artists would give others songwriting credit for songs that they had themselves written, but retain the publishing rights. So the ghost writer would get a token percentage in exchange for the use of their name, and the publisher/ artist could keep most of the fees, yet the record label would have to pay at the higher, non-controlled rate.) For any song that is deemed a controlled composition, the artist is required under the record agreement to license the song to the label on more favorable terms, the specifics of which we will discuss in the mechanical rate section in a moment.

For songs that are not controlled compositions, the label's copyright department, often in conjunction with the A&R staff and the artist's representatives, will try to negotiate a deal with the publisher. Industry standard rates are typically three-fourths (3/4) of the statutory rate, without regard to the length of the song. However, some superstar writers will not accept any reduced rates, and the label must pay the applicable full statutory rate. If the label is unsuccessful in getting reduced terms, any overage the label has to pay over what they would otherwise pay if the song were a controlled composition comes out of the artists' record royalties. (Typically this would mean the difference between the three-quarter rate and the full rate, or with 2003 numbers, $.02 per song, per unit.) The concept of having a cap on mechanicals the label will pay is a pretty non-negotiable concept, even for huge pop stars. (Skip below to the section called Caps on Mechanical for a more detailed discussion of this issue.)

Cross Collateralization
The next most important concept to understand with regard to mechanicals is cross-collateralization. Many costs and royalties throughout a record contract are cross-collateralized against each other, meaning they are all combined. Mechanical royalties, however, are accrued to a separate royalty account. Mechanical royalties should never ever be cross-collateralized against record royalties. Well, there are a few exceptions to this rule, such as home videos, but for the most part, nothing should be allowed to hit this account. So while you may be unrecouped to the label to the tune of a million dollars, you (or more accurately your publisher) would still see checks for mechanical royalties for every record sold. Now the opposite does not hold true -- any overages due to the label on the mechanical account may be freely crossed against the record royalties. Some labels' first drafts will provide that mechanicals and record royalties are crossed, but this should be immediately stricken. In a situation where an artist is being sued and he or she has indemnified the label (we will discuss this in further detail below), the labels will have the right to hold back monies from mechanical royalties to pay any settlements.

Basic Mechanical Rates
OK, now that we understand the basics of how mechanical royalties work, let's discuss the language in this contract. 15(a) provides that the artist agrees to license the compositions to the label for the U.S. and Canada (Canada's laws regarding mechanicals are similar to the those in the U.S.). The reason for this clause is that the music publisher has the right to withhold the first license for any particular song. Once the song has been "published" -- i.e., released in some form -- anyone by law may "cover" it as long as they either negotiate a license via a contract, or follow thestatutory procedure. In reality, the statutory procedure is far too cumbersome to administer, and the labels are not set up to do it, so it is rarely, if ever, used. So if there was a problem and the artist was mad at the label, they would be able to revoke or not give out the right to license particular songs, rendering valuable master recordings useless. This provision, like many others, was added to protect the labels after some smart Artist tried to do exactly this.

Paragraph 15(b) further defines the limits of what the label will pay. This applies to controlled compositions, on Net Sales. (click here for an analysis of Net Sales.)

17(a)(i) 75% of the statutory rate is pretty much standard, and very few writers will get 100% of the stat rate, unless they are superstars. You can try to ask for it, and it's worth fighting for, but the odds of getting it are low and it will also depend on who the publisher is -- if you are self-published and unknown, you have virtually no chance. If the publisher is owned by the same multi-national corporation as the record label, you have a decent chance of getting a full stat rate (since the parent company will be making money on you twice). Now the language about what rate applies is a bit confusing; as a result, it gives the label the advantage of time. I would argue that as the artist, I want to be paid as of the release date. Realistically, if the rate has just gone up and won't go up for two more years, this might not matter. But since it could potentially affect your next six records, I'd argue to have it be the as of the latest date possible.

15(a)(ii) is the same provision for Canada, though the rates are figured a bit differently there. This is pretty much non-negotiable, unless you are a Canadian superstar (even U.S. stars will have to take reductions in their Canadian rates).

15(a)(iii) provides for escalations in the mechanical rates similar to the sales escalations for record royalties. You don't always see this in a first draft. If you can't get higher rates to begin with, this is the next best thing. If I am representing the artist, I would also try to argue that the last rate that applies for any particular project should apply to the next one, as record royalties do.

Caps on Mechanicals
The cap on the number of compositions that will be paid on in 15(a)(iv) is standard language. The 10-song limit was fairly reasonable in the days of vinyl LPs, when most records did not contain more than 10 or 12 songs, and the idea was that the labels wanted to limit their exposure. But in the era when CDs can hold up to 80 minutes of music, and 14-15 songs -- or even 20 songs -- is more the norm, this language no longer seems fair. And looking ahead to when downloads constitute the bulk of our music, the number of tracks would be unlimited, so to limit an artists' creativity in this way is crazy (many artists will still only include the number of songs they can actually get paid on -- why should they release additional songs if the label won't pay them?). I always start by asking for no cap at all. Most major labels will not agree to this, so then I try to raise it to a more reasonable 14, and you can sometimes get this. If it's an indie label, they are more likely to agree to no cap, since they want to be perceived as more "artist friendly" and in my experience, indie labels rarely get around to paying mechanicals anyway.

Excess Mechanicals
What those last few sentences say is if the amount the label has to pay is more than 10 times 75% of the statutory rate, they can deduct any excess from what they owe you, and if it still exceeds what they have to pay, you have to pay them the difference in cash. Now this is utterly ridiculous. What I would agree to -- because you will have to agree to something -- is that they can deduct any excess royalties payable from your record royalties (which would just mean the Artist would be more unrecouped; it wouldn't actually cost the Artist anything). But the bottom line is, this provision directly influences creative decisions, what songs are used, and how many of them are used. It's why most artists donot include cover songs on their albums, as it is just too expensive to do so.

Catch-All Reductions
This language looks innocuous, but actually is very deadly in terms of being paid. It says that any records not sold through normal retail channels are calculated in a different way, i.e., further reductions, and implies these are standard and not negotiable. Now this well may be true, but it's important to look at this exact language. Some reductions - such as being paid 50% mechanicals on club sales, not being paid mechanicals on free goods, not being paid on multiple versions of the same song, and being paid lower rates on budget and mid-priced product, for example - but others are not.

