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Major Label Deals, the downside (no looping content)

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:

The Cold, Hard Truth About Recording Contracts

Indentured Servitude

by Michael Bertin


            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

     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

     "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

     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

     "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

     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

     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

     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

     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

     "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."