Recording Contract FAQ
Additional Resources
There is no one-size-fits-all contract for all artists. Deals can vary widely based on a variety of factors as not all artists and labels have the same goals and intentions, so contracts should be assessed on a case-by-case basis. Therefore it’s especially important to:
Have a good music lawyer who can advocate for the artist and make sure they are making well-informed decisions and negotiations before signing.
Know what you want from a contract! What do you want from the relationship with a label, publisher or distributor. How long do you want it to be? Do you need a lot of money upfront? Who will own the music you make and for how long? These are things you can have a say in - it's good to think about what you need.
What is a license deal?
A license deal means the artist owns the masters*, and the label has a specified term to exploit* those masters, i.e. 15 years, and the rightsholder will have the option to renew at the end of that term. It is becoming more common for the artist to have finished fully recording, mixing, and mastering an album before even contacting a record label. If an artist comes to negotiations with a finished product in hand that they’ve already paid to produce, they may be in a stronger position to secure a licensing deal. Because the record was not made under any form of record label financial oversight, it gives the artist more negotiating power because they already fully own the masters.
What is an “option” in a recording contract?
Most deals will specify how many options/albums must be released to complete the contract. The term “Option” indicates a label is not mandated to release your recordings if they choose not to, whether that decision is based on: creative direction, finances, timing, etc. Under most contracts, if the label has an option, the artist must give the label a “first pass” to release the recording before shopping it around to other labels or distributors. There are also one-off contracts, meaning just the (1) release.
What is guaranteed release?
A guaranteed release indicates both parties agree the music will be released according to the specified terms of the contract. This is the release stipulated in the contract, generally in the addendum. An “Option” that is picked up, turns into a “Guaranteed Release.”
If you want to learn more about “guaranteed release” check out this doc by Michael Lawrence.
What are delivery requirements? What will my contract require me to submit to the label?
The contract will often stipulate certain minimum requirements for the music that the artist delivers to the label. This will almost always include a requirement that the material be technically sufficient (“professional quality”) and commercially marketable, and can also include: a minimum total play time and/or number of songs on the album, a requirement that you deliver cover artwork, and possibly more specific restrictions on the creative direction of the releases.
How do advances work?
Advances are an advance payment of the royalties your album may earn in the future.
Advances are never repayable but are “recoupable” from royalty earnings, meaning that master-use royalties you earn from the release of your album will be retained by the label until the balance earned reaches the balance advanced to you. Some advances will be paid to you; others may be paid on your behalf by the label to third parties to cover costs that the contract obligates you to pay. The advance will be used to pay for agreed-upon “recoupable” costs specified in the contract such as studio fees, payments to studio musicians, fees for mixing and mastering engineers, and so on. Expenses not specified as “recoupable” are borne by the label.
Labels often pay advances to artists in two payments. One will be received when the record contract is signed by both parties, and the second will be received when the album is finished and successfully delivered to the record label.
Of course, the size of the advance and when it is paid will vary from label to label and contract to contract. Unlike loans, advances do not carry interest and are never repayable out of pocket, so it may be in your interest to take a large advance even if you doubt it will be recouped. Or, if you do not need funds immediately, you may want to exchange a lower advance for other concessions that will benefit you financially in the long run, such as higher royalty rates The way the record label makes their money back is through the exploitation and sales of the master recordings, whether in physical, digital, or licensing* formats. Not all deals will include all formats, and not all formats are expected to have the same royalty rate.
What happens if I can’t recoup my advance?
An artist is never responsible for repaying unrecouped balances out of pocket. A negative balance on your royalty statement indicates the amount you need to earn in master royalties before they become payable; it is not an amount that you “owe” the label.
That being said, labels are a business first and foremost, and undertaking high-cost projects at their expense that do not result in high record sales and profits will make it unlikely that they pursue future releases with you. Persistently high unrecouped balances are often a sign that sales are not living up to expectations.
Some contracts stipulate that if an artist does not recoup after # of years, the debt will be wiped off of their royalty statement. This is not a boilerplate clause common on most contract templates.
What are master royalties?
Master royalties are one of the types of royalties associated with recorded music.
The royalty rate may differ depending on if your contract is a Profit Split or a Royalty Share. This will be a percentage of the earnings generated from the masters. Master use royalties accrued will go towards recouping advances and shared expenses if there are any outstanding; otherwise, they will be paid to you.
Mechanicals and publishing are independent of master royalties.
You can learn more about mechanical royalties and publishing in Adam’s glossary.
What is a marketing commitment budget or minimum marketing spend?
Many, but not all, contracts include a clause dictating a Minimum Marketing Commitment or Minimum Marketing Spend. This refers to a recoupable or non-recoupable advance that the artist cannot freely spend themselves. Instead, in addition to a contract’s other cash advances, this clause establishes a minimum budget dedicated to covering the costs of promoting an artist’s music, whether it be through out-of-home marketing, retail marketing, digital marketing and any other advertising. This clause is intended to hold labels accountable, ensuring that a label invests in promoting an artist’s music.
