I got this information regarding recording contracts from here :
http://entertainment.howstuffworks.com/recording-contract.htm
IT SAYS AND I QUOTE ....
Sign on the Dotted Line
Let's imagine that a miracle has happened and you have a big-label recording contract in your hands. You want to sign it because you and your band mates have been working your butts off to get to this. But some of the stuff in it sounds -- well, pretty scary.
The American Heritage dictionary defines a contract as
An agreement between two or more parties, especially one that is written and enforceable by law.
The "enforceable by law" part is important. Once you sign a contract, you are bound by it. So, if you don't like the contract, don't sign it. That doesn't mean things end here. You may want to consider hiring a lawyer.
In many cases, when someone is about to sign a contract, he or she hires a lawyer to interpret the contract and (in some cases) to help negotiate terms. Since you're looking at a music contract, an entertainment lawyer would be best suited to help with its interpretation. An entertainment lawyer must be familiar with various agreements and contracts related to the entertainment industry, including recording contracts.
Whether you are a solo artist or you are a member of a band, you generally have two problems if you are an unknown who is signing your first recording contract:
Because you have never seen a recording contract before, you don't know what is "normal," and you do not know how the contract will affect you long-term. Your lack of experience and knowledge in this situation makes a lawyer even more important.
Even if you have a lawyer, you may have little or no leverage. If you try to negotiate, the record company can easily say, "Take it or leave it." If you decide not to agree with the terms and conditions, you have to wonder when and even if the next contract offer will come.
The goal of this article is to walk you through the typical features that any recording contract will normally have. It certainly does not replace a lawyer, but it does help you to educate yourself about the big issues and problems found in most big-label recording contracts today. The following sections will focus on each of the major topics that are covered in any big record deal so that you'll have a good idea of what to expect when your contract arrives.
Royalties
In addition to global exposure and fame, the biggest reason for signing a recording contract is to get paid for your music. The record company will record your act, master it, produce the recording or "album" (refers to CDs, tapes, etc.) and sell them through record stores. You get paid a percentage of each album sold. This percentage is known as a royalty. There are other ways for musicians to make money (see How Music Royalties Work for details), but royalties on the sales of albums is the main source of money coming from a recording contract.
The percentage that you receive for each album sold is a negotiating point, but typically it can fall anywhere between 10% and 20%. Most new artists get a royalty percentage at the low end of the range, and 10% is common. A royalty deal seems simple enough. If a CD sells for $15 and the royalty percentage is 10%, the band should get $1.50 for the sale of each CD. If your first album sells a million copies, your band should get $1,500,000. What's not to like about that?
The first thing to keep in mind is reasonable expectations for the sale of an album. The music industry publishes tens of thousands of new albums every year, and only a small percentage of them are going to go gold (500,000 records sold) or platinum (1,000,000 records sold). You have about a 1-in-20 chance of producing an album that is a major hit.
The second thing to keep in mind, and this is a big one, is that the band does not get $1.50 for each CD sold. This discrepancy comes from the fact that the retail price of an album is different from the wholesale price, and many recording contracts pay based on wholesale rather than retail prices. These different calculations have a big impact on the amount of money a band can make.
It is not uncommon in the music industry (or the book industry, for that matter), for retail stores to mark up the wholesale price by as much as 80% when a CD is put on the shelf. Then there are things like coupons, rebates, promotional discounts, etc. that can carve into wholesale prices. In addition, there is the concept of a sales channel. For example, record clubs represent a different sales channel from retail record stores, and record clubs usually get their CDs at a lower wholesale price. Therefore, the band gets less money from discs sold through record clubs. Foreign sales are often treated the same way. Even discount clubs like Sam's and Costco can be different channels with lower wholesale prices.
What this means is that the royalty payment usually does not get calculated based on the $15 retail price for the CD. The royalty payment may be calculated based on a much lower wholesale price point. It depends on the contract you sign.
The royalty amount can also be reduced by various charges. For example, it is common for a recording contract to withhold 25% of the band's royalties for a packaging charge. There may also be a deduction for free CDs. It is not uncommon for a record company to give away free CDs to a vendor instead of discounting the wholesale price of a CD. If that happens, then the band will be paid nothing for the free CDs given away.
Another common practice is to charge the band for a variety of costs associated with producing an album. For example, the cost of recording the album, promoting the album, producing a music video and touring for the album may all be recoupable expenses. Which means all of these expenses may be deducted from the band's royalties before the band gets paid. The cost of recording an album can easily reach several hundred thousand dollars, and so can promotion, touring and music video costs. All of these costs get subtracted out of the band's royalty payment before the label writes the band a royalty check.
Finally, there is the concept of an advance against royalties. The record company may pay the band a set amount of money during the album's development so that the band can eat while they create an album. If so, that advance will be recouped before any royalties are paid.
If any money survives the recouping process, and the band actually gets a check, then the band's manager and/or agent will get a cut of the proceeds. A manager typically gets 20%, for example. Then, the money that remains gets divided among the band members.
