The Musician's Guide to Record Labels & Record Deals | Jason Allen | Skillshare

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The Musician's Guide to Record Labels & Record Deals

teacher avatar Jason Allen, PhD, Ableton Certified Trainer

Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

56 Lessons (2h 40m)
    • 1. Introduction

    • 2. What We are Covering Here

    • 3. Tools You Will Need for This Class

    • 4. Disclaimer: I Am Not A Lawyer

    • 5. Producer

    • 6. The "Master"

    • 7. Record Company

    • 8. Distribution

    • 9. Loan-Out Company

    • 10. The 5 Roles of a Traditional Record Company

    • 11. What We can Do Ourselves

    • 12. Do Artists Still Need a Record Label?

    • 13. Work for Hire

    • 14. Loan-Outs

    • 15. Scope of The Contract

    • 16. The 360 Deal

    • 17. What is a Term?

    • 18. Additional Songs

    • 19. Options

    • 20. Making 10 Albums Doesn't Mean Releasing 10 Albums

    • 21. The Fiona Apple Situation

    • 22. So What Happened?

    • 23. How did it get Solved?

    • 24. The Release Commitment

    • 25. The Million Dollar Record Deal

    • 26. Recoup

    • 27. Payback

    • 28. What kind of Royalties?

    • 29. Royalty Basis

    • 30. Royalty Rate

    • 31. "All In" Contracts

    • 32. Deductions: Breakage

    • 33. Deductions: Licensed Re-Sellers

    • 34. Deductions: Container Charges

    • 35. Deductions: Bargain Bins

    • 36. Deductions: New Configurations

    • 37. Deductions: Foreign Territories

    • 38. Deductions: Sales Incentives

    • 39. Deductions: Promotional Copies

    • 40. Calculation for Royalties of a Physical CD

    • 41. Recoup Amount

    • 42. Calculation for Royalties of a Digital Sale

    • 43. Recoup Amount

    • 44. Merchandising Rights

    • 45. Merch Companies

    • 46. Payments

    • 47. Works For Hire

    • 48. Who Pays?

    • 49. Who's Vision?

    • 50. Why?

    • 51. Taylor Swift Example

    • 52. The Producer

    • 53. Example: George Martin

    • 54. "Development Deals" With a Producer

    • 55. What Comes Next?

    • 56. Bonus Lecture

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About This Class

Welcome to the "Musician's Guide" Series!

This series is pulled directly from the courses I've created for my university position in Music Business. All of these courses are designed for the everyday musician - amateur or professional - who has little or no knowledge on the topic, but wants to master it.

This class is all about Record Labels and Record Deals.

100% Answer Rate!
Every single question posted to this class is answered within 24 hours by the instructor.

It is ideal for anyone who is interested in seeking out a record deal or is already considering one.

  • Musicians: If you are making music, and considering a record deal, please watch this class!

  • Producers: Before you sign on the dotted line, watch this class to be sure you understand everything you are signing up for.

  • Bands: Maybe you are considering avoiding record labels, and starting your own independent label. This class is for you, too!

  • Curious Minds: Anyone interested in how record labels work is invited to be a part of this class.

We will start with traditional record label deals, and progress forward to talking about more modern deals. We will talk a lot about the "need" for a record deal in the modern age, and how you can get by without one at all.  I'll walk you through every issue in the contract so you fully understand what is being asked.

The goal of this class is for you to understand what is in-between the lines of the contract.

This course is NOT specific to any DAW program.

The recording studio has no genre - so all are welcome here.

Topics Covered: 

  • Working with Producers

  • Owning the "Master"

  • Distribution

  • Loan-Out Companies

  • Roles of a Record Company

  • Work For Hire

  • Scope of the Record Deal

  • Term of the Record Deal

  • Additional Song Options

  • Other Options

  • Release Commitment

  • Advances

  • Recoupment

  • Payback

  • Royalties

  • Royalty Rate

  • Royalty Basis

  • Royalty Deductions

  • Merchandise

  • Videos

  • 360 Deals

  • Producer Contracts

  • And much, much more!

If you are ready to start making money from your music, and making sure you are protected, this class will start you on that journey. Get started today.

Dr. Allen is a university music professor and is a top-rated instructor - with nearly 100 courses and over 200,000 students.

In 2017 Star Tribune Business featured him as a "Mover and a Shaker," and he is recognized by the Grammy Foundation for his music education classes. 

Meet Your Teacher

Teacher Profile Image

Jason Allen

PhD, Ableton Certified Trainer


J. Anthony Allen has worn the hats of composer, producer, songwriter, engineer, sound designer, DJ, remix artist, multi-media artist, performer, inventor, and entrepreneur. Allen is a versatile creator whose diverse project experience ranges from works written for the Minnesota Orchestra to pieces developed for film, TV, and radio. An innovator in the field of electronic performance, Allen performs on a set of “glove” controllers, which he has designed, built, and programmed by himself. When he’s not working as a solo artist, Allen is a serial collaborator. His primary collaborative vehicle is the group Ballet Mech, for which Allen is one of three producers.

