Recording contracts can be problematic for all parties involved, especially now when people have stopped, you know, actually paying for music.
It’s been a longtime complaint of recording artists that the rules of contracts inevitably favor the record labels and not them, and to an extent this is true. It’s also true, if not more so, in the publishing business. Artists (and by the way, I’m just using the industry term here, not necessarily implying that all music recorded and released is “art”) in most cases don’t have a lot of bargaining power, especially the first time they sign a record deal.
Major labels are famous for getting new artists to give up all their single royalties for album royalties down the road, before the artists realize the deal is set up so that they never actually get those royalties.
Here’s how most independent recording contracts work: a record company signs an artist to some sort of multi-release deal. What that means is that the artist is then obligated to produce a certain number of recordings for the label, usually within a specific time frame. This tends to be one-sided, though, because the label is free to “drop” said artists before the terms are up if it feels like the contract has outlived its usefulness (read: artist is dead weight, or just too annoying). For this reason, labels would like to sign artists for as many releases as possible, whereas artists would like to be obligated to as few releases as possible.
I recall hearing someone in the 1980s bragging on stage about having just signed “a 12-record deal with RCA,” and I was thinking, “You’re talking about a 12-record deal like that’s a good thing.” It isn’t, unless the first one is a smash hit, and even then, you’d be better off with a shorter term deal, because then you could negotiate something better the second time around.
But I digress: An artist signs a contract obligated to X number of releases, the label in many cases fronts the money for the recording, production, and promotional costs (though this is not always the norm now), the album is released, and then the artist begins the process of paying off that debt to the label, one sale at a time.
This is the part that most people don’t understand, including artists who sign these deals: when CDs are sold (why are you laughing?), whether that be through mail order, at a truck stop, or elsewhere, the artist makes zero dollars on that sale, but a portion of that sale (often less than one dollar) goes towards paying off the label’s up front costs, until at some magic moment, usually after a rainbow ends right on top of the artist’s head, that debt has been erased, and the artist will begin earning royalties, also often at the rate of a dollar or less per sale.
Can you see now why the in-person purchase from the artist is so important to him or her? It’s because that’s the only way that artist will make any money off the release. Your Amazon purchase of your favorite artist’s latest CD is appreciated and all, but it’s actually making the artist less money than streaming is—most likely zero—unless that release is put out on the artist’s own label.
Labels like the in-person sale, too, because that means the artist will come back and buy more of the product, and these days, it’s about the only reliable way to move hard copies of the release. This is one of the reasons an artist’s tour schedule is of interest to labels.
Though it varies contract to contract, streaming and digital royalties are handled in a similar way.
If the artist fails to deliver a follow-up release within the agreed-upon timeline, the label is free to terminate the contract. If the label would like to keep the artist, though, some grace is usually given there (especially during a worldwide pandemic).
One area that has changed a lot is the size of recording budgets provided by the record label. The reason for the shrinking up-front budget is fairly obvious: independent labels (pretty much the only kind we deal with in bluegrass music) can no longer rely on the revenue stream of a given release, so unless they have a legitimate hit artist on their hands, the $10K to $20K budgets are a thing of the past (you may have to cancel that plan for the full string section on your cover of Cry Cry Darling).
Some labels still front some money, but many don’t, and some do but have moved to in-house recordings as a way to control studio costs. In those cases, some labels are even getting the artist to pay the engineer (I would steer clear of the label that also charges the artist for coffee from the label’s kitchen). It’s a tough business out there right now.
So many naturally ask, why don’t artists just front the money themselves, especially with crowdfunding options available, and release their own music? It’s a valid question, and many do, eventually making much more money on sales as well as having 100% artistic control of the process.
Lots have chosen this option, but record labels offer some pretty valuable assets: they have the ability to professionally promote what you’ve recorded. That’s huge, especially if you don’t have the time personally to deal with that end of it, or for example in my own case, you hate that aspect of the business. That’s what labels are good at, or if they aren’t, it’s important to find one that is. There’s a great deal involved in putting out a professional release that people might pay attention to, stream, or who knows? even buy. Also, the dismal hard copy sales hit self-released albums, too, making it harder for the artist to make that money back, even at a higher rate per sale.
Also, especially for new artists, record labels give credibility to your recording. You’re associated with other successful (we hope) artists on the label, and you benefit from the reputation of the label itself, and this is very beneficial in what is a very overloaded market with lots of competition for sales, streaming, and radio airplay.
Regarding the debt repayment and royalties, many artists don’t even worry about this, especially in the current climate, considering it a given that they won’t make that deficit up and are just glad for the label’s support.
The original plan for this column was to present two hypothetical recording contracts, one the ideal one for the label, and the other the ideal one from the artist’s point of view, but I see that I’ve used up my allotted space (two square feet).
By the way, I love the record label I’m with (Mountain Home) for the people, and that’s really what matters for both artist and label. Any rumor that I signed with them for their excellent coffee machine (which they don’t charge us to use) is false.