"Ball of Weirdness" by Jonathan Jesion

www.ProfessorCalle.com MUM 2700 Music Business 1

RECORD CONTRACTS TEST REVIEW TERMS
Definitions:
1. A&R: artist & repertoire. Makes decisions about artist signings and songs to be recorded. May also assign producers and writers.

2. Record: Since the 1960’s a record is described in contracts as an audio or an audio-visual device.

3. Master(s): A CD contains as many masters as it has tracks. In other words, 10 songs on a CD equals 10 masters. A master can come in different formats:

• DAT, CD or DVD containing a final mix ready for duplication.
• Two inch 24-track tape, half inch digital 48-track tape, Super-VHS ADAT tape, Tascam DA-88 super 8 tape, raw sound file data on a variety of formats including CD, DVD, hard drive, DVD-ram and DDS-3 tape. These formats will contain the data for digital audio recording formats such as Pro Tools, Digital Performer, Nuendo, Logic, Reason, Cakewalk, Cubase, Radar, Tascam, etc.

4. SRLP: Suggested Retail List Price. According to Brabec and Brabec (2006), the SRLP is approximately $18.

5. Constructed Retail List Price. This price is figured by uplifting the wholesale price by approximately 130%. Typically, this price is lower than the SRLP and results in somewhat lower earnings for the artist.

6. Mini-major record company: Does everything but distribution.

7. Packaging deductions (amounts for CDs and cassettes): 20% for cassettes and 25% for CDs.

8. Independent record company: Two types:

• Truly independent has no attachment to a major.
• Semi-independent is distributed by a major.

9. What is a point? 1% = ONE PERCENT.

10. Recording Advance: Artist or producer is issued an amount of money and expected to turn in a completed and satisfactory master. The producer or artist keeps any money not spent on the recording.

11. Recording Fund or Budget: The artist or producer is allotted an amount of money and is expected to turn in a completed and satisfactory master. In this case, the record company pays all of the bills from this fund and any money not spent on production does not have to be recouped by the artist.

12. Free goods deductions: Typically 15% of units produced. These free goods are used for promotion.

13. Cross-collateralization: All advances, expenses or other recoupable funds for any and all albums under one record deal are considered as a single expense. In other words, if the first record doesn’t recoup and you make a second record, the artist must recoup the money advanced for both records before they can begin to earn royalties.

14. Reserves: Typically 30% or more. This amount is held in order to account for returns. Usually, after a period of two years, the account is adjusted for returns and the artist is paid the balance.

15. Standard return privilege: In the past, the returns were allowed to be 100% of shipment. Currently, retail stores are allowed to return 20% of the stock. Any amount over 20% is charged a restocking fee.

16. Profit & loss: Every artist has a profit and loss sheet detailing the amount of advances issued and amount of money recouped.

17. Black position: Black means you are profitable.

18. Red position: Red means you are loosing money. The black and red terms come from accounting practices that use black and red ink to denote profit and loss respectively.

19. Standard breakage deduction: 10%. A&M records still computes this deduction on contracts even though CDs don’t break as often as records.

20. New artist: Someone who has sold less than 250,000 records. Lower point structure for new artists. Typically, points range from 10 to 15 for signing with independent labels and 13 to 16 points for majors.

21. Midlevel artist: Someone who sells between 250,000 and a million records. Royalty points tend to range between 15 and 17 points.

22. Superstars: Artists selling more than a million copies. Points range between 18 and 20 points. These artists tend to have distribution deals or co-ventures with record companies.

23. Gold album: An album selling 500, 000 or more.

24. Platinum album: An album selling one million copies or more.

25. Floor: The smallest advance amount stipulated in an artist’s record contract.

26. Ceiling: The largest advance amount stipulated in an artist’s record contract.

27. Controlled composition: Any composition in which the artist has a financial stake. The term control refers to the artist’s control to make decisions about the mechanical rate of the song because he/she has a financial interest or benefit in the composition.

28. Standard controlled composition reduction: This is now standard in record contracts and is a 25% reduction. Therefore, your mechanical royalty is reduced from .091 cents to .06825 cents.

29. Controlled composition reduction for record club CDs is also standard in record contracts and results in a 25% reduction. Therefore, your mechanical royalty for controlled record club compositions is reduced from .091 cents to 0.06825 cents.