In 2014, Allen was a semi-finalist for the Grammy Foundation’s Music Educator of the Year.

... See full profile

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1. Introduction: Hey everyone, welcome to the musicians guide to record labels, recording contracts and producers. So in this class we're going to start by looking at the traditional record label, how they've worked, and how they structure contracts. This isn't a class or I'm going to tell you how to get a record contract. This is more of a class that will tell you what to look for in a record contract, how to spot red flags, and be sure that you're not being taken advantage of with a record contract, whether it's an independent label, a major label, or just your friend that wants to represent you, will look at a typical royalty structure so we can see how the artist, the musician that made the music actually gets paid after all is said and done. We'll look at more issues like merchandising videos and especially producer agreements. What happens when there is an agreement between an artist and a producer to make a certain recording. This is the kind of stuff I teach at my day job as a university professor. And I really like to nerd out on this stuff. So I had a lot of fun making this class. I think you'll have fun watching it. Let's dive in. 2. What We are Covering Here: Hey everyone, welcome to the record labels class. So in this class, we're going to deep dive into what is in a recording contract, but also how record labels work. Things you need to know when working with a record label. And the big question is, do you actually need a record label to release your music? Spoiler alert? I'm going to say the answer is no. You don't need a record label. You can start a record label on your own and we'll talk about that in this class. You can also work with smaller record labels versus the bigger record labels. And there are advantages to being with a big record label and we'll talk about that too. So in this class we're going to talk about all those issues as well as if you do get that contract from a record company, what's going to be in it, and what you need to know before you sign it. So those are the big topics. We're also going to talk a little bit about producers in this class. But a little bit different term than you might be thinking. The producer when it comes to recording contract is kind of like the coach. So we'll get more into that as we get going. But it's kind of a confusing term because it gets used two different ways in the music world. So lots to cover in this class without further ado. Let's just cruise right on through these opening little bits. We're going to, we've got a couple of little things to talk about, but then we're going to dive into the content as fast as possible. So let's get on to the next bit. 3. Tools You Will Need for This Class: All right, I'd like to include this in all of my classes tools you will need for this class makes a lot more sense when I'm talking about production stuff, which is what most of my classes are about. In this class, there aren't really any tools that you need. You don't need an album ready to go to get the most out of this class. Although if you have one, it's not going to hurt. You don't need to have a record contract in hand. In fact, it's probably better if you don't, because a lot of what we're going to talk about in this class is how to look for a record contract if that's what you decide to do. So I would just say you have something handy where you can take notes on the most relevant stuff. And so maybe a tax document, maybe notepad on your phone or whatever device you are using. That's about it. So just take notes and be ready to come back to this class. If you ever have a record label in your hand, you can come back and go through some of the legal stuff that we're going to cover in this class. Make sure that you understand everything that you're signing. So that's it. Really nothing other than taking notes. 4. Disclaimer: I Am Not A Lawyer: Okay, last thing before we dive into the real content of this class, just a quick disclaimer that I am not a lawyer. You should never sign a contract, especially a recording contract, without representation from a lawyer. So have a lawyer look over and read through any contract you're going to sign, have them explain to you anything you don't understand. If you're a lawyer contradicts anything I say in this class, follow the advice of your lawyer. I don't have a background in the law. I'm a music dork who has done this a whole bunch of times. And I teach this stuff at a university. So I've studied at quite extensively, but I am not a lawyer, so please follow the advice of your lawyer. Get a lawyer. If you're looking at a contract, have them read through it with you and make sure you understand everything that you're signing. Okay, without further ado. Let's get into the content of the class. 5. Producer: Okay, I thought I'd kick off this section on recording companies and recording contracts. With some definitions. This will help us kinda get all on the same page about a few things because some of these terms are a little confusing and have multiple meanings. So I wanna make sure that we're all talking about the same stuff. So the first one I want to talk about is producer. So when we're talking about a producer in music, that can mean two different things really. In kind of the, the hip hop sense, the electronic music sense. When we talk about a producer, were talking about the person who makes all the music, right? Like if a producer is collaborating with a wrapper, then the producer pretty much is making the beat, which includes all the music and the wrapper is wrapping. That's not really what we're talking about here. When we talk about a producer in terms of record contracts and recording companies, what we're talking about is this person that's kind of like the coach of the group. So, or actually, let me just say a little bit different way, the coach of the recording session. So if you're going into a recording studio, you might bring a producer in with you. And that producer isn't going to be making music really. The producer is going to be kind of making sure the session stay on track. They're going to be making suggestions like does like you. They might say, Hey, I like what's going on here? Can we, you know, change the chorus a little bit this way or that way? Can we add another verse? Can we, you know, so there are going to suggest ways to craft the music, but