#Legal How To Cut A Record Deal : Things You Need To Know

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By Sandhya Surendran, Founder and Counsel at Lexic, a legal consultancy for individuals and entities in the music, tech and media industries.
With inputs from Tarini Siddhartha

For a musician, being signed up by a label is often considered a sign of “success”. A record label, the right one at least, can do wonders for a musician’s career; provided however, you understand exactly what you’re signing up to. In principle, it might be very easy for a smooth-talking record label executive to whisk you into a conference room, massage your ego and feed you fantasies about the billions of dollars that’ll be ringing in your bank account; as long as you sign that dotted line. But the fine print is a lot darker than you imagine.

In today’s day and age, when record labels are struggling against becoming redundant, with the tremendous growth of DIY aggregators like CDBaby, Distrokid, TuneCore etc., who help you with publishing your music and monetizing it through Youtube, Facebook, Instagram and other platforms, a record label perhaps needs you more than you need them. Unless, of course, they belong to “The Big Three” i.e. Sony BMG, Universal Music Group and Warner Music Group, given how long they’ve been around and the kind of reach they have, online and offline. That said, remember Chance the Rapper? The indie artist who won a Grammy in 2017, and he had no label or publishing company backing him. But he is an exception, and a spectacular one. So, let’s go into how labels can be helpful and when you should consider them.

Now, whether you should sign up with a label or not, is a question that needs careful contemplation and also, let’s face it, depends on how popular you are – do you have enough music released where you’re constantly being booked for shows, are you getting regular calls from producers to make more music, are you unable to keep track of how viral your music is? If yes, then approaching a label sounds like a good idea. Also, if you are all of the above-mentioned, chances are that you will be approached by a label before you even think of it.

What do Record Labels do?

Record labels can be compared to investors. They bankroll you because they see potential (like angel investors), or they’ve already seen how successful you are and now want to take you ahead with their help. Depending on your agreement with them, simply put, the label will be responsible for making strategic decisions in your career and they will put in money to make sure those decisions pay them returns. They will also take over certain aspects like marketing, promotion, tour management etc., costs of which will mostly be borne by them or by sponsors brought on board by them. Most importantly, they will expect you to make more music, with a commitment to a certain number of albums, over a certain period of time, where they will have license over the music for ‘x’ number of years.

A good record deal is something that will have a fair amount of give and take; which again depends on what stage of your career you’re at. When you’re starting off, you may find yourself at the lower end of the bargaining scale, but with an increase in audience and popularity you can definitely negotiate better. There is no hard and fast rule or formula that would apply to what percentage a record label is entitled to; thought under Indian law, as the publisher of your music, the record label is entitled to 50% of the royalties, which arise from ownership of the sound recording itself. However, this can be negotiated in your contract with them.

In the film industry in India, music directors are paid a lumpsum fee for composing the soundtrack and/ or the background score by the producer of the film; post which, the producer sells the audio rights to a label. We’ve been told that top industry players negotiate with the record label when this sale happens, and retain a % of the revenues that the record label generates from the use of their music, including licensing it for further use, streaming revenues etc. or already have an existing contract with the record label that would apply to all their music that comes to that particular label.

For the non-film music industry in India, record labels are still at a nascent stage and perhaps trying to figure out how much value add they can bring on to the table, primarily because of how fractioned and splintered the industry is and most importantly – the hard-hitting fact that non-film music isn’t as “cash rich” as film music is. I’d like to believe this is changing, and that record labels in the non-film industry are evolving to be more than just “record labels” to being talent production houses, where they’re combining artist management, tour management, booking agent roles, studio production and publishing, together into one big all-in-one entity.

What to Watch Out for?

So, now you’ve made it… a record label has approached you, or the label you’ve approached yourself is willing to sign you on. The contract is in front of you. Do not just sign it without reading and understanding the consequences of what that “legal jargon” means. Any decent record label will be willing to allow you time to go through the terms and should also be ready to explain the consequences of those terms if you ask for it.

The following are your ‘typical’ record deals:

Standard Record Deal

The focus is on recorded music and physical album sales, not really current in nature given how everything is digital today. These deals have ancillary aspects negotiated separately, with no marketing or distribution. Such deals are ideal for a more established artist.

Singles Deal

In a game of economics, these deals focus on releasing multiple singles, than a lone album; because apparently singles sell better than albums today and it costs the label lesser.

EP Deal

This is a rather private arrangement, more an evaluative exercise by the label. Here, the label will provide the artist with advice and direction in terms of product placements, contacts, marketing strategies, etc., but will not promote the artist as its own. But, IF the artist is successful and delivers a hit release (ideally there’ll be numbers that will have to substantiate this and put down in the contract), the label will have the option to officially sign on the artist and make it seem like they won a bidding war for the “hottest, new artist”. If the artist fails, label suffers no loss or disrepute because it has no formal, public association with the artist. Most upcoming artists approaching larger record labels will face these kinds of deals.

