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Recently there was a discussion regarding the merits of self-released
recordings versus persuing a recording contract. My local weekly happened
to be running this article:
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The Cold, Hard Truth About Recording Contracts
Indentured Servitude
by Michael Bertin
[Image]
llustration by Jason Stout
It's a conditioned response. "`We got a good deal,' yeah,
everybody says that," affirms Davis McLarty, a local booking agent
who has coached many young Austin artists through the process of
negotiating recording contracts. "You're not going to walk away
going, `Yeah, we got a bad deal.'" Because a recording contract -
"a record deal" - remains the brass ring of the music industry, it
fairly goes without saying that most musicians never met a record
deal they didn't like. It's only natural, as well, that when asked
about their contract, these same artists respond just as McLarty
posited. Unfortunately, there's no such thing as a "good record
deal." The numbers are so stacked against the people making the
music that, as recent Atlantic Records signee David Garza noted,
"It only works for the artist if more than a million copies are
sold. Period."
The obvious problem with that, of course, is that of the
approximate 30,000 albums released every year, less than one
percent go platinum (certified sales of one million), meaning
there are very few recording artists for whom the record deal is
actually working.
This problem is further compounded by the fact that very few
musicians know what their record contract actually says. Which is
quite understandable; the average Egyptologist had a better shot
at deciphering hieroglyphics before the discovery of the Rosetta
Stone than the average musician today has of making heads or tails
out of their recording contract. This turns out to be, perhaps,
the worst problem of all since those pages upon pages of tediously
rigid terminology, obscure even to the legally trained, hold the
financial fate of an artist.
"When people bring their little record deals to me, they're always
just stunned," says Cindi Lazzari, an Austin entertainment lawyer
who has worked deals for local artists such as Eric Johnson,
Charlie Robison, and Chris Duarte. "They're kids and they don't
know. [They say], `I can never afford a lawyer, I'm just going to
sign it, because this is what they do.' So they sign it, and then
they're screwed forever - or at least for a long time."
Suppose you do sign a deal. Sometime
thereafter you will go into the
studio and make an album, the label
will then release it, and if all goes
well, people will go to record stores
and start buying it. Once that
happens, money should start trickling
in via two different revenue streams
The first source of revenue comes through artist royalties - what
the band, singer, or whoever's name is on the CD spine gets for
the performance on the recording. Royalties are often referred to
as the "artist share," and that's a bit of a misnomer, because
"share" isn't really an accurate description of how things get
divided up, according to Ron Byrd of local band Prescott
Curlywolf. "The terms for a record deal are not good," he
grumbles.
In recording contracts, artist royalties are negotiated in
"points." When industry people use that locution - "We'll give you
15 points" - they're referring to the percentage points they pay
an artist on each album sold. If a band gets 15 points that means
it gets 15 percent of the retail cost of each album.
Artist share is generally going to be in the vicinity of 15 points
- occasionally more, usually less. Rob Bernard, also of Prescott
Curlywolf (and the Damnations), recalls that P-Wolf got 13 points
in their deal with Mercury Records. Like most facets of a
recording contract, this is negotiable; if there's interest from
multiple labels, a band can use that to try and leverage a greater
artist share. Jason McMaster of the now defunct Austin metal
outfit Dangerous Toys claims that so many labels were interested
in his band once upon a time (circa 1988), they swung 15 points in
their deal with Columbia.
That royalty rate, however, will be "all in." That means that if
anyone else is getting points, say a producer, they will be paid
out of the artist's share. In other words, if an artist who
negotiated 15 points for themselves scores a big-name producer
that commands a two-point fee, those two points are subtracted
from the artist's share, leaving them with only 13 points.
Think about that for a moment. The musician who makes the damn
album in the first place is doing well to get 15 percent of the
take. It's axiomatic that the creative element in any endeavor is
typically paid only slightly better than the interns, and yet the
recording industry has many other ways of further reducing the
artists' actual take and leaving them in something akin to
indentured servitude - a term that just about everybody in the
know on record deals uses to describe the situation.
First, almost all major label contracts stipulate that an artist
be paid royalties on only 85 percent of the albums sold. This is
actually a remnant deduction left over from the earliest days of
vinyl. Occasionally said petroleum product would break during
shipment. Since retailers couldn't sell broken records, the record
companies decided not to pay royalties on them either. As a
result, a 10 percent breakage factor became customary. Today, even
though CDs generally don't break during shipment, the deduction
has not only stayed, it's increased. So, for seemingly no reason
other than they can, record companies are not going to pay you for
every album you sell.
