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Record deals

Discussion in 'Band Management [BG]' started by felch182, Nov 9, 2006.

  1. felch182


    May 26, 2005
    How much does a label normally take from each sale. What is the general offer indie companies offer these days?

    Cheers peeps
  2. deaf pea

    deaf pea

    Mar 24, 2005
    Cuernavaca 1 hr S Mexico City
    Seymour Duncan/Basslines SMB-5A Endorsing Artist
    The record company doesn't take a part of each sale, they take ALL of it. The RC is the owner of the product and gives the "artist" a small percentage on each sale(artist royalties). The "artist" usually gets between 4% and 12% of net wholesale, minus some percentage for "breakage" (which is really an antiquated concept . . .). Often the producer (and engineer?) get a portion of the "artist's" part, too!

    Not really fair, but that's what they usually do . . .
  3. browner


    Jul 22, 2006
    Any artist that agrees 4% should either get a new manager or psychologist! You should expect 12-15% but bear in mind the publisher will want some too! And, yep, the producers points!
  4. deaf pea

    deaf pea

    Mar 24, 2005
    Cuernavaca 1 hr S Mexico City
    Seymour Duncan/Basslines SMB-5A Endorsing Artist
    Sorry browner . . .

    any artist (except MAYBE Macca, Elton John, Prince and a few other high points royalty artists) that recieves 12-15 points has to pay all the production points (producer, engineer, studio, etc) . . .
    - 5 (producer
    - 1 (engineer)
    - 2 (studio, in exchange for a lower hourly rate, for example) could equal 4 points left over for the artist after deducting the other production points.

    And you don't pay points to the publisher. If you are the songwriter, the publisher PAYS YOU! And if you're NOT the songwriter, it doesn't matter...the record company pays the mechanicals to the publisher (and the songwriter) and radio stations (and others) pay public performance royalties to the publisher (and the songwriter) via ASCAP, BMI and/or other performing rights societies.
  5. pklima

    pklima Commercial User

    May 2, 2003
    Kraków, Polska
    Karoryfer Samples
    The really tiny indie labels that press CDs in runs of 1000-2000 will often offer to send you 10%-20% of the total pressing to sell. 30%, maybe.

    If you're getting money 15% is pretty high. You do have to pay studio, producer, mastering etc. out of that. But you'll usually get an advance on that meaning the label fronts enough for those costs and effectively takes on all the financial risk associated with a release.
  6. I wouldn't settle for less than 25 percent if you sign to an indie Label where you have to pay production upfront.
  7. Dkerwood


    Aug 5, 2005
    Meh. Just don't deal with record companies. :D
  8. browner


    Jul 22, 2006
    I'm no expert on this kinda thing but...

    I'm not being 'funny' or showing off, and I'm certainly not macca or prince, but after checking the contract I recently signed with a 'major' lable we receive 15% here in the UK and yeah we pay the producer his 2/3 points out of our 'share' but the engineer and studio costs come out of the 'recording budget' wich is seperate from the MCPRS or PRS.

    As far as the publishing goes, yeah they pay 'you' but they don't work for nothing, they probably take between 25-30%

    I hope I haven't seemed arrogant or anything...

    Peace out!
  9. Music Attorney

    Music Attorney

    Feb 22, 2004
    As I’ve mentioned previously, my world (for better or worse) is the U.S. major label world. However, from the few deals I do with indie artists and from talking with other lawyers, the deals are often times very similar except for the size of the advances, recording budgets, and a few other things. Therefore, I won’t speak specifically to “indie” deals, but there are a few points in this thread that I think need clarification.

    Many of the labels have changed their royalty calculation process and have gone with what is called a “transparent” accounting. For example, the "old" and "new" royalty calculations for labels in the Warner Music Group are as follows:

    Old Royalty Calculation

    Suggested retail list price $17.98
    Container production (25%) - $4.50
    Standard discounts (15%) - $2.02
    Program discounts (5%) - $.57
    Artist Royalty Rate x 13%

    New Royalty Calculation

    PPD* $11.36
    Container production (0%) 0
    Standard discounts (0%) 0
    Program discounts (5%) - $.57
    Artist Royalty Rate x 13.1%

    *PPD (i.e., published price to dealer) for a $17.98 retail price CD is $11.36 and includes a 15% standard “free goods” discount. Sorry about the formatting in the post. I tried to clean it up.

