THE INDEPENDENT RECORD LABEL/PRODUCTION DEAL
Ivan Hoffman, B.A., J.D.
When I started practicing law in the music business, in 1969, there were producers and independent labels on every street corner… and the little records with the big holes were called “45s.” Over the 1970s and into the 1980s, as big corporations saw the money to be made, the major labels “bought up” all those independent labels and producers and over that same time span, deals became less and less available until we come to approximately the last 5 years when we see the reappearance of independent labels and producers. And so the record business today is not about just the major labels. For a variety of reasons, we seem to be seeing a rebirth of smaller, independent labels and production deals. I put production deals into the same category as the independent label because they are similar and, for purposes of this article, require the same attention to detail in terms of contractual provisions.
Independent labels come in at least 2 forms: those which are self-distributed such as with their own distribution network, and those who have a distribution deal with a major label. The difference is important, as you will see below. A production deal may be with a producer who does not have his or her own label and thus no independent distribution or a distribution deal for his or her label. Although hard copy distribution is diminishing in sales, the reality is that downloading or e-versions have yet to replace the real world in terms of overall revenue, marketplace power or otherwise. It may in the future but has not yet.
So let me examine some of the issues that arise in such a deal from the artist/label standpoint.
There are, of course, many other issues that arise in such a complex contractual relationship.1. Of primary importance to the artist is that the agreement provide for distribution, both in hard copy as well as in digital format. As indicated above, in some instances, an independent label may have a network of independent distributors to distribute hard copy versions of the recordings or it may have a distribution deal with a major label. However, by definition, a production deal will not have its own distribution network. In either instance, the artist should negotiate for the label/producer to guarantee that there is a distribution network/deal available and that it will remain available during the duration of the label’s/producer’s rights in the agreement and that if such distribution deal terminates, that the artist can terminate the label/production deal as well after some finite number of days from when the overall distribution deal terminates if it is not replaced by a new distribution deal. Without such a provision, the artist can be bound to the label/producer even though there is no obligation that the artist’s recordings are going to get distributed.
Note that I say that the distribution deal should remain in effect for the duration of the label’s/producer’s rights exist. This is very different than saying for the term of the agreement. The agreement can terminated by its term or otherwise but the label’s/producer’s rights generally continue in perpetuity even if there is no longer any distribution obligation attached to the ownership.a. Remember as well that merely because the artist signs to an independent label or producer does not necessarily mean that that label/producer has to release records. The artist will have to negotiate a “record and release” clause and this clause is in addition to the “always have a distributor” available clause discussed above.2. The overall royalty pie is going to be split somewhat differently than if the artist has signed directly to the major label.a. If the independent label or producer has a distribution deal with a major, the independent label or the producer may be getting paid on either the suggested retail list price or the so-called “published price to dealers” (PPD), also known as the wholesale price, for domestic hard copy disc distribution. So the artist’s share of the overall sales pie is going to be a fraction of what that overall pie is, reduced by the amount paid to the “middle man,” the independent label or producer. There will of course be many sub-categories of royalties that involve reductions from this base royalty such as for mid-priced, “new configurations,” downloading or streaming, foreign etc. and including the infamous “packaging” deduction, at least for hard goods.
b. Since the artist is most likely to be paid by the “middle man,” the agreement the artist has with that “middle man” should provide that the artist will be paid on the same basis as the “middle man” is paid by the distributor. In other words, the same reductions from the basic royalty rate, the same packaging deductions, the same foreign reductions and so on should be passed through to the artist.
c. In some situations, where the “middle man” has received an overall advance (one not specifically allocable to the artist), the “middle man” may find itself unrecouped in its agreement with the distributor even though the artist is recouped in its agreement with the “middle man.” This can arise because even though the “middle man” is recouping at a higher overall royalty rate, the artist only has to recoup the artist’s share of recoupable costs. In such an instance, the artist’s agreement with the “middle man” should provide that the label will pay the artist’s royalties directly to the artist (which will then be an additional advance to the “middle man” from the label).
d. If the independent label is self-distributed, the artist may be in a position to negotiate a somewhat higher royalty since there is no major label taking a piece of the overall royalty pie.
The record business has
always been a legally complex business and no artist should ever sign any
agreement without being represented by an attorney with experience in this
area. With the “Phoenix-like” rise of independent labels and producers,
the stakes remain quite high and even more complex and that makes the admonition
even more important.
Copyright © 2011 Ivan Hoffman. All Rights Reserved.