Foreign Rates
The reason this agreement does not mention Foreign Mechanical rates is not that they are not paid in foreign countries. Every civilized country has some provision for paying royalty rates to the owners of the compositions for sales of products embodying those compositions. However, every country has a different method and different terminology. Each foreign subsidiary (or foreign licensee) must follow that country's procedure for obtaining the equivalent of mechanical licenses, and they pay the money to the foreign sub-publishers (subsidiaries or licensees of the main publisher), which are then remanded through the originating country to the publisher and writer.

18. ACCOUNTING
This is the general provision that requires the label to provide you with statements on the status of your royalty accounts on a regular basis. It also provides you with a method of objecting should you disagree with the accountings. 16(a) provides the label with an affirmative obligation to account to you. Labels account twice per year for record royalties and quarterly for mechanical royalties, and on set dates -- and you cannot change that. The labels' entire royalty computer system is set up to automatically keep track of royalties and generate these statements, and there is no way they can manipulate the system otherwise. Note that the label doesn't have to credit your account until after they actually receive the money themselves. The last sentence is a sneaky way to get in the cross-collateralization of the mechanicals we discussed above. This line should be modified to say "excluding mechanical royalties."

When dealing with an indie label, if I represent the artist I insist that accounting to and paying the artist and mechanicals is "of the essence of the agreement" and that failure to do so is a "material breach" of the agreement. I try to further insist that failure to do so gives the artist the right to terminate the agreement and the masters revert back to the artist. You'd think such strong language would be an incentive to the labels not to breach, but oddly, it doesn't seem to be. In my experience, it is rare that small indie labels account properly, much less obtain mechanical licenses and pay the royalties. This often is not a result of maliciousness but more as a result of a lack of experience and adequate staff and finances. But when a deal with an indie label sours or the label runs out of steam, I want to be able to get my client out (hopefully with their masters) as soon as possible. The label will often counter with a requirement that the artist send them notice of such breach and provide them with a cure period. Some contracts will actually say failure to account to the artist and pay royalties is NOT a material breach -- however, I would never agree to that (I'm not as worried about a major record label accounting because they have huge royalty departments with fancy computerized systems, so if they fail to account it's often an oversight or a mistake quickly corrected).

Foreign Payments
16(b) is so that the labels can benefit from advantageous foreign currency fluctuations. This provision was also added because often foreign currencies were so volatile or devalued as to make the dollar equivalent impossible to determine, or in some cases, became so devalued they were worthless almost overnight (which wasn't fair to either party). Therefore, the labels needed to set a standard way of deciding how to handle these issues in accounting to the Artists. All labels use pretty much the same language. Because sometimes there is a long delay in actually receiving foreign payments, especially if the foreign label is a licensee and not a subdivision of the same company, the labels would conceivably have to pay the Artists for foreign sales with money they had not yet collected. As a result, they added a provision that allowed them to stall paying the artists until they received payment themselves. For the most part this is fair and makes sense, but the reality with large multi-national corporations is that while they are busy accounting to different divisions of themselves, they are holding the artist's money and earning interest on it. Unfortunately there is nothing that can be done about this, and I can attest to the fact that even in large computerized companies, the paperwork between foreign divisions can literally take years. The last sentence was added because some countries would not allow export of their currency, or payments to foreign bank accounts from money earned in their countries. Because the labels literally could not get the money out of one country yet owed it to the artist contractually in another, they created a provision that said, If we have to, we'll just pay you in that particular country in the local currency, and that will allow our obligations to pay you to be deemed satisfied. Because the odds of anyone actually getting paid in a country with these types of restrictions are zero, I wouldn't worry about this at all.
Audit Rights
18(c ) is the standard audit provision. The only time an artist would go through the expense of auditing the label is if there were significant (multi-platinum) sales, or if there was some reason to believe the accountings were highly incorrect. Audits are very expensive and the artist must bear the initial costs (more on this later). Plus, audits tend to produce friction between the label and the artist, which both parties will usually try to avoid. Labels expect that superstar and multi-platinum artists will audit them, however. Audits are expensive to the labels, too, as they are time and labor intensive, so they can consume the royalty staff. To that end, the audit provisions have evolved into language that is fairly standard across the board and gives both sides the protections they need.

First, the label will always limit the amount of time after an artist has received the statement in which he or she can object. The reason for this is two-fold: one is to limit its potential exposure and to encourage the artist to stay on top of any royalty issues, and two, if an artist does audit the label and find some expensive problems, they want to limit how far back the artist can go during the audit. The typical limitation for how long after receiving a statement an artist can object is one to three years. If the initial form says one year, the artist's rep should definitely ask for two or three years, and they will usually get it. Another practical reason for extending this time limit is that artists are often on tour or in the studio and working at a frenetic pace, and don't always have time to deal with business issues. This form gives artists six months to commence an audit -- some forms have one year, and I would request that. Actually scheduling an audit is a tricky thing, because the accountants must be available and not busy auditing another label, and the label must not have too many other audits going on due to personnel and resource constraints (the artist is typically not involved in the audit at all).

The other concept to be aware of with regard to scheduling audits is that some auditors will go in and find some discrepancies and wish to apply what they've learned auditing on behalf of one client to another. Because there is no limit to the number of artists the auditor can then sign up as clients and share the costs, the labels have limited actual auditors to auditing the label on behalf of one client at a time. This is so the auditors don't essentially "unionize" entire label's roster and hold the label hostage. This has happened not only with current acts, but with big-selling catalog artists. Becausethe accounting has changed so significantly over the years, some business managers will sign up old-time artists and promise them they can recover money from the label because they have done it for another client. The rest of the provisions in this paragraph are common sense issues that have come up in various audits over the years- that the audit must be during the label's usual business hours and at its place of business, and that an artist can only conduct one audit per statement and during a particular time period, and these are standard in every agreement.

18(d), as we discussed above, is the language adding further limitations and specifics of postponing an audit because the auditor is already auditing the label on behalf of other clients (often an auditor will find something in one audit that will cause them to suggest to other clients that they do an audit as well). Paragraph 18(e) is a further limit on being able to go back to old statements, and also says any suit must be filed in a court of competent jurisdiction. Litigation is very complicated and subject to various state and local rules, and we're not going to go into the intricacies. But the basic limitations contained in the agreement are important to understand. What this says is that if the artist does an audit based on a statement and the audit is not concluded within the 24-month period, the artist cannot then file suit if it's more than two years after the statement was rendered. So the limitation works as an overall time limit. As for jurisdiction, if you file a suit in say Oklahoma, where you received the statement, and the court rules you should have filed in New York, where the record company is located, and you are past the time limit in the agreement to file, you can't go back and refile in New York. This is why it is important to have not only competent music specialized legal representation, but business management that specializes in the intricacies of the music business as well.