they aren't going to be in there with a computer, you know, punch it out beats. That's not what a producer does in this sense. Okay, So two very different things. The reason we talk about it in terms of recording sessions is, and record contracts is because a producer generally gets paid on a royalty. So if we have a recording contract somewhere in there, it might say the producer gets X percentage of the money that we make. And, and that means that much, that percentage is money that we don't make that has to get subtracted from what we get. So if you have a producer and a session, that's what's going on and you're going to have to pay them. So in the context of this part of the class, when we talk about producer, that's what we're talking about. We're talking about this person who's kind of like the coach of the recording session, not someone who's actively making music for the group or anything like that. Okay, That's kind of a separate thing. So just keep that in mind as we talk about the term producer. 6. The "Master": Okay, In the next term I want to talk about is a really confusing one and it is the master. Okay. We're going to talk about the master a lot. And who owns the master. What this is talking about is the master recording. So imagine back in the days where everything was done by vital, okay, that's where this term comes from. So what we would do when we made a vinyl record, as we would press a master record. And from that mastered, essentially a stamp would be made from the master, right? And then that stamp would stamp out all the other records, right? Like it would stamp out copies. But every time you do that, every time you add a layer removed from the master, it degrades, right? So it's not as good as the master because a copy of the master analog copy is slightly less good. Okay, so making that stamp is slightly less good. And then every version, every record that that stamp makes is slightly less get, right? So slightly less good than the stamp, right? So there's two layers removed there. From the master. The master is the best. So if you want to make a new pressing of a record, you need the master. So the person that owns the master is the only one that can say we're going to make more copies of the record. They're the only ones that can do that because they have the master. You don't want to make copies of a copy. In the analog world and the digital world, you can make copies of a copy and it's just as good. So in modern, in a modern sense, the term master recording means really it's a matter of Rights. It's not a physical master unless you're talking about vinyl still. But it's a matter of who has the right to make new versions of the recording or new releases of the recording. Not necessarily new versions like the music doesn't change, that would be something different. But if I put out an album and it's on Spotify, and I want to say, Okay, now I want to make, well, now I want to make a physical CD for whatever reason. Let's say I want to press a physical CD of that. That's a new release in a way. And the only person who is allowed to do that is the person who owns the master. Okay? Even though it's really just sending the file to the CD pressing company. But we get this term back from vinyl record days. So if it's my album and I have it signed the master away, then I have the right to do that because I own the master. But in a lot of recording contracts, the master is owned by the record label. So you have to keep track of the masters. And who owns the master? Who has the right to do this is going to be a very critical thing when it comes to recording companies. There are all kinds of cases where people have lost the rights to their masters, meaning they don't have the right to reissue the recording anymore. So that's why you see people doing things like putting out live recordings, rerecording stuff, just to get the rights to their masters back more on that later. But when you hear the term Master, that's what we're talking about. 7. Record Company: Okay, so let's define record company a little bit here. Just to be safe. When we talk about a record company, we could be really talking about two things. An independent record company and one of them majors, right? So one of the major record labels, those are the big, big ones, right? Those are the huge ones that have been around for ever. There are not many of those huge ones left. They have been kind of gobbling each other up, but they are still in ramped. In both of these cases and the independent record labels and the majors, we're not really talking about a company that releases records, right? Or accompany that releases music. That's only one of the services we expect from a record company. Now this is changing. This is kind of an ever evolving thing. But in most cases with record companies, we expect them to kind of Leo full service thing. Meaning they release records, they release albums, they get music out into the world. But there are also in charge of distribution, which we'll talk about in just a second. A promotion, marketing, even artist's development, sometimes and legal issues that may arise. They can be seen as a full service thing. Now, again, this is changing daily. We see that a lot of the big record companies are getting rid of that full service thing and kind of slicing it away while some are still keeping it. So there's a different attitudes towards that at the different major record labels. At independent record labels, we tend to see not the full service idea, but more focus on getting music out and then the marketing and promotion of it and distribution, I suppose. But less of the artist development bit. Although some independent record labels still do a lot of artists development, it's hard to say what is an independent record label model and a major record label model. Because a lot of the time the models are the same. It's just that the independent ones are smaller and have a smaller budget to work with. So the services that they offer might be the same, but the independent ones have smaller budgets. But the point is when we're talking about a record label, we're talking about a company who's in the business of releasing music as one element of what they do, but also the whole gamut of stuff that goes along with releasing music, distribution, marketing, advertising, all that good stuff. It all gets packaged together into the record label. 