New Artist Checklist

As featured in: Performing Songwriter Issue #70, June 2003.  Visit performingsongwriter.com to order back issues or subscribe.

By Beverly Bartsch

Signing a record contract can be overwhelming and confusing, especially if it’s your first one. And agreeing to something you don’t fully understand can lead to loss of money, loss of creative control and a whole lot of finding-out-the-hard-way. Here are 12 basic tips to help you ask the right questions and understand what you’re getting into before you sign.

1. Understand that “Recoupable” means “out of my pocket.” Every recoupable dollar will come out of the artist royalty earnings before a check is cut.

2. Ask what items are recoupable. For instance, the album production costs-- do they include mastering as well as production, cover art and photographer? Who determines and controls the budgets? Remember, asking for more money for a budget means that more of it will come out of royalties prior to getting the first check. Are marketing costs recoupable? All of them or just a percentage? It is typical for a record company to charge back (recoupable) 50 percent of all marketing costs to the artist. Who approves the marketing budget? Is there a set dollar amount over which the label must get prior approval from the artist?

3. What is the “pennies” royalty rate? This is the per-unit rate, based on the royalty percentage less all deductions--including but not limited to packaging deduction (20 to 25 percent) and free goods (10 percent)--based on the Suggested Retail List Price (SRLP) of the product. SRLP is the full purchase price of a CD or cassette. An artist will also have mid-line pricing, club rates, military rates and foreign rates, among others. Assuming that 100 percent of product sold will be at 100 percent of the royalty rate will result in a very sad artist when the first royalty check appears. The royalty rate is a formula: Do the math.

4. What sort of advance is in the deal? Does the artist need this advance to live on until royalties are paid? Getting a big advance can be really fun; however, knowing if it’s really necessary could be the difference between spending too much money before it’s really earned and feeling the reward of having earned it as product sells. Is the advance 100 percent recoupable? If so, over what period of time? Are there commissions to managers, agents, lawyers or business managers that will need to be paid out of the advance? Is the advance repayable if the contract is terminated? If so, under what terms would it be repayable?

5. Is the album advance “all-in” (meaning that money covers more than just the advance)? If so, what is included in the all-in? Production costs? Mastering costs? Cover photo shoots and artwork costs? Who is responsible for the budget if the advance is all-in? How much of the advance is needed for production costs?

6. When are advances received? Is it all up-front? A portion on commencement of project? A portion on commencement of mastering? Balance upon delivery of completed project? What are the advances for the options/additional projects? Are they flat amounts or are they based on the sales results of the proceeding project?

7. How long is the contract? Does it specify time or number of projects? What are the dates for project delivery, notification of non-renewal or notification of options exercised? These dates can be stated in legalese, so look at a calendar and figure out what actual dates the important deadlines have. Not delivering a project on time could result in breach of contract. Is there any grace in project delivery dates?

8. Who has final creative control on the project--label or artist?

9. Is there a control composition clause? This one is complicated. It has to do with statutory mechanical rates and how they are applied to a record. The rate for the 2002-2003 year is $0.0155 multiplied by the length of the song or $0.08 up to 5 minutes. It also depends on whether or not the artist is the songwriter, if there are more than 10 songs (the general capacity on which mechanicals are paid) on the record, or if the songs are longer than 5 minutes. If any of those conditions apply, the mechanicals that would be paid on a record could end up costing the artist money in order to pay the statutory rate to non-controlled publishers (i.e. those that are not the artist or artist publisher).

10.When are royalties paid? Quarterly, semiannually or annually? How long after the end of the royalty period before the statement and funds are released? Typically a label has 45 to 90 days after the end of a royalty period before releasing a royalty statement and check. That means that if the contract requires a semi-annual reporting period, royalties earned as of June 30 would not be paid until Aug. 15 or Sept. 30.

11.What are the reserves percentage being withheld from the royalty period? This is the amount that the record label can hold, pending any returns that might be submitted from retail outlets, clubs or any other entity that can return unsold product. How long are the reserves held before being released to the artist?

12.Who should read the contract in full? The artist’s manager, lawyer, business manager, CPA and, most importantly, the artist.