Paragraph 18(f) is a confidentiality clause with regard to audits, again to prevent the artists from banding together against the label (as well to prevent the label's competitors from gaining valuable information).

Paragraph 18(g) is a pass-through of any applicable monies the label would recover from an audit of the distributor. This is probably more applicable -- and more important -- for an indie label with outside distribution.

One concept not in this form, but either included in some first drafts or often added by the artists' attorneys, is that if the audit reveals underpayment by the label of more than ten percent (10%), the label must reimburse the artist for the cost of the audit. The idea is to encourage the label to account honestly, and if they don't -- and essentially cause the artist to have to audit them -- they should bear the cost for such.


19. WARRANTIES, REPRESENTATIONS, RESTRICTIONS AND INDEMNITIES.
(a)     You warrant and represent that:

(i) You are not under any disability, restriction or prohibition, whether contractual or otherwise, with respect to (A) your right to enter into this agreement, and (B) your right to grant the rights granted to Label hereunder, and to perform each and every term and provision hereof;

(ii)     Label shall not be required to make any payments of any nature for, or in connection with, the acquisition, exercise or exploitation of rights by Label pursuant to this agreement, except as specifically provided in this agreement;

(iii)     You are or will become and will remain to the extent necessary to enable the performance of this agreement, a member in good standing of all labor unions or guilds, membership in which may be lawfully required for the performance of your services hereunder;

(iv)     Neither the "Materials" nor any use of the Materials by Label will violate or infringe upon the rights of any Person. "Materials" as used in this subparagraph means any musical, artistic and literary materials, ideas and other intellectual properties, furnished by you or Artist and contained in or used in connection with any Master Recordings made hereunder or the packaging, sale, distribution, advertising, publicizing or other exploitation thereof;

(v)     There are now in existence no prior recorded performances by Artist unreleased within the United States or elsewhere in the world; and

(vi)     All of your representations and warranties shall be true and correct upon execution hereof and upon delivery of each Master Recording hereunder, and shall remain in effect in perpetuity. Label's acceptance of Master Recordings or other materials hereunder shall not constitute a waiver of any of your representations, warranties or agreements in respect thereof.

(b)     (i)     During the Term of this agreement, you will not enter into any agreement which would interfere with the full and prompt performance of your material obligations hereunder, and you will not perform or render any services for the purpose of making phonograph records or Master Recordings for any person other than Label, except as otherwise expressly permitted in this agreement. After the expiration of the Term of this agreement, for any reason whatsoever, you will not perform any composition which shall have been recorded hereunder for any Person other than Label for the purpose of making and releasing phonograph records or Master Recordings prior to the date five (5) years subsequent to the date of delivery of the Master containing such composition or two (2) years subsequent to the expiration date of the Term.

(ii)     Except as otherwise expressly permitted in this agreement, you will not at any time record, manufacture, distribute or sell, or authorize or knowingly permit Artist's performances to be recorded by any party for any purpose without an express written agreement prohibiting the use of such recording on phonograph records in violation of the foregoing restrictions.

(c) You may render non-musical performances in motion pictures or television shows provided that no such performance interferes with the full and prompt performance of your material obligations under this agreement.

(d)     You and Artist shall comply with any other restriction, and shall grant any additional rights and do such other things, as may be required by the Distributor pursuant to the Distribution Agreement so that Label may perform all of its obligations thereunder. Notwithstanding the foregoing, Label shall consult with you regarding entering into the Distribution Agreement and shall use reasonable efforts to procure a Distribution Agreement consistent with its business judgment that contains terms which are no less favorable to you than the Distributors customary terms for new artists.

(e) In the event that you or Artist shall become aware of any unauthorized recording, manufacture, distribution or sale by any third party contrary to the foregoing re-recording restrictions, you shall notify Label thereof and shall cooperate with Label at Label's expense (without prejudice, however, to any of Label's rights hereunder) in the event that Label commences any action or proceeding against such third party.

(f)     You will at all times indemnify and hold harmless Label from and against any and all claims, losses, damages, liabilities, costs and expenses, including, without limitation, legal expenses and reasonable third party counsel fees, arising out of any alleged breach or breach by you or Artist of any warranty, representation or agreement made by you or Artist herein, which has resulted in a final judgment or has been settled with your written consent (it being understood that your consent shall be deemed given to any settlement not in excess of Five Thousand ($5,000) Dollars). Notwithstanding the foregoing, if you withhold consent to any settlement which Label is willing to make, the foregoing indemnity shall apply and Label may settle such claim in its sole discretion unless you promptly assume all costs of defending against such claim, demand or action including, without limitation, court costs, reasonable attorneys' fees, and direct expenses theretofore incurred by Label in connection with said claim, demand or action; provided that in the event you assume said costs, Label shall nonetheless have the right to settle such claim, demand or action in its sole discretion without your consent, provided that, in such event, the foregoing indemnification shall not apply with respect thereto. You will reimburse Label on demand for any payment made at any time after the date hereof in respect of any liability or claim in respect of which Label are entitled to be indemnified. Upon the making or filing of any such claim, action or demand, Label shall be entitled to withhold from any amounts payable under this agreement such amounts as are reasonably related to the potential liability in issue. Notwithstanding the foregoing, Label shall liquidate such withheld amounts if within twelve (12) months no lawsuit has been commenced and active settlement discussions are not then taking place. You shall be notified of any such claim, action or demand and shall have the right, at your own expense, to participate in the defense thereof with counsel of your own choosing; provided, however, that Label's decision in connection with the defense of any such claim, action or demand shall be final. You shall have the right to post a bond in an amount equivalent to the sum being withheld by Label in respect of such claim with a good and sufficient surety approved by Label, provided that such surety agrees unconditionally, in writing, to pay all costs, fees, damages, etc. incurred by Label by reason of such claim.

(g)     You shall execute and deliver to Label, upon Label's request therefore, a form of artist inducement and guarantee letter as may be required by a Distributor. If you shall fail or refuse to execute and deliver any such inducement letter promptly following Label's request therefore, you and Artist hereby appoint Label your true and lawful attorney-in- fact to execute such inducement letter in your name and on your behalf. Such power of attorney is irrevocable and is coupled with an interest.

Boilerplate
These last sections of the agreement are what are called collectively the "boilerplate," meaning that they don't specifically apply to record contracts so much as they are procedural and legal issues. And these are the things that concern the lawyers, not the creative folks. There are a few important things good lawyers know to be on the lookout for throughout this section.