8. Distribution: All right, Let's talk about distribution. This is something that's going to come up a lot for the next little while. Distribution is getting your albums into stores. Okay, So this is another thing that has changed wildly. We're going to have a whole separate section of this class devoted to distribution. It'll be, once we're done with record labels, we're going to zoom in and talk about distribution. But Here's where it is. In the old days, it was getting the records into the stores and then making sure they showed up in a really good spot in the stores. That was an important part of it. So that people just walk down the aisles in a record store would see it and be like, oh, that's kinda cool. Cover, maybe I'll buy that. That's less true now, right? We don't go to record stores as often. Although if you have a record store in your neighborhood, you should totally go because they're really fun. But most of the time we're talking about digital distribution now. Getting your music onto iTunes, Spotify, apple Music, I should say. That's one part of it. Another part of it is getting your music onto play lists and things that are going to get some attention for your music. That kind of crosses over into advertising and marketing a little bit. But distribution is all put together. There was a long time where distribution was kinda the last stronghold that major record labels had. That so that an artist couldn't just do themselves, right, like in the 90s or something. If you wanted to release a record, you could save up some money and have that album pressed onto a CD. That was, anybody could do that with a small amount of money. But getting your CDS into every CD store around the country was just impossible because he didn't have the infrastructure to do it. You couldn't put them in a truck and send them all over the place. But the major record labels could, because they hadn't infrastructure, there was a way to do it. So that was the kind of big barrier for a lot of artists that didn't want to have record labels. With the invention of digital releases, however, that barrier goes away. So it was kind of the last stronghold of major label dominance. There are other things to you and we'll talk more about that shortly. But that's what we're talking about when we talk about distribution. 9. Loan-Out Company: Okay, One really confusing term that's going to come up and I'll probably define it again when we get to it because it's just a confusing concept. But I want to do it now. Also. Is this idea of a loan out, otherwise known as alone hyphen, hyphen out Company. This is just really kind of hard to wrap your head around, but it's important. So Here goes. Let's say you need a ride somewhere and you use your phone and you order an Uber, you know, someone to come pick you up. Now, the question will then become, who did you just hire to pick you up? Did you hire the person driving the car or did you hire Uber? You hired Uber. Okay. To come pick you up. You didn't go through Uber and say, I want this person to come and pick me up. And also, who are you going to pay? You're going to pay Uber, and then Uber is going to pay that person to come pick you up, right? So therefore, that person, the person that actually picks you up is kind of like a loan out company. I don't care who actually comes and picks me up. I want someone with a good reputation on the app and all that stuff. But whether it's this person who was that person, I really don't care. I'm going to hire Uber to send someone to come and get me. So in that way, that person is alone out there, effectively loaning their services to Uber, and then I'm hiring Uber, right? Here's why that matters. If a record company has a deal with a band, the band is accompany. Remember, we talked about that in the last section. The band is set up as a business. Okay, So the record company has relationship with the band. Band is a business to businesses right? Now, let's say the lead singer of that band quits. The band hires a new lead singer and the record label says, Hold on a minute here. I wanted the old band. That's the band I signed a contract with. And the band says, Don't worry about it. You hired the band. We're still a band. We have a new singer. But your deal is it with the other singer, your deals with the band. And then the record label is going to say no because you're, you're alone out. Meaning the band is effectively acting as a loan out Company here. So the record label is going to set up a separate contract with each member of the band because they don't want a deal with a loan out. They don't want a deal with another company. Just swap members out all the time. They want to make sure that those four members are the four members of the band. Okay? So that company, the band is effectively alone out in that way. And the record label does not want that. They don't want to loan out. They don't. It's not like if the record label was hiring an Uber driver and we don't care who comes and gets us. We were hiring Uber to come and get us. The record label is not signing a deal with that band and they don't care who's in the band. They do care who's in the band, so they will not deal with a loan out. So if the band is set up as a business widget, Nearly must be, then there's a separate little contract that gets added on to a record contract saying that we're not going to treat this band as a loan out. And I'm going to have a separate deal with each member of the band so that you can't just swap members out. It's a confusing concept. I realized that we'll talk more about it when it gets closer if I just want to introduce it now since we're going through some definitions, okay, so keep that in mind. We'll talk more about it later. 