Moreover, a typical contract will also have a free goods
deduction, reading something like "two shipped free for every 10."
This is more entrenched language, like the damaged goods
deduction; per an agreement through labels and distributors,
record companies used to put two free records in every box of 10
shipped. Distributors got 12 records, but they only paid for 10,
while artists only got royalties on the 10 that were paid for.
It's a record contract fixture even though today most major labels
are their own distributors. This means that with the free goods
deduction, record companies are giving themselves two CDs gratis
so they can avoid paying artist royalties on them.
Finally, there's what's called a packaging deduction; artwork,
insert booklets, jewel boxes, and shrink wrap all cost money, and
the labels don't want to pay artist royalties on those expenses,
so they don't. Typically, labels deduct a whopping 25 percent off
the retail price of a CD for the costs of packaging it. Again,
royalty rates are generally paid on the list price, so with the
packaging deduction alone, a recording artist can lose a full
quarter of his "artist share." The massive deduction is something
akin to theft.
"The fact is that it's a total myth," Lazzari admits. "Packaging
doesn't cost them that much."
Free goods? Packaging deductions? How do record companies get away
with depriving artists of a sizable portion of the money due them?
Fastball guitarist Miles Zuniga explains:
"That, my friend, is what's called the industry standard. When you
ask your attorney to take those out [of the contract], he will
say, `Well it's an industry standard,' meaning standard for you
but not for Madonna. In this way, record companies can screw new
artists and not have to worry about it because everybody does it.
As you become Madonna, you can renegotiate and have these things
taken out."
What on the surface looks like a bad deal for artists - having
their small share nickel and dimed even more - is actually worse
than it seems. It's so bad that McLarty warns young bands right up
front.
"I always tell bands you're not going to make money off of artist
royalties on a major label, nobody does. Nobody does."
Why? Because there are all kinds of costs associated with being on
a label and making records, and those costs are recoupable. In
label lingo, "recoupable" simply means that the record company
wants that money back. Not only do they want it back, but the
artist is going to have to pay for it out of their share - those
piddley 15 points less all the other percentage deductions -
before seeing any cash themselves. As Dangerous Toys' McMaster
attests, those recoupable costs add up fast.
"We got out of having to pay back about $1 million," admits
McMaster. "It's pretty amazing to even be able to say that shit,
but the stuff happens. The money exchanges hands like people
change underwear. "
Among recoupable costs is the advance. That's the money an artist
gets for signing with a label. Advances have a tremendous range -
maybe as low as $30,000 for an artist that signs without much
fanfare to $250,000 or better for bands caught up in a bidding
war. In fact, in a bidding war, things can get downright out of
hand. Radish, that kid grunge band from Dallas that sold
approximately nothing, is rumored to have received around $800,000
for signing with Mercury.
If you're really hot property, however, you may get a signing
bonus. This is not recoupable. This is free money - money for you
to spend as you wish and not have to worry about paying back. Woo
hoo! Almost nobody get this (D'oh!), although word has it that
Kacy Crowley's advance from Atlantic Records was actually a bonus
of this kind.
Typically, advance money will be what an artist uses to pay for
recording their album - as well as covering living expenses. Even
though all this money is recoupable, however, what you don't spend
in the studio you can put in your pocket. And you will need it,
too, because it's hard to keep your day job at Quack's when you're
in a recording studio in Los Angeles.
And videos! That's recoupable money as well. And like anything
else in the music business, costs can quickly get out of hand. As
a self-described hippie without a perm during his Dangerous Toys
hey-day, McMaster was somewhat bewildered when the band showed up
to do its first video and saw a make-up artist and stylist on the
set and on the payroll - their payroll.
"Those people were there to make us look good. I understand that,"
says McMaster. "But out of control is out of control. It would
have been nice to go, `We don't need this, we don't need this, we
don't need this. And we don't need this.' But I'm in Texas getting
on a plane to go out there and start shooting a video. I show up
and all of the shit i s there already. It's not in my hands. We
spent $80,000 on the video. It was
fucking stupid. You can make a great
video for under $2,000. It's silly."
A decade later things haven't changed
much. Abra Moore's video for "Four
Leaf Clover," the one of her in front
of that foresty backdrop (or is it an
actual forest?), cost nearly $100,000
to make, and wow, it doesn't look like wardrobe was a huge
expense.