    I realize the math is not exactly correct, it’s certainly possible that the percentages in the parentheses may be negotiated differently in different deals, and that the Artist Royalty Rate is slightly different in the two examples. However, this is basically how the calculations work under the old and new WMG systems. That is, they come out about equal.

    For clarity, there are still plenty of labels that use a “SRLP” calculation and even a few who still use a true “wholesale” calculation. For example, one of our artists had a royalty of 32% on one wholesale-based label, but, as you can imagine, by the time they throw in all the other deductions it doesn’t net out any more royalties to the artist even though the royalty rate is very high.

    The bottom line is that anyone signing a deal should have it in writing from the label what the royalty is when a full-price CD is sold through normal retail channels in the United States (a so-called USNRC Net Sale). Alternatively, they should have someone representing them that knows the policies of the label inside and out such that they know the penny rate payable for the USNRC Net Sale. The calculations above assume a USNRC Net Sale has occurred. Other types of sales (e.g., outside the US, mid-price records, etc.) are reduced as a percentage of the USNRC Net Sale in accordance with the terms of the recording agreement. For example, a sale of the CD in Canada might be 85% of the USNRC Net Sale royalty (i.e., 85% of the 1.42 in the example above).
  10. Music Attorney

    Music Attorney

    Feb 22, 2004
    This isn’t correct in my experience.

    First, the record company does not take all of the sale. The store where it’s sold takes a part, the distributor takes a part (although the distributor may be an affiliated company), and the record company takes a part.

    Second, mechanical royalties are payments to songwriters. The songs on the album may or may not be written by the artist. The artist royalty is a separate stream of income.

    Third, no label I know uses a “net wholesale” concept. Not even sure what that is.

    Finally, I’ve never seen a deal where an engineer gets a royalty (i.e., a portion of the Artist’s royalty). Producers and, sometimes, mixers, yes, but never an engineer.
  11. Music Attorney

    Music Attorney

    Feb 22, 2004
    Agreed regarding a new manager.

    I would also agree that, in my experience, 12-15% is the normal range for a new artist deal but the important question is 12-15% of what. I’ve mentioned it before, but plenty of lawyers and managers push for a big artist advance because it’s the only money the lawyers and managers are likely to commission for a long time. However, labels don’t like paying a big artist advance and a big royalty.

    The solution? The label gives the artist a big royalty rate (so the lawyers and managers can impress the client), with the understanding that the lawyers and managers won’t negotiate all the other points in the agreement that will reduce the royalty payable to the artist (who is very unlikely to read the portions of the agreement I’m talking about). This allows the lawyers and managers to look impressive (i.e., big check + big royalty) and allows the artists to party talk (i.e., “My royalty is 16%. What’s yours?”). In the right hands, an 11% royalty can easily end up actually paying more royalties than a 16% royalty.

    Publishers do not receive any portion of artist royalties. Perhaps I’ve misunderstood you.
  12. Music Attorney

    Music Attorney

    Feb 22, 2004
    In my experience, very few producers get 5% (although we have 3 that currently do). Engineers and studios don’t receive royalties. Of course, the artist is responsible for paying the costs associated with the engineers and studios, and that does come out of the artist royalty, but the royalty rate itself is not reduced.

    Also, it can matter if the artist doesn’t write. The long story short is that labels agree to pay a certain amount of mechanical royalties for each CD sold. However, if the album is full of songs by outside writers (i.e., other than the artist) and those outside writers don’t agree to the rates in the artist’s agreement (i.e., the max that the label is willing to pay), then excess royalties are created and those excess royalties are paid for by the artist from the artist’s royalty.
  13. Music Attorney

    Music Attorney

    Feb 22, 2004
    If it's not obvious by now, I'm merely trying to increase my post count ;-)

  14. Enlightening as always, MA!
  15. felch182


    May 26, 2005
    Ok, well we have been offered a 50% cut of ppd. Must be pretty good. We are taking it to our lawyer forst thing monday morning. We are Aussie by the way
  16. tribal3140

    tribal3140 Inactive

    Nov 9, 2004
    near detroit...uh
    small tangent,
    music atty,
    do you play bass?
    or just love the company here;)

    back to record deals...
    I might have had some input here but since our showcase was the same night as manny from the detroit tigers hitting a homerun in the 9th before the world series.