10. The 5 Roles of a Traditional Record Company: Okay, so let's talk about how a record company works traditionally, okay, so we're talking now about the big record companies and traditionally how they've worked. Now like I said, things are changing. We're going to talk about that in a second. But the common way that record companies have worked for the last 45 decades, with the exception of the present decade. There's really five things that we would expect a record company to do. The first groups, the first is to discover talent, Okay, so, and we expect them to be out on the street listening to bands, listening to artists, auditioning people, and discovering new talent. The second is provide capital expenses to the artist. Kaput tall capital. And just to put a point on that, capital means money. So they find a new artist, that artist needs to, needs money, needs money to Record. They also may need money to just live for a little while, while their career it gets off the ground. That is a service that traditionally a record companies have provided. It's not uncommon for a record company to say, okay, we're going to give you x amount of money for you to keep living the lifestyle that you need to live in order to create this kind of image that you are creating that will eventually help you sell records. And that money comes with strings attached and we'll talk more about that shortly. But in artists to get off the ground needs capital, needs some money. So that is one of the things that record labels have traditionally done. Third thing, produced the content made by the talent. Okay, so here we're talking about that other term of Purdue's not necessarily make the music for the artist, but help them music get made is really what this term producer is talking about. So we're saying they're going to fund the recording sessions. That's part of it. But also make sure the recording sessions happen. Make sure they go well. Make sure the music is what they want. They are going to have their fingers in the music a little bit to make sure that it's and sellable to them. So they do have a little bit of a finger in that, usually via the producer in this session. But one of their main roles is to help produce, okay. Number 4, Purdue's or distribute the content. So like we were just talking about, we expect the record label to be able to distribute it. That means once we make music for that record company, they're going to get it out. They're gonna get it into the hands of people and, and get people listening to it because it doesn't do any good if you don't distribute it, it just sits there. Distribution is hugely important. And number 5, promote the music of the artist. So to promote the music, again, if no one's talking about it, you can record a great album. You can even get great distribution and you can get that album in every store. But if no one knows about it, you've lost something important and it's not going to work. So promoting it, that means, you know, getting it on the radio, getting it in advertisements, seeking out licensing deals, all that stuff falls under promotion. So these are the five things that we generally think about record labels as their responsibility. Now the next thing I want to look at is, in the modern world, what can we do ourselves? What do we still need a record label? Four of these five things. Let's go to a new video talking about that. 11. What We can Do Ourselves: Okay, So of these five things, if you're an independent artists without a record label, do you still need a record label to do these five things for you in the modern world. So let's look at each one real quick. Discover talent. Do we need a record label to discover talent for us? Possibly. I mean, there's some argument to be made for that. But also we can kind of do it ourselves through Spotify, other music services, um, social media, that's probably the biggest one. So there's a lot of talent discovery that happens on a much more grassroots level now. So I would say that's really kind of taking the place of like Capitol Records. Putting out a Kanye billboard in Times Square, like that doesn't hit me. But social media posts from a friend will much more directly provide capital. That definitely is something that major record labels are good at. They have a lot of money. There are ways around it though. There are ways for independent artists to get capital. There are things like Kickstarter. There are things like Patria on any other kind of crowd-sourcing thing. There's also just bootstrapping. And if that is determined, It's totally new to you. Zip back up and watch the section I made on band partnerships and agreements. But there's a lot of ways for us to make small amounts of capital. And as you'll see, once we get into the details of the contract, the capital that record labels provide has some major strings attached to it, and that might make it not even worth getting. So more on that shortly. Okay. Produce content. Do we need to record label to produce content? You know, anyone can produce music in their bedroom now. And if the record labels got their fingers on it, maybe that's not something that we want or need anymore. So that's really something that's kind of gone away in terms of the roles that we need a record they able to do for us. Distribution. Like I said, when we were defining distribution, this was kind of the last holy grail of this list because nobody could do distribution on their own without the support of a major record label. But now distributions, one of the easiest things in the world any band can get. Any artist can get their stuff on Spotify, apple Music, anything, any of the services, you can get your music on it in a snap. So distribution, digital distribution anyway, is just super easy. I can make a track right now and have it on Spotify by tomorrow morning. It's just that easy. In the last thing, promote. Do we need a major label to promote? They are pretty good at it. You know. They have a lot of money. They can put stuff in magazines and catalogs. But again, you know, does that really work? A lot of artists have found clever ways to promote themselves without a record label in all kinds of different ways. So I would argue that we don't really need a major record label to promote music for us, for their artists. It certainly doesn't hurt in most cases. But it's not a service that we can't do ourselves with a little bit of creative thinking. So we have the five things that are record company does five. And then we have the five things that we can do ourselves. So do we really need a record label anymore? A lot of artists still see that as the mark of success. The, I have a major label record deal. I am a big deal. So let's investigate that a little bit more in the next video. 