30. Prospective escalation – A negotiated escalation in the royalty points earned by an artist after achieving a pre-determined sales performance marker such as gold or platinum album. The escalation, ranging from .5 to 1.0 or higher, is applied to all royalty earning units in excess of the negotiated performance marker. A bump up in your royalty rate based upon reaching a certain sales quota goal. This escalation happens after the artist has reached this sales figure. There is no change in rate for any units sold prior to achieving the negotiated sales figure.

31. Retroactive escalation: A negotiated escalation in the royalty points earned by an artist after achieving a pre-determined sales performance marker such as gold or platinum album. The escalation, ranging from .5 to 1.0 or higher, is applied to all royalty earning units from “record one.” If a contract states that the royalty rate retroactively increases with the number of CDs sold, then the artist would paid the higher rate after reaching the stipulated amount and would be paid the higher rate from record #1. In other words, if your contract stipulates a 16 point royalty rate that increases retroactively to 17 points after the sale of 500,000 CDs, the artist would be paid 16 points for all CDs up to 500,000. Upon selling 500,000, the artist would be paid 17 points for all future CDs and one extra point (16 +1) for the CDs from 1 to 499,999. The term retroactive means “from the beginning.”

32. All in deal: This refers to a situation where the artist’s points include the amount for producer’s points. For example, if your producer receives 3 points and your artist deal is for 16 points, then you are really earning 13 points and the producer is earning the other 3 points.

33. Commercially satisfactory recording/master: A master accepted by a record company because they believe it will sell is termed a commercially satisfactory master.

34. Options: The record company’s way of keeping successful artists by extending their contracts. The number options or additional records is spelled out in the contract and is at the whim of the record company. If you sell, the record company has the right to “exercise the option” and make you record another CD. If you don’t sell, they have the right to “not exercise the option.”

35. Mechanical royalties: This money is paid to the publisher at the time of pressing. This money is not recoupable and is due when records are printed, not when records are sold. This money is upfront money and, because it is not recoupable, companies invented the controlled composition clause in order to cut down on upfront expenses.

36. Maximum statutory mechanical royalty rate for a song up to 5:00 in length: 9.1 cents.

37. Statutory mechanical royalty rate for a song longer than 5 minutes long. Be able to compute the full mechanical royalty owed for a song longer than 5 minutes.For songs longer than 5:00, the extra mechanical royalty rate is 1.75 cents for every minute or fraction thereof.

38. Royalty base (cassette) = SRLP – (20%) packaging deduction. Royalty base (CD) = SRLP - (25%)

39. Recoupable moneys: Money issued by the record company to the artist in the form of recording advances, recording costs, video costs, tour support, independent record promotion and other developmental or promotional costs. The artist must recuperate or earn this money, at their negotiated royalty rate, from sales prior to earning royalties. It’s a lot like paying for dinner by washing dishes.

40. CD royalty rate – Typically, this royalty rate is based on 75% to 85% of the cassette royalty rate. For example, if the artist has negotiated a 10-point royalty rate, the CD royalty rate will range from 7.5 to 8.5 points.

41. P&D deals – Packaging and distribution deals.

• Wholesale price – set via contract.
• Distribution fee is typically 18% to 20% of wholesale.
• Marketing and promotion fees are an additional 2% or 3%.
• Returns can kill your profit.
• Some P&D deals require upfront money or a guarantee to eat a percentage of the returns.

42. Co-Venture – a deal where the artist and record company share risk and profit from all sources including songwriting, touring, merchandising, sponsorships, acting, film scoring, etc.. Large advances, long term relationships.

43. Record contract deductions:
43-1. Many record contracts add a 15% to 25% deduction to the artist’s negotiated royalty point base resulting in a royalty ranging between 75% and 85% of the negotiated rate. This deduction accounts for blank CDs and piracy.

43-2. The free goods deduction is 15%.

43-3. The breakage deduction still used by some companies is 10%.

43-4. The packaging deduction for CDs is 25%. The packaging deduction for cassettes is 20%.

43-5. Companies hold approximately 30% of the artist’s royalties for a period of up to two years in order to account for returned product. If the product is not returned, the companies will pay the artist any royalties owed after the accounting period has been completed.

43-6. Recording costs are fully recoupable.

43-7. Tour support is fully recoupable.

43-8. Promotion (radio) costs are 50% recoupable.

43-9. Video production costs are 50% recoupable.