Different Deals that Major Labels Offer

This article I found on Tunecore’s blog lays out the details of different deals that labels may offer you. Even though I am a major proponent of remaining independent, and I probably wouldn’t sign one of these deals right now if it was offered to me, it is useful to know about them so you know what you could be up against. If you know what kind of deals they offer you might be able to work out a more beneficial deal when it comes to the time. For instance, I might want to work out just a distribution and radio deal with a label and work out some percentages that make more sense than the label owning the fruit of my labors for the next ten years.

The Full Article on Tunecore’s Blog

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Key Takeaways:

Deals, Deals, Deals

By George Howard, Read more articles at Artists House Music

The Royalty Deal Type 1: The Copyright Ownership Deal

The most common type of deal that artists were offered emerged from the era when artists needed the label to pay for the creation of their recordings.  In a pre-ProTools era it was inconceivable for an artist to make a competitive recording on his or her own dime.  Similarly, artists were reliant on labels for distribution and promotion.

Grant of Rights – The artists thus trade the rights to their master recordings in exchange for the funds needed to create a recording, and for the promotional dollars and expertise the labels offer.  Remember, the labels control the copyrights to the versions of the songs they release on the album (as signified by the (p) copyright mark); the writers maintain ownership of the songs used on the record (as signified by the ©), and license the songs to the label via a mechanical license agreement.

Term – Up until the early nineties (and, to a degree, continuing today) the vast majority of these exchanges were perpetual.  Meaning, the artists assigned the copyright to the versions of the songs (not the songs themselves) the label release to the label…forever.

The Royalty Deal Type 2: The Term Deal

One deviation from the above emerged simultaneous to the popularization of ProTools.  As artists began to be able to record high-quality masters at greatly reduced costs, the value exchange between artist and label became strained.  Artists no longer needed the labels’ money to record, and while they still needed the labels’ promotional money and expertise, the artists became increasingly unwilling to part with masters they themselves had funded.

This dynamic led to far more so-called licensing or term deals.  In these types of deals, the artist grants the label the rights to exclusively exploit the recordings for a set period of time.  At the end of the term, the rights to the recordings revert back to the artist.  The artist may then re-license them, sell them, or exploit them herself.

This deal is obviously an attractive deal for many artists, as, beyond the financial implications, it also represents a sort of moral victory for the artist who is reluctant to forever part with his or her work. The caveat, of course, is that these deals tend to have little or no advances associated with them. Beyond these differences, the Term Deals operate essentially in the same manner as the Copyright Ownership Deals outlined above; that is, there are clauses for royalty, territory, number of options, etc.

The 360 Deal

While the license deals may have represented a move towards a more balanced label/artist relationship, the 360 deal represents a decisive shift back towards labels as acquirers of all rights.

The 360 deal is a Copyright Ownership deal where the label has rights in not only the master recordings, but also in ancillary rights that artists typically kept sacrosanct; such as, merchandise, revenue from touring, and publishing.

The labels’ argument is that as a result of their exploitation of the artist’s master(s), they increase the value of the artists merch, ticket sales, and publishing, and, thus, should participate in the revenue from these elements.

The problem with this argument is that few if any labels have competencies in the area of merch or tickets.  With respect to publishing, there are a host of conflict of interest issues with respect to a single entity controlling both the master and publishing rights of an artist’s work (these are not insurmountable, and there are benefits, at times, to a “one-stop” publishing/master relationship, but such situations are not without their challenges/potential for conflict).

These 360 Deals have become de rigueur amongst the majors; if you want a major label deal, this is what you will be offered. All other deal elements are consistent with the above with respect to term, territory, and royalty.

Net Profit Share (NPS)/Joint Venture (JV) Deals

On the other end of the spectrum are deals seen with increasing frequency in the indie world, as well as between investors and artists.  These deals, often referred to as JVs, but more accurately described as Net Profit Share deals are typically perceived as more artist friendly than any of the above-mentioned deals.

In these types of deals, the artist typically delivers a finished master to the label.  The label pays a small (if any) advance, and then spends money exploiting the master.

In these deals, the label recoups all expenses associated with this exploitation (remember, in the deals above, recoupment typically tends to be limited to advances and money spent on independent promotion and publicity).  This means that every dollar spent — for postage, manufacturing, advertising, etc. — is all recouped prior to an artist royalty being paid.

Once this money has been recouped, the label splits the profit — on a net basis — with the artist.  Meaning, if the label spent $5000 to exploit the master, and they recouped this $5000 through sales, at the very next record sold, the label would divide the profit after expenses with the artist.  So, if the cost of goods sold on a per-record basis was $3 (for manufacture, marketing, etc.), and the label received $10 from the sale of the label, they would remit $3.50 to the artist and keep $3.50 for themselves.

While these deals do seem more equitable on the surface, it’s important to keep in mind that few records recoup even when limited to advances and costs of independent promotion/publicity, and thus when you factor in all the other costs associated with exploiting records it can be very challenging to recoup all of the costs.

Summary

There are infinite variations to the four principle deals presented above, and future articles will explore in more specific detail the elements associated with each, but understanding the key distinctions will allow you to make better informed decisions, whether you are offering an artist a deal, or being offered a deal.

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  1. While we here at Artists House firmly believe that the best type of record deal is the one you make not because you have to but because you want to that is you should only enter into a deal with a label when you re creating a partnership based on your success of building a solid foundation on your own it is still important to understand the general trends of the music business. Specifically in order to determine at the point you are getting more than you give up when you sign to a label you need to understand how labels are currently operating. In this article I will present you with a brief overview of the historic method of operation labels have employed and then discuss the more current practices with a particular focus on the much-discussed 360 model.

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