12. Do Artists Still Need a Record Label?: Do we need a record deal? This is of course, a matter of opinion. But in my unbiased opinion. Well, fairly biased opinion, I guess. No, you don't. You absolutely don't. And I would say it as a statement of fact. If we're putting emphasis on this word, need do you need a record deal? No, you absolutely do not need a record deal. I see all kinds of artists making great music and then waiting for the record deal to come along. And that is awful, like people aren't going to hear that music. Don't wait for anything. A record deal comes along. You should definitely look at it. But there's a lot you can do and basically everything you can do on your own without a record deal. So you do not need a record deal. Anyone who's waiting for one is wasting their time. If you're making music, you should be doing everything you can do to get that music out. Letter, record deal, fall into your lap. If one happens to fall into your lap, but don't wait for it because you can do everything on your own. That's my public service announcement for the day. Okay. Let's move on. 13. Work for Hire: Okay, In this next big chunk, we're gonna talk about parties and scopes. So the parties are the people involved and the scope is the kind of what is included in the agreement. So our first big topic in this umbrella is the idea of the work for hire. So we've talked about work for hire earlier when we were talking about copyright. So just to review, a work for hire is when someone hires somebody to make something for them, right? So if I hire a graphic designer to make a logo for me, I own the copyright because I hired that person. I paid them a certain amount of money to make something for me. So the copyright is month. So to that end, when a record company is employing a band to make a record, does the record company own all the copyright? Is it a work for hire? This is hotly debated topic and it's actually not completely result. There are, most recording contracts will be very explicit and say that a, that anything that the band records under the terms of the agreement is in fact a work for hire, and therefore the record company owns the copyrights. Now you, if you are a musician and you will, or a songwriter, or I guess those are both musicians. But if you are the one in the studio writing the songs and playing on the songs, then you don't want that to be true, right? You don't want it to be a work for hire because you want to keep your copyrights. So there is some debate about this. There are multiple copyright acts that conflict on this. And one of the things that it comes down to is what is an employee. Because in the Copyright Act, Section 101 talks about work for hire. And it defines a work for hire as being made by something made by an employee. So if I have signed a record contract, Am I an employee? That is actually a slightly bigger issue. And kind of beyond what we can cover in this class. But an employee of a company is different than a contractor, right? So a contractor does not have to abide by the work for hire for agreement. But employee does so is someone who is on a record label and employee of the record label, most people would say, but of course the record label would say yes because they want to keep those copyrights. So it's a sticky thing. And if you are ever in a position to be negotiating a record contract, that is probably one of the very biggest things I would look for is that provision that says explicitly, this is a work for hire, and I would insist on that being changed to be explicitly not a work for hire. One important thing about this, also to keep in mind is that there is kind of a weird provision that if it is decided that it's a work for hire, the copyright for the recording goes to the recording company. The original author can take it back after 35 years. We'll talk more about this a little bit later. But there's a special provision in the Copyright Act that says, if it's assigned to the record company, the original artists can't take it back after a 35-year period. There's like a one-year window after 35 years where you can apply to take the copyright back and then you can give it to a different record label or you can just keep it. So so even in some of these older record deals that definitely were considered works for hire, a lot of the people have gotten those copyrights back and then reissued them under better terms. That's the whole reason that that provision is there, is so that if, you know, the Beatles signed a deal with a record company and they got the copyrights. After 35 years, The Beatles could get them back and sign a better, more current deal. That's the reason that that's there. So the question of is it work for hire is somewhat up in the air. It kind of depends on the specific contract and what can be negotiated into the deal. 14. Loan-Outs: Okay. So we're back to this issue of loan outs. We talked about what a loan out is earlier when we're talking about definitions that come up. And when it comes to this idea of parties, people involved in the record contract, this is where loan outs come up. So I explain what low notes were, but let me just go into kind of how it actually applies in a recording contract and maybe that'll help clarify this every time this comes up in a semester and a half to explain what loan ounce is, I give a lecture and I say, this is how loan outs work. And then I leave that lecture and I think now I didn't get that right. I mean, I got it right. But I didn't explain it a perfectly because it's just, it's just a weird concept. So through the magic of video editing, going to get it right. Okay, so we have the record company. And the record company is going to hire the band. Record company, signed a deal with the band. Cool. Band is made up of, let's say, five members. Okay. Therefore, record company has deal with five members? Yes. No. Because the band is accompany. So the record company has no deal with the five members. It has a deal with the company. That is the band follow Cool. But record company. And when he doesn't like that, wants to be sure it is always dealing with same five people. So the record company doesn't want to just have a deal with the band, because if that's true, the band can totally change personnel. It could be, you know, all five people in the band could quit and replaced with five different people. And the record company would have to honor the agreement, which isn't saying they're not going to do that. They want those five people. And yeah, a member might change. And that's something that has to be talked about with the record label. But they want to make sure that they have an agreement with five people. So in this way, the band is a loan out company. It's essentially kind of like an umbrella for the five people, right? So to get around this, how it's gonna work is record company is going to create a separate document. So the record company is going to create a separate document that kind of is attached as an addendum to the main contract that says this applies not to the company as a band, but as these visual members naming by members of the band, okay. So that kind of gets through the company. That is the band and attaches it to the specific numbers. Now, if one of those members changes, that's still possible. It just means that the record label has to be involved and has to know that a member is changing to end to sever their portion of the agreement and then get the new person under the same agreement. So that's why we care about loan out companies. Record labels don't want to work with and loan out company. They want to work with the people. 