    none of them even showed up , they all were downtown 15 minutes away!

    and we even sold the place out and played our best show ever in this bands history

    theres pics in my woodbrokers forum.
    and some at the myspace acct in my sig.

    glad to hear someone is getting a push!
  17. Music Attorney

    Music Attorney

    Feb 22, 2004
    Do I have to choose? ;-) If not, then I'll say yes to both.
  18. Music Attorney

    Music Attorney

    Feb 22, 2004
    What is the PPD? Is the only calculation multiplying your artist royalty times the PPD or are there reductions for other types of sales? Are your services exclusive? If so, is it more than 1 album? Are they committing in writing to spending specified dollar amounts on recording costs, marketing dollars, and tour support or are they merely just distributing an album you pay for and deliver? If it's the latter, then a bigger royalty makes sense since they have no capital at risk. One reason record deals are often so one sided is because the record company is spending a lot of money on a high risk venture with a low probability of getting it back.

    There are obviously many more questions. As always, I’m happy to provide input via this forum, but your attorneys may not appreciate the Monday morning quarterbacking (which is a reference to our game of NFL football and the tendency of wanna be U.S. jocks talking the next day after the game about what they would have done to win the game if they had been in control). I’m explaining it because you're in Australia and I’m not one of those Americans that somehow think the rest of the world follows everything we do :)
  19. deaf pea

    deaf pea

    Mar 24, 2005
    Cuernavaca 1 hr S Mexico City
    Seymour Duncan/Basslines SMB-5A Endorsing Artist
    Thanks for the clarifications, MA.

    "First, the record company does not take all of the sale. The store where it’s sold takes a part, the distributor takes a part (although the distributor may be an affiliated company), and the record company takes a part." Of course you're right . . . I wasn't really clear, there. What I MEANT was that the record companies, as owners of the product, are entitled to ALL of the profits from the sale.

    BUT . . .

    "Engineers and studios don’t" usually "receive royalties" fixed it for you!
    "Engineer" Bruce Swedien, IIRC, had 1/2 a point on those 80's records with Michael Jackson, it made him a multi-millionaire! I remember when he got his (first) Rolls-Royce . . .

    And I didn't know that record companies have made deals where they have NOT agreed to pay the legal minimum songwriter royalty, or has that (the statutory minimum songwriter royalty) been changed or abolished in the years that I've been living outside the USA?
  20. Music Attorney

    Music Attorney

    Feb 22, 2004
    To answer your second question, the statutory rate in the United States is alive and well. Currently, it is 9.1 cents per copy of each song sold for compositions five minutes or less in duration. So, for example, if an album had 10 songs on it, and each of the songs on the album were less than five minutes, and the record company had agreed to pay the full statutory rate for each song, then the total mechanical royalty load on each album would be $.91. That is, each time a CD was sold, the record company would have an obligation to pay the various publishers of the songs a combined total of $.91 distributed, obviously, according to which writers wrote which songs and what percentage of each song they wrote.

    For clarity, the United States is one of the few countries in the world that I’m aware of that uses a statutory rate for songs. Almost all other countries use a percentage of the PPD of the album. For various reasons, which I will save for another time, it would be great if the United States would follow suit, but I don’t see that happening.

    The reason I answered your second question first is because it will make it easy to understand the answer to your first point. Since mechanical royalties are a direct out-of-pocket cost to the record labels, it is one of the most fiercely negotiated points in any recording agreement I’ve ever done. And without substantial bargaining power, it is very hard to be paid a full statutory rate for every song on every album.

    In fact, the most favorable language I’ve ever seen was for an artist (who was not ours) and they had a full rate with what is called a “cap” of 13 songs. This means that the record label would pay a full rate on each song on each album up to a maximum of 13 songs. Therefore, if there were 14 songs on the album and each of them were entitled to a full rate, then there would be what are known as “excess mechanicals” (i.e., mechanical royalties owed to publishers greater than the contractually agreed-upon amount of full rate x’s 13) and I’ll give you one guess as to who is responsible for paying those excess mechanicals ;-) Technically, the record company is still the one obligated to pay the excess mechanicals to the publishers, but they can recoup those amounts from the artist’s account.


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