What this system tends to do is create a situation where only those bands who create gold and platinum records ever get paid anything outside of their advance money.
From this discussion, you can see that you need to be aware of several things when reading a recording contract:
The amount of the royalty percentage.
Whether the percentage is calculated on the wholesale, channel price of the album or the retail price.
Where the recoupable expenses are applied. Do they get applied before the royalty rate is calculated, or after?
The kinds of extra deductions (like packaging costs, breakage, freebies, etc.) that are taken.
The size of the advance. Since the advance may be the only money you ever see, you want it to be as large as possible.
It is interesting to compare the record industry with, for example, the publishing industry for books. Both industries pay on a royalty basis. However, in the book industry, while there may be an advance given, there are none of these other recoupable expenses, deductions, charge-backs, etc. A book author is paid a fixed percentage of the wholesale or retail price paid for the book.
Not all record companies handle the pay-out this way. Let's take a look at a different method.
Royalty Alternatives: Another formula
In some cases (more common outside the U.S. or with indie labels), the record company and artists split the net profits of an album 50/50 (or along some other percentage in the range of 50/50). To calculate the net profits, the label takes the gross receipts for the album and deducts all of the direct costs. The gross receipts are all of the money that the label makes from the album through wholesale sales of the CD. The direct costs include things like:
* Studio time and labor costs to record the album
* The costs of producers, technicians, etc. to produce a master
* The costs of pressing and packaging the album
* Shipping costs to get the albums to retailers
* Marketing, advertising and promotion costs
* Warehousing costs
* Legal costs
* Taxes
* Personnel costs
* Royalties paid to songwriters
Here, too, there is still a fair amount of wiggle room for the label. For example, the record label may be paying personnel $10 per hour but charge a retail price of $40 per hour when charging the cost of the personnel to the album as a direct cost. Part of that is justified (e.g. the label pays more for an employee than the hourly rate, including things like FICA, benefits, etc., plus there's office space, equipment, and so on). But the markup is probably 100%. So the label is making a nice profit off of these expenses, and may still be making money even when the artist is making nothing.
This quote from Courtney Love's letter to recording artists summarizes the position of most artists:
Record companies have a 5% success rate. That means that 5% of all records released by major labels go gold or platinum. How do record companies get away with a 95% failure rate that would be totally unacceptable in any other business? Record companies keep almost all the profits. Recording artists get paid a tiny fraction of the money earned by their music. That allows record executives to be incredibly sloppy in running their companies and still create enormous amounts of cash for the corporations that own them.
The royalty rates granted in every recording contract are very low to start with and then companies charge back every conceivable cost to an artist's royalty account. Artists pay for recording costs, video production costs, tour support, radio promotion, sales and marketing costs, packaging costs and any other cost the record company can subtract from their royalties. Record companies also reduce royalties by "forgetting" to report sales figure, miscalculating royalties and by preventing artists from auditing record company books.
From this discussion, you can see that there is no guarantee at all that your band will make any money from a recording contract. You are gambling that your album will be able to break through into the top 5% of albums and go gold or platinum.
The bottom line is that you want to push for the highest royalty rate possible, especially if there are a lot of recoupable expenses in the contract. You also want to push for the highest advance possible, since that may be the only money the band actually receives. Keep three things in mind when you negotiate the rate:
* It is likely that the first royalty number you see is negotiable. It is common to put a low-ball figure in the contract to give the label room to negotiate.
* It can't hurt to ask for a higher rate.
* The fact that you have been offered a contract means something. The label looked at your band or your solo act and saw talent that looked profitable. If one label can see that, it is possible that other labels would have the same reaction. This gives you a bargaining position.
The Marketing Machine
You will rarely see it written into a contract, but it is important to keep in mind the reason that you, as an artist, are signing the contract. Yes, you want to make money, as discussed in the previous section -- it is nice to be paid for your work. But there is another reason why most acts are interested in signing a contract, especially if you are signing with a big label.
You are also looking for maximum exposure. You want the label to promote your record. Presumably, more promotion yields more sales, which is good for both parties. But even if there are no sales, promotion is good for your band because it gets your name out in the public more and more.
Recording
In return for royalties on albums sold, the band agrees to record those albums. That seems simple enough -- it is not possible to sell albums without recording them. The contract will normally set up a group of contract periods, with each period generating an album and one or more singles.
Normally the recording contract will specify the contract periods very clearly. An amount for the advance given with each contract period will be stipulated in the recording contract, and a deadline for the album will be stipulated as well. The first contract period generates the first album, the second contract period generates the second album, and so on.
So the band goes into the studio and records an album. The contract will specify that once it is recorded, it is the property of the label in perpetuity. In addition, the contract will normally have some sort of lock-out clause with a duration of five to 10 years. This clause prevents the band from re-recording any of the songs on the album for five to 10 years after the end of the contract.
In other words, the label owns the songs you have recorded for a very, very long time.
If the label does not like the album, it has the right to reject it. In that case, the band has to record another album. Or the label can accept an album but shelve it and never release it. The lock-out clause will still apply in that case, even though the songs were never released.
