The Exclusive Songwriter Agreement: Part 3

As featured in: Performing Songwriter Issues #8-11, September 1994 - April 1995.  Visit performingsongwriter.com to order back issues or subscribe.

By John Beiter

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Having reviewed, over the course of the last two issues, the various provisions of a proposed Exclusive Songwriter Agreement presented to her by Patoka Music, our fictional songwriter Mandy Murphy has saved the best for last: The provisions concerning advance payments to the songwriter.

Beyond the perceived prestige in having a “writer’s deal” with a publisher, the main economic incentive in agreeing to provide exclusive writing services to a publisher is that such agreements virtually always contain a provision that the songwriter will be paid some steady compensation for his or her services. The provision generally states that, as long as the songwriter faithfully performs the terms of the agreement (which, as discussed previously, may include providing a yearly quota of tunes), the publisher will pay the writer a certain amount of money in equal periodic installments, which may come on a weekly or monthly basis.

The prospect of steady income to pay the bills is quite an attractive prospect for most persons trying to make a living at songwriting and performing. (Don’t assume that these periodic payments are the only item that the publisher will consider an “advance” payment; demo costs, for example, may be included in the financial outlay from which the publisher will expect recoupment. In any event, be sure that what is and is not considered part of the “advance” has been agreed upon between the parties.) Make no mistake about it, however, these payments are not salary for services rendered, as when Mandy worked as a waitress back at the Xanadu grill. Rather, they are advance payments of royalties. The significance of this distinction will be explained shortly.

Working out the details of the advance provisions of an exclusive deal often leads to the stickiest negotiations between the publisher and the writer. Assuming that the writer does not also have a recording deal (at least for the time being), the range of annual advances under an exclusive songwriting deal will vary greatly according to the writer’s previous success, which translates into negotiating power. At one extreme, if the writer has little track record and the publisher is not established, it is possible that the writer will receive no advance at all. At most, in that situation the writer might expect to receive an advance in the neighborhood of $15,000, which is probably not going to be enough to keep the writer’s head above water for a year, at least in Nashville. At the other end of the scale, an experienced writer signing with an established publisher can command an annual advance in the six-figure range. (According to “The Essential Songwriter’s Contract Handbook,” published by the Nashville Songwriters Association International - which I highly recommend - an entry level songwriter in Nashville presently can expect between $150 and $350 per week in the first year of an exclusive songwriter agreement.)

As discussed previously, the typical exclusive songwriter agreement will be for a term of years plus several option periods. It is not unusual for such an agreement to provide that the amount of annual advance will increase incrementally with each year that the agreement is in effect. Of course, if after several years the relationship is not proving to be profitable, the publisher is likely to decide not to exercise its next option period, thus avoiding putting more money into a relationship that does not appear to be bearing fruit.

This basic arrangement of increased advance amounts through each year of the contract may have various permutations. For example, there may be a provision that there will be an additional lump-sum advance payment to the writer for each tune that reaches a given position in the charts. The agreement instead may provide that, after the first year’s set advance amount, advances for subsequent years will be a stated percentage of the publisher’s revenues from the writer’s output for the previous year. Such a provision typically contains a stated minimum and maximum amount of advance payment for each subsequent year. For example, the agreement may provide that the writer will receive a total annual advance of $25,000 for the first year of the agreement, and that, for the second year, he or she will receive an advance amount equalling 80% of the publisher’s first year revenues from the writer’s songs, provided that the second-year annual advance will be at least $25,000 but will not exceed $35,000. In this way, the writer will be assured of some minimum annual amount on which to survive while, at the same time, the publisher will be protected against having to pay more advance than either party reasonably anticipated.

These advance provisions typically are modified when the songwriter also has a record deal. In that situation, typically the advance payments from the publisher are not stated as a fixed annual amount but, rather, coincide with the release of each of the writer/artist’s albums. Depending on the track record of the writer/artist and the economic strength of the publisher, such an advance can range from a low in the neighborhood of $10,000 to a high in the middle six-figure range. If, however, the publisher is a company affiliated with the writer/artist’s record company (which is often the case nowadays), it is quite possible that the advance payments to be made to the writer/artist will be in consideration of both anticipated recording revenues and anticipated publishing revenues. In that case, no separate publishing advance would be given.

All of this discussion about being paid substantial sums in advance of the songs ever actually earning money for the publisher is pleasant enough. However, any writer contemplating an exclusive songwriter agreement must keep in mind that what the publisher giveth with one hand, it may taketh away with the other. Which leads us inevitably to the topic of recoupment.

As we have just discussed, these payments should not be thought of as salary but, rather, advance compensation for future revenues. Under the typical “recoupment” provision, until any money is actually earned on the songs, the writer will have a “negative balance” with the publisher; in effect, the writer will “owe” the publisher the amount of advance payments that he or she has received. Thus, if and when the money starts rolling in, the publisher initially will not cut a check to the writer for his or her writer’s share of the revenues initially but, rather, will simply credit the writer’s “account” for that amount against the writer’s “negative balance.” Royalty checks over and above the advance payments will not go to the writer until the publisher has recouped all of the previous advance payments to the writer. (Remember, however, that because “performance” royalties generally are paid to the writer directly from the performance rights organizations, only those royalties from sources for which the publisher is the conduit - typically, mechanical, synchronization, print, and foreign royalties - may be subject to the publisher’s recoupment.)

If the writer also has a record deal with a company affiliated with the publisher, the recoupment provision may also state that all advances on songwriting royalties may be recouped by the record company from record royalties and, likewise, any advances against record royalties may be recouped by the publisher from any songwriting royalties. The writer/artist should attempt to avoid such a “cross-collateralization” provision. Instead, the writer/artist should request that songwriting advances be recouped only from songwriting royalties and record advances be recouped only from record royalties. This is because, as a practical matter, for reasons beyond the scope of this article, record royalties generally begin to flow to the writer/artist more slowly than songwriting royalty checks. If the record company is allowed to use songwriting royalties to offset advances on the record deal, the writer/artist may find himself or herself deprived of an important income source during that initial stretch in which the recording advances have not been recouped and, therefore, no actual income is yet being realized on the record deal.

If these advance payments are starting to look like an excellent way of getting oneself into a quagmire of debt from which the writer may never emerge, the writer can take some solace in the fact that, in the typical exclusive songwriter agreement, advance royalties are recoupable only against royalties. If Mandy has to take another waitressing job in Nashville to make ends meet, Patoka Music could not recoup the advances from her paycheck. In fact, it is entirely possible that, if the songs never earn a penny, the publisher will never recoup the advance payments, a possibility that is not lost on the publisher during negotiations.

Now that Mandy has reviewed the basic provisions of an exclusive songwriter agreement, she still feels somewhat uncomfortable with the idea of assigning all of her ownership in her songs to Patoka Music. On the other hand, she thinks Patoka is the right publisher for her and wants to have a more formal relationship than merely on a song-by-song basis. She wonders whether there might be something in between, allowing her to enter into a more formal “partnership” with Patoka Music without giving up all of her ownership in the boatload of hit songs that she expects to be writing in the next few years. Indeed, there is. Next issue we will be discussing two alternatives that may be just what Mandy is looking for: the “co-publishing” agreement and the “administration” agreement.

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