Warranties & Representations
The basic gist of the warranties and representations is that the Artist must be legally responsible for what they deliver to the label, including music, artwork, and etc. So if they steal someone else's songs and the label is sued, the artist is held responsible. This is only reasonable since the label has no way of controlling what the artist turns in. That being said, the reality is the label has the deep pockets, not the artist, so they will always be the ones sued. This entire section is designed to protect the Label in the case of lawsuits.

19(a)(i) and (ii) are pretty straightforward. Subsection (iii) is applicable if the label is a signatory to the unions (all majors are) and won't necessarily be in an indie label contract, and (iv) is a broad but important clause that puts the burden of not using any infringing materials on the artist (the term "materials" covers pretty much everything.) Not all forms specify that this clause applies only to Materials "furnished by Artist," so I make sure to specify that. (v) only applies to a new artist, and doubtfully would even apply then. Typically there is a schedule attached to the agreement listing prior masters and specifying who retains ownership of them. The Artist should insist on owning all prior masters unless there is a reason why they should be part of the agreement (such as the label is re-releasing a self-released record while the artist is making their next one).

Re-Recording Restrictions
19(b)(i) -- This is section actually does concern the creative folks and can be very important to the artist at the end of the term of the contract (or if it is a non-exclusive deal.) The first part of this section reiterates the exclusivity provision, while the second part contains what is called "re-recording restriction." Some savvy artists that didn't get along with their labels had previously rerecorded all their biggest hits in better, newer versions and sold them at higher profits either to different labels, or directly to consumers (John Denver, for example, did this in TV-only compilations). This provision usually extends beyond the term of the agreement. Because this restricts an artist's ability to put out live records, artists will fight to get this restriction reduced, although it will never be taken out all together. I would start by suggesting a two-year restriction from the time the record is released (as opposed to the end of the term of the agreement). The longest period I would ever agree to is two years after the term. Five potential years is unfairly creatively restrictive.

There is a big difference if the restriction runs from release versus the end of the term (many forms will have a combination of the two). If a successful artist is on a label for 10 years and has a three-year re-recording restriction after the term, they could be prevented from putting out live or different versions of a song (such as an "unplugged" style) for up to 13 years! When you are talking about an artist's creative life, these types of restrictions are unreasonably restrictive, although it is understandable that the label wants to protect its assets to the extent it can.

What the label will agree to will vary from label to label. It is always possible to get the restriction waived at a later date, especially if you can argue that any late releases will stimulate catalog sales (which doesn't work if the original material is cut out and not available for sale). Labels tend to take the opposite tactic and fear that it would corrupt sales of the records to which they own the rights. Realistically, many artists can't afford the legal fees to address this at a later date, and need to be able to put out their own records after the term to survive (this is especially true since manufacturing costs are next to nothing and artists can easily sell product over the Internet.) Since the future value of any particular songs is impossible to predict, I always try to get the best deal in this provision at the outset.

Non-musical performances
19(c ) is a built-in exception for acting, and the reason the label has offered this (as opposed to the artist having to negotiate for it) is that the artist would have the right to do it anyway (the exclusivity only applies to musical performances) and any acting the artist might do would only help their record sales. I would add theatrical stage performances to the list as well if I were concerned that the artist has some acting aspirations or history.

Distribution
19(d) is applicable if the label is going to use more than one distributor, or if they are going to license a record to different companies in different territories. If this were an indie deal, I would insist on much stronger language here. For example, I would require the label to license the records in various territories within a certain amount of time, and insist on written artist approval for each distributor. Further, if the label fails to license any given record in any territory within the allotted time, the artists should have the right to license it themselves. When it's a major label, I'm more concerned with release commitments than approving the distributors, since they will use one major distributor per territory, and usually the same company worldwide (or in some cases, one major distributor in the U.S., and another major for the rest of the world).

Piracy
19(e) is a requirement that the artist cooperate with regard to lawsuits for piracy (unauthorized reproductions of music). Most piracy suits are handled by the RIAA (the record companies' lobbying organization) with labels as cooperating parties. Sometimes they need affidavits from the artists for the lawsuits, so this provision simply requires the artists to cooperate.

Indemnity
This is where a lawyer must be very careful about the language of the boilerplate and re-read every word several times. Every provision will be worded slightly different; however, the basic concept is not negotiable. The artist is financially responsible to the label if their actions or omissions cause any claims. This is also one of the few areas where mechanical royalties can be withheld to satisfy any potential damages. This language already includes what would automatically be part of the first round of changes, which is that any liability must be "reduced to its final judgment or settled with artist's consent" before the artist would actually be charged with the costs. The five thousand dollar exception is to allow the label to settle nuisance suits quickly and cheaply. This sentence also specifies "third-party counsel fees," which is a notable limitation -- the label can't charge back the time of their in-house lawyers whose salaries they would have to pay regardless. The requirement for reimbursement is a formality, since in reality most artists don't have the cash to reimburse the label, and they usually just withhold royalties due. But this is a built-in legal protection for other possible scenarios in which the label could have to pay significant legal fees to defend a lawsuit. The twelve-month liquidation clause is not always in first drafts, but the label does not want to be responsible for withholding money due to the Artist for longer than is reasonable. This clause provides that the Label shall notify the Artist, but not the other way around. Usually the form the record company drafts will say both parties agree to notify the other immediately upon receipt of notice of any claim. The reason for this is that time is often of the essence in lawsuits - sometimes when the parties first hear about a lawsuit they only have a few days to file an answer in court, or claim insufficient notice, etc. So it is key that the parties communicate, even if they are adversarial at the time (for example, if the label was going to use as a defense to the suit that it was the Artist's fault, they may not be so eager to notify the Artist of the claim). Most artists will not be in a financial position to post a bond, but the idea is that rather than have the label withhold royalties, the artist has other options.

Artist Inducement
19(g) is sometimes simply an exhibit to the agreement, whereas if the artist is signed to the label via a production company, another label, a corporation, etc., the individuals that make up the artist must sign to personally agree to be bound by the terms, since the contract is essentially for personal services. This form has the artist agreeing to do this if necessary, rather than actually doing it. This is one of those times I wouldn't nitpick the form. The legal mumbo-jumbo about appointing the label as the attorney-in-fact and the interest being irrevocable and coupled with an interest is legal language to get around case law that would render this provision not adequate otherwise. Any time the law changes or a particular provision is ruled on by the courts, you can guarantee that the label's lawyers will include new language in their forms to try and protect themselves.