Also recoupable is tour support. For its debut, Make Your Mama
Proud, Fastball got $100,000 from their label Hollywood Records to
help cover costs on the road.
"That may seem like a huge sum," notes Zuniga, "but that paid for
almost a year of touring and when you think about it, that's the
catering budget on Dumbo Drop 2, so for Hollywood and [its owner]
Disney, it was no big deal."
What may be no big deal to Disney, though, results in huge amounts
of red ink for artists. Between recording budgets and tour support
for its first two albums, Fastball racked up a debt to Hollywood
Records of almost $500,000. And that's not all; labels charge back
to the artist anything they can get away with. McMaster, for
instance, says he was being entertained by Columbia at his own
expense.
"Every time they want to take you out and spend money on your band
- take you out to dinner, bars, whatever - that's your money
they're spending," he explains. "Here you go, five guys and you
bring your friends or your girlfriends, and you're spending up to
$1,500 on dinner and drinks and entertainment."
Worse still, Dangerous Toys was completely unaware they were
paying for it until they saw the charges on accounting statements
months later.
In their defense, labels are taking a huge risk when they sign a
band. The vast majority of albums don't sell well. In 1995,
SoundScan reported sales of over 146,724 titles, 91 percent of
which sold less than 5,000 copies. Granted, this is a little
misleading, because it includes all albums, even those catalogue
nuggets like Pink Floyd's Dark Side of the Moon. It's only a
little misleading, though. That year the average major label
release sold only 9,134 copies.
Huge risks generally merit large returns, but there are aspects of
recording contracts that go beyond the bounds of a reasonable
return on an investment. When Austin's Spoon was negotiating its
contract with Elektra Records, Britt Daniel discovered that he
wouldn't even be able to own the very albums he would be making
and paying for out of his royalties. According to Daniel:
"We told our lawyer that we wanted to own our own masters and he
was like, `Okay, when the Easter bunny gets through blowing Santa
Claus then what else do you want?' The fact that they give you an
advance which you have to pay back to them, but you don't own your
masters - that's completely bullshit. I don't know of any job
where you have to pay back your own work expenses, because an
advance is theoretically what they are giving you to make the
product."
Since the band was shopping finished product, Spoon ultimately
licensed its current album, A Series of Sneaks, to Elektra. After
this one, however, they will all be owned by the label.
There are exceptions to this rule, of course. If the label has
dropped you, deleted your catalogue, and has no future plans to do
anything whatsoever with your music, then you're just taking up
valuable vault space. For that reason, Prescott Curlywolf was able
to get the masters from its major label debut, 6ix Ways to Sunday,
back from Mercury. According to Bernard, once the above factors
were in place, the rest wasn't too much of an ordeal.
"We had our lawyer basically go in and plead our case and they
were happy to do it," says Bernard. "It wasn't going to make them
any money, not in their plan, so I don't think they saw any harm
in letting it go."
So, what does the record company do for you? Its end of the
bargain comes in the form of an agreement to manufacture,
distribute, and promote the product - your album. Of course,
there's no guarantee that the label will even do the latter.
Bernard estimates that Mercury's total promotional expenditures on
6ix Ways to Sunday was $400. He guesses that was spent on some
posters he saw at the venues the band played during its sole,
one-week tour.
"We didn't even consider, `Well shit, they don't have to promote
you,'" admits Bernard. "They can sign you, but they don't have to
promote you. Only after did we become aware of the evil truth that
major labels just buy up acts to keep them off the market. That's
the truth of the matter. They want to keep the market free and
clear so they can push their big money makers."
Yes, the record industry could crush Mr. Rogers' spirit, but
surprisingly, things aren't completely hopeless. Despite the fact
that the terms of most recording contracts are generally not very
artist-friendly, you can make money. Fastball's Zuniga estimates
that the $500,000 debt his band racked up will be paid in full by
the end of July. Claims the guitarist:
"If you have a hit single, everybody wants to play ball with you,
and the money starts flowing in from several different rivers:
record sales, publishing, live gigs, merchandising, etc."
Being on the radio makes getting paid elsewhere a little easier,
but even without a hit there are ways to make a living making
music for a record company. Remember, there are two sources from
which the money flows; royalties are one, the other is through
songwriting mechanical license fees - "mechanicals" in industry
lingo.