Licensing Deal

You’ve delivered that hit album. Now you want to go big. This deal applies to such a situation, where the artist will license existing recordings to the label. The label will further manufacture, distribute, and sell those recordings. In such contracts, the labels are more open to negotiating the % of royalty they’re entitled to. As the artist, your copyright in the music remains, however, you need to keep in mind that after the label recovers the initial costs they incurred to manufacture and distribute, the % they get from the revenue you generate from the music will literally be for free. So, negotiate that number wisely.

Exclusive Recording Deal / Major Label Deal

Typically, these kinds of deals are fixed short term ones (one year’s deal), with the label reserving the right to renew it. It will be an exclusive deal, i.e. you will deal exclusively with the label. They will provide the artist with an advance to record at least one album during the term and may agree to negotiate the % they take from royalties generated. Over and above this advance, the scope of the label’s responsibilities includes providing the artist with resources, recording facilities, video production, promotion, marketing, etc. The label typically aims at recovering the amount spent and retain the rights in the recordings even after the contract ends, i.e. they will still generate revenue from royalties in your music for the duration of your contract + 25 years (as an example), including mechanical royalties. The duration for which they can retain the rights should be negotiated, just as much as the % to the royalties is.

Development Deal

Identical to the previous arrangement, except that in this case, instead of an album commitment, the artist will need to create an agreed number of demos or singles. The label will ideally cover recording costs, which will be recovered from the artist through a cut from the royalties generated from the music once released.

P&D (Pressing and Distribution) Deal or Distribution Deal

This kind of deal sees the label financing press and distribution, with everything else being taken care of by the artist. Perhaps a more likely deal for an artist who is well-established and needs specific assistance. Historically, when physical album sales were still a thing, the alternative in this situation was that the label would finance the recording and deliver it to a record distribution company, which would then publish the recording (through physical media) and distribute it to retailers, etc. However, with vinyl making a comeback, artists and labels are reconsidering this option. In this instance, the label retains ownership rights (to the sound recording), and the distributor gets a percentage of record sales.

Production Deal

A spin off from the previous arrangement, where the artist does not directly contract with the label but with the distributor. The distributor will then license/assign the recordings to a label. In such a case, the distributor will expect exclusivity as long as the copyright term exists. Though the advantage is creative freedom, the disadvantage having to split your royalty 50-50 with the distributor, unless they’re open to negotiating.

Profit Split

A fairly popular structure in recent past is this short-term deal with a record label, where the artist has an album ready for release, where all recording & production costs have also been taken care of but needs a record label’s network for the marketing. Here, instead of a cut from the royalty generated, the artist agrees to split or a cut in profits made from album sales.

360 Deal / Multi Rights Deal (What labels in India are pitching to indie musicians here)

As mentioned earlier, to perhaps retain relevance and add more value to their role as record labels, the ‘360 Degree Deal’ is offered by the label to take on more responsibility in the artist’s career, but with equal benefits across different aspects. The label will handle production, recording costs, sponsors, marketing, promotion, branding, tours, merchandise, licensing – effectively end-to-end services to the artist. However, the disadvantage to this, and a fairly significant one, is the amount of control the label will exercise on the artist, the percentage that the label takes from the income generated by the artist, among other operational aspects. That said, the label being so invested in the artist also means that the label has as much to lose if the artist doesn’t deliver or fails to perform. If negotiated well, these deals can work out well for both parties, because there’s a lot at stake on each side.

Artist Deals / Artist’s 360 deals

Still quite new in India, maybe yet to be implemented even, but the Artist 360 format is where you have one well-established artist, signing on an upcoming artist to the same label the former is signed up to. Essentially, it follows a mentorship model and has significant benefits that come from leveraging the experience and reach that the mentor artist has, but the disadvantage would be that the second artist will be paying both the label and the “senior” artist for the reach and mentorship provided.

Concluding…

To sum it up, you have a variety of arrangements to pick from. And with the internet and streaming services blowing up, the competition is split wide open and there is no dearth of talent. Before you ink that deal, keep in mind the following points:

  1. How long is the contract for and can it be renewed: if it can be renewed, it should be only with the consent of both parties.
  2. Who can call the contract off: ideally ensure that both parties are able to call it off only with prior notice.
  3. Are you giving the label exclusive license to the masters as well? Which is the original sound recording? If yes, for how long? And for what purposes? Make sure the duration is for the term of the contract – if not, maximum 3-5 years after the contract expires, anything beyond that is really not feasible in today’s day and age – this will affect synch licensing revenue (i.e. money you can make from the songs you made if those songs are going to be used in any movie, film, audio-visual production anywhere in the world).
  4. What territory is the contract applicable to? Balance the pros and cons and check what the label’s reach is before agreeing to the territory.
  5. DO NOT WAIVE YOUR MORAL RIGHTS OR PERFORMANCE RIGHTS.

Got questions? Mail Sandhya at info@lexic.in

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