20. LEGAL AND EQUITABLE RELIEF.
You acknowledge that your services hereunder, as well as the Master Recordings recorded and to be recorded and the rights and privileges granted to Label under the terms hereof, are of a special unique, unusual, extraordinary and intellectual character which gives them a peculiar value, and that, in the event of a breach by you of any material term, condition, representation, warranty or covenant contained herein, Label will be caused irreparable injury and damage. You expressly agree that Label shall be entitled to seek the remedies of injunction and other equitable relief to prevent or remedy a breach of this Agreement, which relief shall be in addition to any other rights or remedies, for damages or otherwise, which Label may have.

Injunction
The courts are loath to grant an injunction any time monetary damages will suffice, especially with regard to personal services. There is a presumption against preventing people from making a living or practicing their trade. This clause is an attempt to agree in advance to terms that would otherwise be potentially decided by a judge, by saying the artist's services are "unique," which standard has been established by case law. If the artists had any say in this, there is no way they would agree to it, because it could conceivably prevent them from recording or playing music. Unfortunately, however, the record companies have the power on this one and won't agree otherwise. This is one of those points I'd love to see the artists band together and not agree to, but I don't expect that will happen.

21. NOTICES.
Except as otherwise specifically provided herein, all notices hereunder shall be in writing and shall be given by courier or other personal delivery or registered or certified mail or telegraph (prepaid), at the respective addresses hereinabove set forth, or such other address or addresses as may be designated by either party. Such notices shall be deemed given when mailed or delivered to a telegraph office, except that notice of change of address shall be effective only from the date of its receipt. In addition to the address on page 1, a copy of all notices given by you to Label must be sent to _____________.

Notice
Many people ignore this paragraph, but it is actually more important than most people realize. There are two issues typically addressed in a notice provision. First -- and most importantly -- is that the label will send all correspondence -- including royalty statements, checks, permissions, etc. -- to the Artist to a particular address. What Artists often don't realize -- and if I am representing the label, I try to make as clear as possible -- is that it is their responsibility in perpetuity to make sure the label has the correct contact information. So many times when I worked at a major label I would get calls from Artists who said they hadn't received statements in 30 years, yet they knew their song was in a movie, or on a compilation, or etc. And I'd ask them if they ever sent us a change of address, which of course had never occurred to them.

Modern Notice provisions often provide for a courtesy copy of all Notices to go to the Artist's manager or lawyer, and usually provide their royalty statements and checks go directly to their business manager (sometimes this is done via letter of direction, sometimes it's written into the contract, which I think is easier, since contracts and correspondence are not always kept in the same files). Over long periods of time, Artists switch representation or don't have any at all if they are inactive, and lawyers move their offices, change the name of their firms, retire, etc. So it is ultimately the artist's responsibility to provide up-to-date addresses to the label (and most labels will require this to be done in writing, signed by the artist. I've actually had fraudulent requests for address and payee changes, and I typically would compare the signatures on the contract to the address change requests).

The second aspect of the Notice provision is actual delivery of notices. There are two types of notices, and this paragraph usually addresses both of them. First is notice sufficient under the agreement, for example any time consent is required, or if the artist is in breach of the agreement, or an option is exercised. The second is notice for any potential litigation, which is a more formal kind of legal "notice." The language in this form is not at all atypical and it contains references to telegraph offices! Obviously it hasn't occurred to anyone to update this since 1956! Because this language is in the agreement for a reason, I prefer to take out the old-fashioned language (I've also seen references to telexes and other outdated technologies in various forms) and say notice must be via any internationally recognized overnight courier service for which a signature is required for delivery (which basically means Fed Ex, DHL, UPS, the USPS, etc.) and I specify the exception for obtaining certain consents under the agreement may be done via email or fax, provided receipt can be verified. I strongly believe in modifying this aspect of the notice provision for convenience and practical reasons -- if the language is going to be in the agreement, it should accurately reflect how the parties do business in today's world. I rarely get an argument from either side about this, though many lawyers are still attached to using traditional certified mail and will usually want to include that option.

The more formal type of notice is what must be given by law for any claims filed in court against a person or corporation. It is not as obvious from the language of this particular form, but most agreements will attempt to contract around a state's requirement for formal notice with regard to serving the Artist in a lawsuit. Because these requirements are often tricky and hard to comply with, the labels prefer to say they don't have to follow them and you agreed to waive any objections to proper notice, yet these provisions are always one-sided, and don't allow the artist to serve the company in the same manner. I believe the government has good reasons for requiring notice in a certain manner, so I try to add language saying the company must comply with all local requirements for formal notice, but it will be a hard point to get the companies to agree to. (And the legal requirements in every jurisdiction are different.)

22. FAILURE OF PERFORMANCE.
(a)     Neither party shall be entitled to recover damages or terminate the Term by reason of any breach by the other party of its material obligations, unless the latter party has failed to remedy the breach within a reasonable time following receipt of notice thereof. If you claim that additional monies are payable to you hereunder, Label shall not be deemed in material breach of this agreement unless such claim is reduced to a final judgment by a court of competent jurisdiction and Label fails to pay you the amount thereof within thirty (30) days after Label receives notice of the entry of such judgment.

(b)     If Label refuses to allow you to fulfill your Recording Commitment for any Contract Period and if, not later than sixty (60) days after that refusal takes place, you notify Label of your desire to fulfill such Recording Commitment, then Label shall permit you to fulfill said Recording Commitment by notice to you so such effect within sixty (60) days of Label's receipt of your notice. Should Label fail to give such notice, you shall have the option to terminate the Term by notice given to Label within sixty (60) days after the expiration of the latter sixty-day period; on receipt by Label of such notice the Term shall terminate and all parties will be deemed to have fulfilled all of their obligations hereunder, except those obligations which survive the end of the term (e.g., warranties, rights of consent and approval, re-recording restrictions and obligations to pay royalties), at which time Label shall pay you, in full settlement of Label's obligations to you (other than those royalty obligations), an Advance in the amount equal to:

(1)     The minimum Recording Fund fixed in paragraph 8 for each Album, then remaining unrecorded, of the Recording Commitment for the Contract Period during which such termination occurs (less any amounts previously paid or incurred by Label which may or were intended to reduce any of such Recording Funds), less:

(2)     The average amount of Recording Costs for the last two (2) Albums recorded hereunder (or, of only one (1) Album has been recorded, the amount of the Recording Costs for that Album), multiplied by the number of such unrecorded Albums referred to in clause (1). But in no event shall such sum be less than ($ ) Dollars. If Master Recordings sufficient to constitute at least one (1) full Album have not been completed, then the amount of the Advance payable to you under the preceding sentence shall be eighty-five (85%) percent of the minimum Recording Fund for the Album concerned (less any amounts previously paid or incurred by Label which may or were intended to reduce such Recording Fund), but in no event shall such sum be less than ($ ) Dollars. If Label does not directly pay or incur Recording Costs for any recording hereunder, then an amount equal to no less than eighty-five (85%) percent of the Recording Fund thereto, and of any other amount paid by Label to Artist with respect thereto, shall be treated as Recording Costs for the purposes of this paragraph. In the event you fail to give Label either notice within the period specified thereto, Label shall be under no obligation to you for failing to permit you to fulfill such Recording Commitment.