Depending on your contract, marketing spends can require mutual approval from both the artist and label, though traditionally labels have the final say about what is spent where. This is separate from a general advance or a recording budget that covers the cost of making music.
What is a sync license and who makes money from it?
When a song is heard in something like a movie or a commercial, this is an example of a sync license being used. The artist or label is licensing out their song to be used in another piece of media in exchange for money. This is a great way for artists and labels to make income off of their work. Commonly, record labels will have full control over the money made from licensing during the term of agreement, until the total advances have been recouped. After the advance is recouped, the split of sync license income between the artist and record label is specified in the record contract.
Will signing a record deal prevent me from releasing music with other artists or being featured on other projects?
If you have an exclusive recording contract, there may be a clause stating that all affiliated recording artists must receive prior approval from the label for participation or collaboration in any music recordings, even if that project is outside the realm of the label. Labels usually will give artists permission to record on other projects, but often will require a credit in the liner notes that reads “Artist X appears courtesy of Label X.”
For example, if you play drums in a band signed to label X, and a friend asks you to play drums on their album, you must give proper notice to label X. It may vary from contract to contract, or label to label, whether these requirements apply only to the full band, or to individual members as well.
Example contract clause: Artist shall not perform for the purpose of recording any Composition, or any adaptation of any Composition, recorded hereunder for any person or company other than Company for use in the Territory before the later of: (A) five (5) years after the date of Delivery of the Subject Album; or (B) two (2) years after the expiration or other termination of the Term.
Should my label find a team (management, booking agent, etc) for me?
An artist or band should see their career as having (3) different businesses: Masters, Publishing, and Touring. It is generally recommended to not mix the buckets, and to run each of these as a separate business. For example, artists should not ask for additional advances to pay for lodging/gas to tour. Income from touring, including selling merchandise, should be enough to pay for tour expenses. In California and New York, it is illegal for (1) person to be both a manager and booking agent (reference link).
A record label should not require an artist to sign on with a specific booking agent, manager, publisher, nor incentivize them to do so in any way. This creates a conflict of interest and veers close to a 360* deal (an all-encompassing deal), a big red flag. A record label can recommend referrals/suggestions but an artist should not be mandated to pursue those recommendations. Sometimes a label will offer a larger cash advance if the artist also signs to a specified Publisher. Their sales pitch usually sounds like, “a one-stop approval will increase the likelihood of landing syncs as there’s less parties involved to gain approval to proceed.”
Paying a lawyer
Never sign a contract which will have a significant impact on your life without having a music lawyer look at it. The money spent may save you a fortune later in life, or make the difference between being exploited and being successful! Each music lawyer will have different rates depending on your needs, if you’re looking for a referral please send us an email!
Finding a music lawyer
Finding a music lawyer can be a headache in itself - many of the friendlier, more affordable lawyers are swamped in work. Please note a music lawyer is different from a real estate lawyer, so make sure you’re seeking advice from the appropriate type of lawyer.
Here are a couple of sample email conversations when approaching lawyers should a deal already be on the table:
Hey POTENTIAL MUSIC LAWYER! Thanks for getting back to me!
I’m looking to set a budget ceiling of $300 for these early outline stages of advice as I’m looking to assess the short form/deal memo and present changes before taking it to long-form.
And to be transparent, I’ve also reached out to a couple more lawyers and am just waiting for all responses before deciding how to move forward.
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Hey POTENTIAL LAWYER, thanks for your reply. I think for my $300 budget (for this stage of work) I was hoping for multiple smaller conversations, probably mostly over email to keep things focussed. It would be great to speak about the industry in general during a long form negotiations paid for by LABEL/PUBLISHER for example! But for now I'm trying to get there first! If you have immediate notes on this short form/deal memo it would be helpful to be able to reply to them with those. It would be worth asking for punitive or overly demanding clauses to be deleted at this stage just to see how they respond. If, with your help, I can get this conversation with LABEL/PUBLISHER moving, it definitely opens up options for more paid work together. Does that sound like a framework we can work in for now? If you need some quick context as to my career so far I'm happy to do a very brief call or send you a voice note.
Will the label contribute to my legal fees?
Some labels will contribute or pay your legal fees related to the recording agreement as an advance on royalties. This clause will be stipulated in your agreement, and if not, this is a good clause for your lawyer to negotiate into the contract!
How do recording contracts deal with physical merchandise?
If physical copies of the album (i.e. CD, LP or cassette) are in the contract, the label may have a clause on how those products are allocated to the artist. It’s common to receive a fixed number of gratis (no charge) copies. Most contracts require artists to pay for the merchandise allocated for touring purposes, and failure to pay for these units may result in freezing future allocation. Typically the cost of these units will be specified in the contract — usually artists pay the same rate as distributors, but some labels/contracts will have a separate rate just for artists. Some contracts will recognize these units as a “royalty forward,” meaning they are accounted for as an advance against net profit. This does not refer to soft merchandise (T-shirts, tote bags, posters, etc).