Mechanicals are what the songwriter and the publisher get paid for
the writing of the song, with the current rate hovering around
seven cents per song per CD sold. Don't think that record
companies don't want that, too. They do. They will often not pay
the full seven cents per song rate, nor will they always pay on
every song on an album. Nonetheless, there are fortunes to be made
in songwriting royalties and an artist on a major label can sell
all or part of their publishing for very good money. Zuniga and
Fastball sold their publishing a few weeks ago for a huge sum.
Also, the money from mechanicals is generally not
cross-collateralized. This means that, assuming a band or the
members thereof wrote the material performed on the album, any
money due them for songwriting will not be withheld to pay back
all of the recoupable costs like the record royalties are. No
matter how much you owe the label, you get paid your mechanicals
if you wrote the song.
Publishing gets very tricky very quickly, but an artist who takes
the time to understand it and manages his share of it wisely can
make out well. If, however, you don't write your own material,
then you're back in the familiar
it-ain't-going-to-work-for-you-unless-you-sell-a-million-albums
camp.
Whatever the case, it generally boils down to this: As long as
artists are cognizant of the fact that most major label recording
contracts favor the company with little or no regard for the
creative force behind the whole endeavor, they can still play the
game one of two ways and maybe come out ahead. First, there's the
take-all-you-can-get-up-front tactic. Try to negotiate a huge
advance, and sell off part of your publishing. Exploit any
leverage you might have. Even though Prescott got dropped by
Mercury after one album, which sold less than 5,000 units, they
still pocketed money because they got such a big check up front.
"We made out like bandits," says Ron Byrd. "We each probably made
$20,000."
The band actually got $225,000 from the label. From that, $75,000
went to buying out the band's contract with local indie Doolittle
Records, while another $70,000 went into making 6ix Ways to
Sunday. The rest was money in their pockets. Of course, they're
still in the hole to Mercury for $200,000, but because they were
dropped, they don't have to worry about paying any of it back.
The other strategy is to keep costs down. That way, even if you're
not a huge hit the first time up, it's not going to cost the label
much to give you another attempt at bat. Hollywood didn't promote
Fastball's first album much, so Zuniga acknowledges "it didn't
cost them that much to keep us around." He credits that and having
a few key people at the label who believed in them with allowing
the band to make the now-gold album (sales of 500,000) All the
Pain Money Can Buy.
As it turns out, there's actually a third strategy: Don't sign
with a major label at all. Unfortunately, there's a perverse logic
whereby musicians and fans alike infer that because independent
labels are "cool" indie record deals are "cool," too. The truth of
the matter is, however, that a lot of indie labels pattern their
deals after what the majors do. There are some indie labels that
have taken a major label contract, changed the names, and used it
as their "standard agreement."
In fact, indie deals can be as bad or even worse than those set up
by the majors. As dismal as Prescott Curlywolf's experience with
Mercury was, the band was already quite unhappy with its deal with
Doolittle, and viewed its signing with Mercury as a way to get
them off Doolittle. For its latest release, Funanimal World,
Prescott Curlywolf settled on another Austin indie, Freedom
Records, a label where the arrangement is unlike anything else in
the business. After label owner Matt Eskey recoups his costs, he
splits everything 50-50 with the artist.
"He's 100% artist friendly." says Byrd, "We don't even have
anything on paper with him."
Of course you can always not sign with anybody. David Garza made
nine records by himself before inking his deal with Atlantic, and
he's completely content with the Ani DiFranco-esque course he
took.
"Most bands sign too early in their career," says Garza. "I thank
God every day I didn't sign in 1991. I can't imagine it. I was
nowhere near ready. I would have been thinking, `Okay, here's our
big record deal, so now I'm going to make a lot of money.' That's
not what happens when you get signed."
Because he had a career under his belt before negotiating with
Atlantic, Garza brought a lot to the table and as a result got
what he called "an incredible deal" with the label.
But remember, everybody gets an incredible deal, or at least
everybody says they do - or better yet, think they do. How can any
deal that doesn't make you money until you're threatening to go
platinum be that good? It isn't. Obviously, the terms of most
major label recording contracts are such that a crummy deal isn't
even in the numbers.
McLarty explains: "In my mind a good deal is finding people at a
record company who really dig what you're band is doing and really
want to work hard to make the band a success. You have to factor
that in to whether you got a good deal. The numbers are going to
suck no matter how you look at it. That's just the way it is."