Pay or Play
The above section is what is commonly referred to as a "pay or play" clause. Ten years ago these provisions were difficult to get in an agreement, but they are becoming more common as part of a first draft. The gist of it is that if you are in compliance with the agreement and the label exercises an option and then decides they don't want to make a record with you (which would require them not only to spend money and resources recording, but could trigger release commitments, marketing and promotion commitments, etc.), they have the option of paying you a certain amount of cash and letting you get out of the contract. There are many reasons a label might want to do this -- the artist proved difficult to work with in the past, the label's staff has changed, the label is having financial problems or they have decided to change creative directions, etc. Most artists will be unrecouped if the label elects to exercise its pay or play option, so it's important the artist is otherwise in compliance with the agreement. I try to make sure if an artist is unrecouped, the pay or play money does not hit an artist's royalties account, and that such monies areinstead subject to a so-called "flow-through" provision (meaning th artist would get the actual cash, regardless if they have not paid back the label all of the money they owe).

Let's look at the specific provisions contained in this clause. (a) addresses general breach of contract and termination issues. The first sentence uses broad language to cure any breaches in a "reasonable amount of time." I prefer a measurable amount of time -- certain breaches may have different cure periods that will be laid out within the agreement. It is usually in the artist's best interest to have as short of a cure period as possible, so I will change the broad language to 30 days (if I were representing the label, I'd probably start with 90 days, but no less than 60). The second sentence of (a) requires the artist to sue the label, win the suit, and wait out any appeals in order to get them to pay any money that is due. If I were the artist's lawyer, I would insist on striking that provision completely. I would also insist (usually in the audit provisions, and especially if it's a indie label) that failure to provide royalty statements or to pay any monies due is a material breach of the agreement. A major label most likely would not agree to that, but I'm not as worried about a major label not accounting to or paying an artist. From experience, I know the odds of an indie-label accounting can vary, so I can sometimes use that provision to get out of an agreement later.

(b) is the entire pay or play clause. The language and concepts will be pretty standard from agreement to agreement. The thing to worry about here is the floor dollar amount they will pay you, and how it kicks in. When I represent an artist I usually insist on such a clause, as well as that any partially recorded or finished unreleased masters would become the artists' property. Usually if the artist goes to another label, the original label will insist on an override royalty on any masters already recorded under the original deal.

23. ASSIGNMENT.
(a)     Label shall have the right, at its election, to assign any of Label's rights hereunder, in whole or in part, to any subsidiary, affiliated, controlling or other related company, and to any person, firm or corporation owning or acquiring a substantial portion of Label's stock or assets, and any rights so assigned may also be assigned by the assignee. Notwithstanding the foregoing, this agreement is subject to assignment to Distributor, and Distributor shall have the right to exercise, implement or enforce any rights granted to Label hereunder on Label's behalf. Label may also assign its rights hereunder to any of its licensees to the extent necessary or advisable in Label's sole discretion to effectuate the purposes hereof.

(b)     You may assign your rights under this agreement to another corporation, all of whose capital stock is owned solely by you, subject to the following conditions:

(1)     The assignee shall be subject to Label's approval in Label's reasonable discretion;

(2)     The assignment shall not be effective until you have delivered to Label an instrument satisfactory to Label in Label's reasonable discretion effecting the assignment and the assignee's assumption of your obligations, and Label has executed that instrument to evidence Label's approval of it;

(3)     No such assignment shall relieve you of your obligations under this agreement; and

(4)     If such an assignment takes place, any further transfer of the rights assigned shall be subject to the same conditions.

Any purported assignment by you in violation of this subparagraph 18(b) shall be void.
Assignment
Labels often want to be able to "assign" an agreement to a different legal entity for business reasons that are most often not related to the creative aspects of the deal. Sometimes a label is partially owned by the parent corporation and the corporation buys the other half, creating a new legal entity. Sometimes there are mergers and acquisitions of labels by different large corporate entities. In order to avoid paperwork nightmares -- and artists possibly having the right to terminate their agreements -- these assignment clauses became broader and broader. Going back to the 1950s, the agreements stated that the artist's recordwould be released on a certain label name, because at that time labels were brand names with different reputations and prestige. As the corporate world became more sophisticated and the companies owning the labels larger, the assignment became less of branding issue and more of legal one. However, in many cases there is still prestige in being associated with a particular label. For example, artists that had been originally signed to A&M or Geffen, ended up on a different label when those labels were closed down in a merger with Universal. Because some of the artists had had long associations with their original labels, many were understandably upset to suddenly have their records released on a different label. But from the labels' perspective, they need to be free to do business on a larger corporate playing field without the artists signed to the label being able to prevent them from doing so. And since the labels have the power in this situation, this provision is just not negotiable anymore. Sometimes if the artist is signed through a smaller prestigious label, especially in certain niches of music (say, jazz or hip-hop), the artist can specify elsewhere in the agreement that their releases will come out on that label, but the agreement will still assignable to a different corporate entity.

Before most artists had established production companies, the agreements did not allow artists to assign their rights. As this created tax and other liability issues, a standard form will now allow the artist to assign the agreement to an entity set up for that purpose, owned by them to furnish their services, within a very limited scope. The labels don't want artists taking on partners that the labels would then have to deal with -- for example, an artist that ran up a big gambling debt to a guy named "Big Louie" and then tried to assign his or her recording agreement to Big Louie. Therefore, the assignment language will be very broad on the labels' side, but very limited for the artists.

24. MISCELLANEOUS.
(a)     This agreement contains the entire understanding of the parties hereto relating to the subject matter hereof and cannot be changed or terminated except by an instrument signed by the party to be bound. A waiver by either party of any term or condition of this agreement in any instance shall not be deemed or construed as a waiver of such term or condition for the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations, and agreements contained in this agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party. The headings of the paragraphs hereof are for convenience only and shall not be deemed to limit or in any way affect the scope, meaning or intent of this agreement or any portion thereof.