Example contract clause: Company agrees to sell to you copies at the wholesale price at which Company’s distributor sells records to third party retailers. The foregoing units may only be sold by Artist solely at Artist’s live performances.
How do I get out of a deal if it goes wrong?
Contracts often include clauses ensuring the artist can exit the deal if there is documented proof of negligence or breach by the label. If the contract doesn’t include this, it should be negotiated into the contract. Artists can also negotiate in a key-person clause, which stipulates that if the person that signs you leaves your record label, then you have the option to also exit the deal.
Some common breaches of contract:
Failure to fulfill release commitment: Contracts will commonly require the label to release the album within certain countries by a certain date or within a set number of days after the artist delivers it. The artist can claim breach of contract if the label doesn’t fulfill this commitment.
Example contract clause: Company shall commercially release the Subject Album (defined below) satisfactorily delivered hereunder in the United States within one hundred twenty (120) days after delivery and acceptance of the Subject Album. If the Company fails to release the Subject Album during this one hundred twenty (120) day period, then you shall have the right to give Company notice of your desire to terminate this Agreement. Company shall then have sixty (60) days to cure the breach by releasing the Subject Album. Should Company fail to release the Subject Album within the sixty (60) day cure period, then you shall have the right to terminate the Term of this Agreement by written notice to Company within fifteen (15) days after the end of that sixty (60) day period.
Failure of label to distribute royalty report(s): This is more common with small independent labels that don’t have a lot of resources to devote to accounting. Make sure you are aware of how frequently royalty reports should be distributed — this includes master* royalty reports, mechanicals*, and publishing*. Most labels will report royalties semiannually, meaning twice a year. Reporting periods are usually January 1st - June 30th and July 1st - December 31st, with statements and payables due to be released within 90 days of reporting. This means you should receive a statement around September 30th reporting royalties on sales that occurred between the 1st of the year and June 30th, and around March 31st reporting royalties for the 1st of the previous July through the end of the previous year.
If you feel that your label is in breach of contract, you should have your lawyer submit the claim to the label in writing. Upon receipt of written notice of breach, the record label has a specified number of days to cure the breach; if they do, the matter is resolved and you are still beholden to the contract. If they fail to cure the breach, they are obligated to release you. If there is disagreement over whether or not the breach occurred or whether it was cured, the matter may need to be resolved in court.
Are publishing royalties included in my record deal?
If you write and record original music, the record label will owe you a “mechanical royalty” when your song is sold on a physical record or downloaded. Other than that publishing is separate from your record deal.
Music publishing deals with only the songwriting composition, as opposed to a released recording (or “master”) of the composition. A songwriter must be properly paid when their song is exploited, such as recorded or used in television. There are five different types of royalties artists can earn through publishing: performance royalties, mechanical royalties, sync licensing fees, sample licenses, and print sheet music royalties.
What does the controlled compositions clause mean in my record contract?
If you write and record original music, you will have the rights to the “controlled composition” of the song. The record label has to license these right from you and will do so in the controlled composition clause of your record contract. If there’s not an existing clause, ask your lawyer!
By law the label owes a “mechanical royalty” when your song is sold on a physical record or downloaded, but they will often negotiate a lower rate or a waiver of these royalties. This will generally be paid out to your publishing company, or yourself if represented by a publishing company.
What if I’m not the sole writer of these controlled compositions?
A recording agreement cannot alter the publishing rates for songs you did not write - those writers aren't a party to the agreement. This clause will therefore also allow the label to reduce your publishing rates in the event that they have to pay other writers at a higher rate, so that the total for the album does not go over the contractual max.
If you are working with non-controlled or outside writers on original material or using samples, you should try to get the other writer or sample rights holder to agree to the controlled rate. Because of the way the clause is structured, their non-controlled rate will come at your expense, not the label’s. Covers are typically paid at the full stat rate.
How are mechanical royalties calculated?
The controlled composition clause fixes the total amount that your label will pay for publishing on physical goods at the lesser of:
$0.091 (the "minimum statutory rate" for publishing per song on a physical product) * a % specified in the contract * a maximum number of songs per album specified in the contract
OR
$0.091 * a % specified in the contract * the actual number of songs on the album in question
There are often other nickel-and-dime clauses here allowing the label to avoid paying publishing royalties on "interludes," multiple versions of the same song on the same product, reserves against returns etc.
This clause will also include a "gratis" (free) license for the company to use the songs on the album in their marketing materials.
Thankfully this clause cannot be applied to digital downloads. Publishing royalties for streaming are paid directly by the services to the publishers without the label getting involved.
Do you have a question that was not answered here? Please reach out to us via email and we’d be happy to help! As we learn more about the needs of artists, we’ll continue to develop this document so please check back for more :)