5 Things to Look for in a Record Deal

After years of hard work, you just landed your first record deal. Amazing. Now the record label sends over the contract and it’s thirty pages long. Yikes. Here are the main points to look for in a record deal and what to avoid.

1) How Long is the Term? This is a good starting point: how long will you be tied to this record deal? For the label, a longer term is more desirable, so they can earn back their investment and make a profit from your music for as long as possible. For you, shorter is better in any record deal. The reason? If things are going great with your label when the term expires, you can always sign a new record deal, likely with better terms. But if things aren’t so hot, you can get out and find a new label (or go back to being independent).  There will likely be “option” periods associated with any term, which allow the label to extend the length of the record deal. Ideally, such options should only be exercised via mutual agreement (i.e. not just the label deciding).

2) What is the Territory? Some record deals apply to a single territory (e.g. the USA), some apply to the entire world. If the former, you can in theory sign different deals in different territories. This can be a challenge in the digital era, where borders are somewhat arbitrary. If you sign a worldwide record deal, try to ensure that if the label fails to release your music in certain territories, those rights revert back to you. This allows you to either self release or team up with another record label in these territories.

3) What is Your Royalty? This is a big one. Many small to mid-size labels offer a “net 50” deal, which means that after they’ve recouped their expenses, you and the record label split profits 50/50. You’ll want to clearly define what expenses are allowed, and include some language that larger expenses (over $1000 for example) require your consent. For major label record deals, a typical artist royalty is in the 12-20% range. This lower royalty is a reflection of the increased investment that comes with a major label. In other words, you make less from record sales, but should be benefitting from a much larger investment in recording and marketing.

4) How Much Will The Label Invest in You? I try to get as much clarity as possible on this topic, in terms of actual budget commitments from the label. This includes dollar amounts budgeted for music videos, tour support, recording, radio promotion, and more. Your label may be hesitant to commit to actual numbers until they see how the records perform, but this is where you need a good entertainment lawyer advocating on your behalf.

5) Does the Label Participate in Non-Record Revenues? This is the biggest thing to watch for in a modern record deal. More and more, record labels are asking for a piece of the pie from non-record revenue streams such as touring, merchandise, and publishing. These are the so-called “360 Deals” that you’ve likely heard of. In many ways, they are a reflection of the modern realities facing record labels and artists. But before you give away a portion of these crucial revenue streams, you need to know what the label is prepared to do to earn their piece. If they want to commission on touring, will they be providing funding for tour support? If they want a piece of publishing, will they be providing publisher services including shopping your songs for film and television placements? Some labels who ask for these commissions do indeed provide these services, but some don’t. And remember: if you’re giving a cut of all these revenues to your label as well as a manager, it might not leave much for you at the end of the day.

These five areas are of course just the starting point. There is much, much more to look for in a modern record deal. If you take your career seriously, you will seek the advice of an experienced, trusted entertainment lawyer who will also help negotiate the best record deal possible for you and your career. As always, email me with questions.

 

Do Musicians Need a Record Label in 2017?

I get asked this all the time. Do I need a record label to help my career? It used to be that a record deal was the holy grail of the music industry; the brass ring that all artists worked towards.

This is no longer the case. While record deals are still a vital part of the music industry, their role – and the role of the record labels offering them – has completely changed.

Record labels used to take the approach that for every artist that was a financial success, there would be nine failures. In other words, 10% of the artists paid for the 90% of artists that lost their labels money. In the glory days of record sales, there was enough revenue floating around for labels to hedge their bets and invest in artists over a period of years, with the hope that more artists would become financial successes.

This has all changed.

Record labels can no longer invest in artist development over long periods of time, and they are choosing to invest in fewer artists. Bottom line: labels can no longer afford to lose money on 90% of their signings. While Bruce Springsteen took three albums and a great deal of investment from his label to finally break through in 1975, he would not likely be afforded such investment if he came along as a new artist today.

Simply put: record labels want to sign acts that are already developed. There are exceptions, but this is the general trend occurring in the industry.

This begs the question: if a record label is only interested in you once you’ve done all the heavy lifting, do you really need a record label in 2017?

To answer that, let’s look at what record labels can still provide you.

First and foremost is funding. Record labels have always acted as the banks of the music industry, providing funding and investing in your career in ways that you cannot. In exchange, their charge an “interest rate” like a bank, in the form of record royalties, and increasingly, a piece of other revenue streams as well.

If you happen to have financial support from someone else, be it a rich uncle or a music-loving investor, then you need a record label less. Many clients of mine that have achieved great financial success go on to create their own label, and reap the benefits of regaining control of their recordings.

Assuming you don’t have such financial backing, the need for a label increases. The cost of recording a professional sounding album has definitely decreased in recent years, but it can still be considerable. The same goes for music videos. But if you have friends that are producers or videographers, or you can do it yourself, that makes you less reliant on label funding.

The second thing a record label provides is exposure. In the pre-Internet world, bands were much more dependant upon major label investment to gain exposure through old world media outlets of print, television, and radio. This has all changed. While you still need these mediums to some degree, they are less of a barrier to entry when promoting your music. You don’t need a record label to get through the promotional bottleneck that all artists had to squeeze through previously. You will still need some funding to service your single to radio and to hire a publicist for print and TV, but these services can be obtained outside of the major label system.

The third major service provided by a record label is distribution. In the pre-Internet industry, this meant physical distribution of your record to stores. This is less important in 2017, with only the biggest musical artists receiving large scale distribution to mega-chains like Wal-Mart and the like. You can release your record around the world with one click via services such as CD Baby. Of course, everyone else can do the same, meaning the real hurdle in 2017 is not distribution but exposure.

As with anything, it’s a question of degree. Major labels are a different beast than indie labels, and there are many mid-size labels in between. They all offer different services and demand different things in exchange. It really depends on where you are at in your career and what you need to take it to the next level. The takeaway: you do not need a label to get to the next level.

As always, email me with questions along the way.