Agreements Must Be In Writing
Many states will require under their statute of fraud that agreements for personal services lasting a certain amount of time, such as more than one year, must be in writing and signed by the parties in order to prevent fraud or indentured servitude. Further, because this agreement potentially deals with the transfer of copyrights and trademarks, there are requirements in the copyright and trademark laws that these rights can only be transferred in writing. Contract law sometimes provides acceptance for oral or informal modification of agreements, so this language will specifically clarify that such modifications are not sufficient. Usually the form will say any modification of the agreement that is binding on the label must be in writing and signed by both parties.

(b)     It is understood and agreed that in entering into this agreement, and in rendering services pursuant thereto, you have, and shall have, the status of an independent contractor and nothing herein contained shall contemplate or constitute you as Label's employee or agent.

Employees Versus Independent Contractors
The reason for this limitation, which will be in any record contract, is that because it is for exclusive personal services, the record label could be subject to federal labor laws. The labels need to make sure they couldn't be subject to providing services and benefits to the artists above and beyond what it has contracted for. That being said, I think it would be really cool for the labels to be able to offer the artists health insurance through the same or similar programs they offer to their employees. I hope one day that does become a reality.

(c)     Those provisions of any applicable collective bargaining agreement between Label and any labor organization which are required, by the terms of such agreement, to be included in this agreement shall be deemed incorporated herein.

Unions
This is a catch-all to cover all of the Union requirements, especially if new requirements or restrictions are enacted after the agreement is signed that would still apply.

(d)     THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK, AND THE VALIDITY, INTERPRETATION AND LEGAL EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. THE NEW YORK COURTS, ONLY, WILL HAVE JURISDICTION OF ANY CONTROVERSIES REGARDING THIS AGREEMENT; AND, ANY ACTION OR OTHER PROCEEDING WHICH INVOLVES SUCH A CONTROVERSY WILL BE BROUGHT IN THE COURTS LOCATED WITHIN THE STATE OF NEW YORK, AND NOT ELSEWHERE; PROVIDED, HOWEVER, IF LABEL IS SUED OR JOINED IN ANY OTHER COURT OR FORUM IN RESPECT OF ANY MATTER WHICH MAY GIVE RISE TO A CLAIM BY LABEL HEREUNDER, YOU CONSENT TO THE JURISDICTION OF SUCH COURT OR FORUM OVER ANY SUCH CLAIM WHICH MAY BE ASSERTED BY LABEL. ANY PROCESS IN ANY ACTION OR PROCEEDING COMMENCED IN THE COURTS OF THE STATE OF NEW YORK ARISING OUT OF ANY SUCH CLAIM, DISPUTE OR DISAGREEMENT, MAY, AMONG OTHER METHODS, BE SERVED UPON YOU BY DELIVERING OR MAILING THE SAME, VIA REGISTERED OR CERTIFIED MAIL, ADDRESSED TO YOU AT THE ADDRESS FIRST ABOVE WRITTEN OR SUCH OTHER ADDRESS AS YOU MAY DESIGNATE PURSUANT TO THIS AGREEMENT. ANY SUCH DELIVERY OR MAIL SERVICE SHALL BE DEEMED TO HAVE THE SAME FORCE AND EFFECT AS PERSONAL SERVICE WITH THE STATE OF NEW YORK.


Governing Law
The reason this provision is all in CAPS is to make sure it stands out from the rest of the agreement. This is a drafting technique to highlight an extremely important provision (the same way typing on the Internet in all caps is considering "shouting."), the theory being that if all of it is capitalized, the artist can't claim it was just another paragraph of boilerplate in a 60-page agreement and contend he/she didn't really agree to it. So the all-CAPS style is to insure this will stand up in court (this isn't such a bad thing for the artist, as you'll see in the next paragraph).

As previously discussed, if given the choice the labels will opt for N.Y. law, rather than California law, to govern (click here to go back to that discussion). Most major labels - and even some indies -- have offices in both places, and their lawyers have advised that N.Y. law should govern. Now you will sometimes see agreements that have California law governing, or even Tennessee and very occasionally, Georgia. This form also provides that all lawsuits will be located in N.Y., usually in the district of Manhattan, where courts are used to dealing with these issues and have the most case law and judges who understand the issues and industry, as well as it is convenient for most of the music business attorneys and record labels

This provision should also address the issue of personal jurisdiction. What this means is that if you are an artist in Kansas who's never stepped foot in New York, and who is signed by A&R scout there, if the label needed to sue you for some reason they'd have to sue you in Kansas, where they could legally serve you with court papers. Even if the contract says N.Y. law governs, N.Y. law might say they would have to sue you in Kansas -- but the court would apply N.Y. law. To get around this, the language usually says something to the effect that you agree to submit to personal jurisdiction in Manhattan, and agree to waive objections to such jurisdictional issues (which would mean you'd possibly physically have to come to N.Y. to defend such a lawsuit). This provision gives the label the right to sue the artist in N.Y., and in fact says they may not sue anywhere else, and that the artist is legally subject to such suit. This is not negotiable, no matter how big a star the artist is. This can be a pain -- and expensive for an artist who has to defend a lawsuit away from their home base -- but it happens so rarely. Also, the advantages of the New York courts can work in the artist's favor. If the artist has a choice at all, their first choice for governing law should be California, followed by N.Y., and then Tennessee. If the deal is with an indie label and the agreement says, for example, that Minnesota law governs, then I'd probably try to change it to N.Y. if I had any basis to do so.

(e)     If any part of this agreement shall be determined to be invalid or unenforceable by a court of competent jurisdiction or by any other legally constituted body having jurisdiction to make such determination, the remainder of this agreement shall remain in full force and effect.

Severance
This is a basic contract principle that states that if part of an agreement is unenforceable, the entire agreement may be ruled invalid. This provision gets around that general rule by saying the rest of the agreement remains in effect should one section be deemed invalid.

(f)     You specifically acknowledge that have been advised and given a full opportunity to seek your own independent legal counsel concerning the interpretation and legal effect of this agreement and that you have either obtained such counsel or have intentionally refrained from doing so and have knowingly and voluntarily waived such right.

