Getting a Record Deal

Ausmusic; Excerpts by S.Simpson & C. Seeger's 'Music Business' (Warner Chappell)
22/02/2005

Gaining a record contract is usually the major goal of most bands and artists. Gaining a record contract is a fairly major stepping stone in a band’s career path, however it is not always the sign the you have “made it”...

The most important thing about gaining a record deal is the relationship that develops between the record company and the artist and the way the artist’s career develops after the contract is signed.

This info sheet will give you a basic overview on what record deals are available and what they entail, what you need to do to get a record company interested in your band, key contract clauses and a look at record royalties.

HOW DO I GET A DEAL?

As you may have figured out, record deals are not easy to come by. In fact most “new” bands signed to a record company have probably been in existence for a number of years, playing live and in more and more cases releasing independent material.

Deal hunting is one of the hardest things to do in the music industry. When you take into consideration that there are probably only some 100 deals on offer by record companies each year and the fact that there are close to 2000 bands chasing a deal, the odds are very much stacked against getting one.

How is it done? Well there is no simple answer. You could say it is who you know and sometimes that does come into play but the bottom line is that a record company needs to know about the band and have its curiosity aroused enough to find out why people are talking about you.

“Anyone who is constantly in front of the public (live audience) has a better chance of winning over new fans, consolidate support from existing ones and hone essential performing skills.” - Music Business

Most bands and artists today are signed on hype and /or popularity. You may know of a band that you have seen play in a small hotel and then two years later are signed to a major record company. In this time the band has no doubt put a lot of time and effort into raising their profile with constant gigs and gaining a small fan base, chasing media support and probably releasing their own EP or single.

These are the first things that need to be achieved to get a record company to look at you over the next band. Not forgetting that you obviously need good songs and a level of marketability.

First and foremost, let the A&R Managers of a record companies know that you exist, keep them updated on any gigs, CD releases, tours etc. at a stage when you are confident and are playing in front of a decent audience invite them to your gigs.

The main objective is to develop a relationship with the A&R Manager and not hassle them with complaints about not getting a break. Work on your band’s profile and let people know what you are doing.

ARE THERE DIFFERENT DEALS?

There are a few different record deals available from a record company. The main thing to keep in mind with all record deals is that although there are established “standards”, record deals can be negotiated. As a new artist you will probably not be in a good negotiating position, however, further down the track that will hopefully change. The following gives a brief outline of these deals.

“Recording contracts are contracts for personal services. They are about a person or several people providing special skills at agreed times and places to make master recordings and videos, participate in promotional photo sessions, attend press conferences and generally do what is needed to make and sell records.” Music Business.

Direct Signing
A direct signing means exactly what the name suggests : you would sign directly to the record company. This is what most people relate to when talking about getting a record deal.

In a direct signing situation your act is signed to the record company for a period of time (term) and for a certain number of releases, be that EPs or albums.

The record company may state in the recording contract that they are signing you for a four-album deal with options after the second. What this means is that the record company will release your first two albums and have an option on releasing the third and fourth. This obviously depends on the success of the first and second.

A direct signing also means the complete support from the record company including recording budget, marketing the product, distribution and videos. This all may sound wonderful, but the thing to remember is that a lot of these costs are recoupable, which means they are to be re-paid by you via your royalties.

For a new act a direct signing will usually mean the “standard” royalty rate of around 12%. (More details on royalties to follow.)

License Deal
A license deal is one where the act licenses the master tape of an album, including the artwork to a record company.

Obviously your role in this deal is to record the album with your own finances. The record company is then responsible for the pressing, distribution and marketing of the album. They may also produce a video single.

"The royalty rates for master licenses tend to be higher than those paid to recording artists under direct signings. This is because the licensees can judge the finished product for themselves, so the risk is lower." - Music Business

Because the record company has not had to outlay the finances for the recording of the album, they can afford to offer you an increased royalty rate.
Generally a license deal is only for that actual album you have supplied and it does not tie you to the record company for any future album or years.

P&D Deal
Pressing and distribution deals (P&D Deals) are not that common in Australia, however they can occur.

Again, as the name suggests, the record company simply presses and distributes the album or product you give them in a similar fashion to the license deal.

As an act you are then responsible for the recording, artwork, and marketing of the product as well as production of any videos. The record company’s sole responsibility is to only press the CDs and cassettes and then distribute them to the retail outlets.