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WHEWWW, THE RECORDING BUSINESS IS NOT AS SIMPLE AS I THOUGHT. NO WONDER MANY PEOPLE GET BURNED ALONG THE WAY !!
HOE TAYLOR HICKS GETS A GOOD ADVISOR AND LAWYER.
ONE MORE THING I FOUND OUT ABOUT THE RECORDING BUSINESS YOU MIGHT BE INTERESTED IN....
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Alarming Facts
More from Courtney Love's letter to recording artists: "Multiplatinum artists like TLC ("Ain't 2 Proud 2 Beg," "Waterfalls") and Toni Braxton ("Unbreak My Heart" and "Breathe Again") have been forced to declare bankruptcy because their recording contracts didn't pay them enough to survive.
"Corrupt recording agreements forced the heirs of Jimi Hendrix ("Purple Haze," "All Along the Watchtower" and "Stone Free") to work menial jobs while his catalog generated millions of dollars each year for Universal Music.
"Florence Ballard from the Supremes ("Where Did Our Love Go," "Stop in the Name of Love" and "You Keep Me Hangin' On" are just 3 of the 10 #1 hits she sang on) was on welfare when she died.
"Collective Soul earned almost no money from "Shine," one of the biggest alternative rock hits of the 90s when Atlantic paid almost all of their royalties to an outside production company.
"Country music legend Merle Haggard enjoyed a string of 37 top-ten country singles (including 23 #1 hits). Yet he never received a record royalty check until last year when he released an album on the indie punk-rock label Epitaph."
Here's the official press release of Taylor Hicks signing the dotted line ( or his life away as the case may be ) :
http://biz.yahoo.com/prnews/060531/nyw120.html?.v=53
2006 American Idol Taylor Hicks Signs With 19 Recordings Limited/Arista Records!
Wednesday May 31, 2:23 pm ET
Hicks' first single 'Do I Make You Proud' is available in-stores and digitally on June 13th
NEW YORK, May 31 /PRNewswire/ -- Following this year's most successful season of American Idol with over 35 million viewers tuning into the finale on May 24th, the 2006 winner Taylor Hicks signs a recording deal with Simon Fuller and 19 Recordings Limited, in conjunction legendary music man Clive Davis, Chairman of BMG U.S., and Arista Records.
The 29 year old Alabama native, that captured the hearts of millions of viewers by pouring heart and soul into every performance, joins the ranks of other idols that have gone on to have outstanding music careers under the guidance of Davis. Previous Idol winners and runner ups have sold a staggering 33 million records which includes music from Kelly Clarkson, Clay Aiken, Fantasia, Carrie Underwood, Ruben Studdard and Bo Bice.
The first single from the charismatic performer includes the original Idol composition, "Do I Make You Proud," sung during the final round of voting and again during the finale. The single also includes his soulful rendition of the Doobie Brothers classic, "Takin' It To The Streets," from the American Idol Season 5 Encores CD. The single is available in-stores and through digital outlets on June 13th. Hicks' legion of loyal followers dubbed the "soul patrol" and fans all across the country can expect a full length album from Hicks later this year.
About 19 Entertainment
The 19 Group of Companies was founded by Simon Fuller in 1985 and to date has been involved in the creation of 109 Number 1 singles and 87 Number 1 albums with an impressive tally of 296 Top 40 albums and 465 Top 40 singles.
Fuller created and managed the Spice Girls, who became a global phenomenon under his guidance, selling over 38 million albums. In 1998, Fuller's 19 launched S Club 7, which has sold over 10 million CDs worldwide, while its four television series were sold to over 100 countries around the world.
In 2001, Simon Fuller's 19TV created and produced the television phenomenon "Pop Idol" and in 2002, "American Idol." "Pop Idol" launched the singing careers of Will Young and Gareth Gates in the UK, while "American Idol" did the same for Kelly Clarkson, Ruben Studdard, Clay Aiken, Fantasia, Diana Degarmo, Bo Bice and Carrie Underwood in the United States.
About RCA Music Group
The RCA Music Group includes J Records, Arista Records, RCA Records and RCA Victor. The J Records roster is home to platinum superstars Alicia Keys, Rod Stewart, Pearl Jam, Annie Lennox, Luther Vandross, Jamie Foxx, Maroon5, Mario, Gavin DeGraw, Fantasia and Monica among others. The Arista Records family includes all-time superstars Sarah McLachlan, Santana, Dido, Aretha Franklin, Whitney Houston, Carrie Underwood, Barry Manilow and Kenny G. RCA Records is home to superstar artists Christina Aguilera, Dave Matthews Band, Foo Fighters, The Strokes, Velvet Revolver, Avril Lavigne, Clay Aiken, Kelly Clarkson, Heather Headley and more. RCA Victor's roster includes Imogen Heap, Rachael Yamagata, Etta James, Eliane Elias, George Winston, The Chieftains, Larry Carlton and Fourplay. RCA Music Group is part of Sony BMG Music Entertainment.
Source: J Records