15. Scope of The Contract: Okay, let's talk about scope. So scope is kind of what's included in the contract. There are really kind of three ways this can work and it roughly aligns kind of generationally. There's kind of a way that things typically worked for awhile and then a way that typical things typically work for awhile. Anyway, things typically work now. So the first way is let's call it single record. The second way is called, let's just call it all recordings. And the third way is called 360 deal. Okay, So single record. This means that a record company would essentially sign a band and say, We're gonna send you into the studio and you're going to record a record for us and of contract. Okay. So they're going to send a so basically the record company has rights to just that one recording that was made under the agreement. Okay, So after that recording, the band can go record another album and that record label doesn't have rights to that album anymore, okay? Or it doesn't have rights to the new album. They still have rights to the old album. But the recording companies said, you're going to record something for us. And then once that's produced and created, the record company has a stake in it. But anything after that and anything before that, the that the band does the record company doesn't have any rights to it. Okay. It was we're going to hire you to do this thing. And then that's the end of the story. Another thing, another way can be done is all recording. So it might be that the record company says, we're going to hire you to do well, we're basically going to own you for awhile. And that term, awhile will be what's called the term. And we'll talk about the term in the next section, I think. So when I say, we're going to own you for awhile, that means all records you make an for the term the duration of this contract, our ours. Okay. So the record company will own or have a significant stake in however, your contract is set up. Everything you do for this specific term, everything you record, I should say, for this specific term. Okay. So if I go into a recording studio under one of those kinds of agreements, that means the record label has some rights in what I make. But then a year later I go into a studio and do something totally different. If I'm still under that contract, the recording company still has rights to that recording. The new one, because basically I worked for them. So a lot of big artists work this way, right? So these are kinda the big record deals. If Taylor's that well, Taylor Swift's at a different example. Actually. Let's not use her because we're going to use her. And the next thing, if adeno, think of some big act, if Bruce Springsteen goes into the recording studio, he probably is working for the record label. He's been working for for a long time because they want to hold onto him. So they're gonna give him this deal that lasts for a very long time. The single record idea was popular in the early days of recording company is kind of the fifties, sixties kind of thing. And then kind of evolved in the 80s to these kind of words is going to sign you for, for a very long term. Okay, so the terms got very, very long. In the 80s, even into the 90s. After digital distribution came around, those kind of fell apart. And we're sort of back to single record agreements now as being the more common thing. Or for special cases, this 360 deal. So let's go to a new video on this talking about the 360 deal and what that is. 16. The 360 Deal: Okay, so the 360 deal is, is a tricky thing. It's something that's become popular in the last decade or so. And it's used when an artist is relatively unknown. Typically, this is the typical use of the 360 deal. An artist is relatively unknown, but the record label thinks they have just a monstrous potential. Okay, So it's the record label saying we're going to go all in on this artist. Okay? So the best example is Taylor Swift was under a 360 deal for a long time until just very recently when it expired and she signed another record deal that I don't know the terms of, but it's not a 360 deal. So what makes it 360 deal different is that it's kind of like this. All recordings deal. Except it includes more than just recordings. Okay. It includes everything that the artist does. 360 degrees kind of is you think about it. So not just recordings that artists mix, but touring, merchandise, advertisements, everything. So in a 360 deal, a record company might say, okay, we're gonna assign you to do a 360 deal. We're going to send you in the recording studio and then they will have rights over that recording. And they will also make money from that recording. But also they will then send that artist out on tour. And they will make money from the tour. Whereas in these other deals, single recordings and they kind of all recordings model, the record company doesn't make anything off touring other than to the extent that it promotes sales of the album. The record company is out of the loop when it comes to touring. But in a 360 deal, the record company makes money off touring, merchandise, advertisements, everything the artist does. The artists basically signs a portion of their everything they make over to the record company. And so now you can kinda see why this is used for younger artists who are less well known, who are not well known yet. And but the label thinks they have this huge potential, right? So like Taylor Swift, totally unknown. She was signed to Big Machine Records as a 360 deal, meaning we're going to sync everything we have into promoting you, getting your name to be huge. So we're going to promote your tours. We're going to fund your tours to get off the ground, your albums, your merch, your advertising, social media, everything. But we're gonna get a cut of everything we do. And they did very well because Taylor Swift is very talented. So that deal lasted, I think ten years and then it expired. And then Taylor Swift left that record company, went to another record