Right to Counsel
I can't stress again how important it is that artists obtain experienced representation. This is language is included in the agreement so that the artists must specifically waive any objections, and can't claim later they didn't understand what they were signing. There was a famous case in the 1970s - which was ultimately settled out of court - involving Bruce Springsteen, who signed a contract one night in a parking lot on the hood of a car without reading it, much less getting legal advice, on the basis of the fact that he had a good relationship with the people he was signing with. It took him years and millions of dollars to ultimately get out of the agreement and regain control over his music publishing. In the meantime, Springsteen was enjoined for years in his prime creative period from entering a recording studio. So let this be a lesson to all artists out there -- don't jump to signing a deal just because it's "a deal," don't sign anything that doesn't seem right, and get a lawyer who knows what they are doing. Really,, I mean it!

(g)     This agreement shall not become effective until it is executed by all parties.

Statute of Frauds
Again, for various legal reasons the contract must actually be signed by the parties. Because agreements are sometimes backdated, this is added to clarify when the obligations contained therein actually become effective.


IN WITNESS WHEREOF, the parties hereto have this day signed in the spaces provided below.
[Record Company]
d/b/a [Record Company]



BY:__________________________
                                    AN AUTHORIZED SIGNATORY


_______________________
[Artist]

Soc. Sec. # _____________


Other attachments
Schedule of Masters
Artist inducement
LODs

Additional Provisions
There are various additional provisions that are in some forms, though not all of them. They are more likely to be in major-label forms than those from independent labels. I'm going to discuss a few of them so you will be aware that these are not uncommon.

Demos
Sometimes a deal is structured as a demo deal or a "first look" development deal. The gist of this is that the label will be obligated for a lot less money upfront -- perhaps they will finance some initial demos, or givethe artist some money to live on while he develops material -- with an exercisable option for a first record. In the dance world, something similar would be a deal for a single or multiple singles, with options for a full LP. Sometimes the deal will be a short form contract, with the written understanding if the label exercises the option for a first LP, there will then be a long form drafted, although sometimes the long form is done right away (especially if the label is planning on committing to the band). Whatever money is advanced for demos or development will ultimately be recoupable under the record contract, although it will be considered a separate budget from the later recording fund. Typically, the label will also have a last right of refusal, so that if they choose not to exercise the option and another label is interested, the label that first took the gamble on the artist would have the right to match the deal anyone else was offering.

Sample Clearers
Some contracts will provide that the label has the right to hire an outside firm to clear any samples contained in the agreement, and that they can charge you back for the firm's services. There are clearance houses that specialize in handling these licenses, and they can often get better rates than the labels themselves because of the volume of business they do. Plus, the labels trust that the clearing houses will actually get the licenses, and thus they can avoid getting sued, whereas oftentimes the artist will be responsible for doing so and not get the paperwork done.

Insurance Policies
Labels will often have the right to buy life insurance on the artist's life, with the company as the beneficiary which would be compensated for lost revenues in the case of the early death or incapacitation of the artist. They will require in the agreement that the artist agree in advance to submit to an insurance physical if necessary. The labels' will only actually buy these policies on their superstar artists, but you should know that you might have to agree (sometimes years in advance) to submit to a physical.

Concert Tickets/ Billing
Contracts will often require the artist to furnish to the label a certain number of tickets for each live performance. When the artist plays large venues and gets 50 free tickets for each night, giving the label 20 of them to save money is a fair proposition. However, if the show is in a club where maybe the artist gets 10 tickets -- or maybe none -- requiring the artist to provide 20 free tickets every night is overly cumbersome and often financially impossible. I usually modify this provision to say "where possible" or strike it altogether, as in practice artists who receive extra comped tickets are generally more than happy for the label to use them for press or promotion (but if doing so requires the artist to buy tickets for their friends and family, then I think it's an unreasonable request). Also, [another standard provision you will see is that the artist will be billed as an exclusive recording artist for that particular label.

Websites
Many contracts will have website provisions. The form will say that the label, not the artist, will own the band's web site, and have the right to maintain the domain name registration. I automatically will not agree to this. Even if the artist is not computer- or Internet-savvy, most fans are. I think it is crucial that artists maintain control of their own websites. If the label owns the artist's site, when the artist leaves the label they would have to create a new web address, which can be very cumbersome. The contracts will sometimes say in addition to the label owning the site, the production fees are recoupable. Again, these are marketing costs and should not be recoupable. If the label insists, maintain your own site and only agree to link to the label's site. Another reason for this is that the label will want to be able to run promotions and other events through the site, but in reality most artists will have much more content and better sites if they are involved in it themselves. Agree to work with them, of course, and consider the label's marketing staff's input, which often can be excellent, but own and control your own site.

Trademarks
Related to web sites are trademark issues. In the warranties and representations section there will be broad language that will require the artist to indemnify the record company for the use of their name, but all major labels will run a trademark search on any new signing artist's name. There is an outside service that provides these searches, and they cost at least several hundreds of dollars, and sometimes more if outside trademark attorneyis required. A trademark can be both a name and a logo. Now if you are a smart artist, your lawyer has probably already run a trademark search on your name, and possibly even registered it. If this is the case, put this in the contract and offer to provide the search report to the label so they don't automatically do one and charge you back for it. The label will rightly want to see the report and make a determination themselves as to whether the name is clear, and not just take your or anyone else's word for it. Unfortunately, once a band is signed to a deal under a name and search is run, they are often in the position of having to change it because the name will infringe a pre-existing trademark. The new name then has to be searched, incurring even more fees. Here's a tip: if you are thinking about using a certain name, at the very early stages put the name into various Internet search engines and see what comes up. If it's anything music related, chose something else.Once you are close to picking name, ask the in-house lawyers to do a preliminary search, which is basically an Internet search of the name to see if anything turns up -- including various subscription legal services to which they will have access -- before they actually incur the expensive fees for a formal trademark search (most of the time they won't automatically do this because they are too busy, but will most certainly try to accommodate you if you ask, which ultimately saves you money).

Conclusion
I hope this article helped explain the many issues contained in a record contract. I can't stress enough that you should NOT just rely on this article -- make sure you are represented by competent counsel. While the general issues are important to understand, the actual contract depends on every single word, and a basic overview such as this one is no substitute for an actual lawyer. In the music business, the most important thing is good relationships with the people you work with, and a well-connected lawyer can do wonders for your career. If you are lucky enough to be signed to a record deal, read everything yourself, ask plenty of questions, make sure you understand the entire contract, and don't just trust others to take care of it and assume they have your best interests in mind. I've learned that inquiring artists will often be the most successful, because they are most interested in the details of their business life as well as the creative aspects. Good luck!