Distribution Deal
A distribution deal is probably one of the most popular deals at the moment considering the quantity of material that is being released by bands and artists themselves.

It is very rare that a major record company will offer a distribution deal. Mostly this is conducted by a number of exclusive distribution companies in Australia. Two that most people know are MDS and Shock.

Usually a distribution deal is an oral deal only without the use of written contracts. Basically the distribution company makes your product available to record stores and can also assist you in manufacturing your CD’s or cassettes.

You are responsible for the recording, manufacture (pressing), and marketing of the product. If you gain a good level of promotion and airplay for your music the distribution company will no doubt assist you with selling the product to the stores via their sales staff.

The distribution company’s fee for distribution is generally 25% of the wholesale price. It is in their best interests that if you do start to gain publicity they sell the product, because the more they sell the more they earn.

WHAT TYPES OF CLAUSES ARE IN A RECORD CONTRACT?

There can be up to 60 clauses in a record contract that form the basis of the record deal. The following is a look at some of the key ones that you will find in almost (if not) every contract.

The Parties
This is whom the record contract is between. This is basically between the record company and the band. The band being the band as a whole and also as members, this is referred to as jointly and severally.

The Term
The term of the contract usually involves a period of time in which a number of albums must be produced. The term also allows for any options as mentioned previously.

Territory
This is the area geographically that you would be signed to. In most first time cases this would be the world, however it may only be Australia and Pacific of for example North America, UK and so on.

Exclusivity
This signs you to the said record company exclusively. Basically it means that you will not record for any other party.

Copyright in Sound Recordings
This outlines the ownership of the sound recordings. In most cases this would be record company.

Video
This covers the record company’s video commitments, usually on a per album basis. It includes the video budgets and recoupment percentages.

Recoupable Expenditure
This covers what expenditure items are recoupable. This will usually include studio time, producers, travel, promotion and any other items the record company includes.

Royalties
This is the most important clause. This states the rate of royalty you will be paid including rates on singles, albums and foreign royalties. (Royalties are detailed further.)

RECORD ROYALTIES

Record royalties are the basis of what you ultimately sign a record deal for. The following outlines the way royalty payments are structured and how they are paid to you.

Royalty clauses in contracts can be very complicated and also quite different from company to company and contract to contract.
Asking the question “What is your royalty percentage?” doesn’t always indicate what you will receive. There are a number of factors to take into consideration when calculating royalties.

There are some key elements that affect the calculation, these include:

The selling price used to calculate the royalty. The first thing to establish is whether the royalty is based on wholesale or retail prices. If it is based on wholesale you are going to want a higher royalty rate.
The royalty base for calculation is not always 100%. Until the late 80s the royalty was based on 90% due to the breakage factor in the early days with 78rpm records. Fortunately for the artist, this situation is changing and 100% as a base should always be insisted upon.
The royalty base price is normally the selling price (mentioned above) less sales tax and less packaging costs.
Packaging deductions are usually standard deductions that a record company has in place for pre-defined “normal” or “standard” packaging. Basically the record company deducts the cost of this packaging from your royalty base price. A reasonable scale of packaging deduction could be a standard deduction of 6.5% of recommended retail price and a non-standard deduction of 10% r.r.p.

"Packaging deductions are allowance supposed to offset the cost (to the record company) of artwork for packaging and for having the packaging manufactured." - Music Business.

Most record companies will allow an increase in the royalty rate when sales of a particular record rise past a pre-determined level.
When a product is sold in the situation of less than full price (e.g.: low price, record clubs, stock clearances etc.) then the contract will specify the artist is to receive less than the full royalty rate. This would normally be 50% of the normal rate. No royalties are paid when product that is supplied to stores on a “sale or return” basis is returned by the store.
Sales of product outside Australia usually have a reduced royalty rate. The main reason for this is that there has to be a share of the proceeds for the branch of the record company that does the work in the particular overseas country. The royalty in these cases is usually a percentage of the royalties received by the Australian company. You can expect to be offered between 50 and 70%.

As mentioned earlier, the actual royalty percentages you read in a contract can vary from company to company and contract to contract. However the following gives you an indication of what royalty percentages may be offered:

Singles: 10%
Album 1: 12% of first 35,000 sales
13% for 70,000 sales
14% in excess of 140,000 sales
Album 2: Increase of 1% on each target

Remember, record companies in most circumstances aim to recover all costs of recording from royalties due to the artist.

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