company that also I'm sure he gave her a very favorable deal because he's very talented. So that's what a 360 deal is. I think we're gonna get more into the weeds of a 360 deal later, but that's the essential concept of it. 17. What is a Term?: Okay, So any contract that you might sign has a term to it and the term as the length of time usually that you are bound by that contract, right? If you sign a lease for an apartment, that's usually a one-year term, right? You might sign a lease, that's a two-year term. Okay. If you lease a car, it's going to be for three years lease or five years lease or something like that. So a lot of contracts, most contracts have some kind of term associated with them. In a recording contract, there is a term there is a length of time that your well, there is a length that you're considered bound to the contract and it'll be specified in the contract. But it's usually not time. It's usually albums. So if someone signs recording contract, it's not going to be for 10 years with some exception, right? We saw an exception to that in that 360 deal that Taylor Swift had. Some 360 deals are in terms of years more often than others, but not all of them. So there are exceptions to it, but usually it's not for a length of time, it's for a number of albums. So your contract will be for two albums are three albums are for albums. And when you've released that fourth album, then your contract is over. Maybe. We'll talk more about that in a second. But your contract will specify the term as being x number of albums. This is why back in the eighties and nineties, record labels were giving really long terms. They were like signing bands to like 8, 9, 10 albums. Terms. Which is crazy, doesn't happen anymore, right? If we look back up here at scope, single record, that's going to be one album term. All recordings is going to be, maybe in modern day, it's going to be maybe three or four. At most albums. Only the really big, big artists get those longer terms. But back in the eighties and nineties when they were doing these long like ten album terms, what a lot of artists started doing was, you know, they might release for albums and then realize that they can get a much better deal with a different record label. So they would want out of their contract. And there was a fairly easy way to do that. But they do is like, let's say they have an eight album deal. They released for albums and now they want out. So they're going to release right away, back-to-back. In one year, they're going to release a live album, Greatest Hits Volume 1, greatest hits volume to add maybe a covers album or another live album. Now, they've released eight albums and they're done. So you used to see that a lot like a sub-bands would have like they put out one album and then release two greatest hits albums. And it made no sense. But usually the reason people would do that was to get out of a contract. So the thing you need to remember is that the term and a recording contract is always function of albums, not time. And just to correct myself, a function is usually a function of albums, not TEN. Quite rare, is it a function of time? Meeting? A contract will last X number of years instead of X number of albums. 18. Additional Songs: Now there are of course some strings attached to this. So the biggest one is, how do we define albums, right? Like what is an album? An album could be a four song EP, and album could be a 20 song album. You know. These specific contract will specify what an album is, but it's usually something like ten to 12 songs produced. Sad. Fact, jury to the company. Meaning they are satisfactory to the record company, meaning they've accepted them. So you might produce some songs and the record company doesn't no, those don't count because those are crap. It's possible. So it's a certain number of songs that they deem satisfactory. Plus sometimes, not always. Two more songs. They might specify in there that they need a couple extra songs album. So they might define an album as 12 songs plus two more. And the reason for that is they have to unreleased songs or one unreleased songs. I just feel like it's more common to see it as two that aren't going to go on the album or the major release. A reason for that is besides that can be released later to give the album a little extra UHF foreign releases. They can include them on a foreign release of the album. They can do. It might be four or like an exclusive retail arrangement, like when you go into Old Navy and they're releasing a single of something, that's, that could be one of these. It could be any other kinda special promotion film soundtracks. That's another one where the record label might have an opportunity to get one of these songs into a film soundtrack. And they want it to be unreleased. So a lot of the time it's just the label wants to have a couple extra songs in their back pocket that are unreleased that they can use as promotional material for something else. So how they define album might be something like 12 songs plus 2 unreleased. 19. Options: Okay, once you've satisfied the term of a contract, typically you will also include something called options. An option means that a choice can be made when the time comes. Usually an a record contract, it means a choice that the label can make, not a choice that the artists can make. So it might be that the term is stated as something like three albums. And then Albums it will be defined as 12 songs plus 2 or something like that. Followed by option for two additional problems or something like that. So in this case, what it means is that once you fulfill the three albums, your contract is done. But the record label could say those went really great. We want two more additional albums. That's probably not as common as maybe one additional album. So your contract. So from the record label perspective, what they're saying is we have this band for three albums. And if it goes really well, we can get a fourth album bottom. And to the band, you're thinking, I'm agreeing to do three albums. And if they really like us, they're going to release a fourth one. But I can't get out of this contract probably until I release for albums. But the record label could also say, you know, we released three albums with these guys. They didn't do all that great. They didn't really make us all that much money. So we're going to cut them loose after three and then they won't release the additional one. So your contract will be over after three. If the label doesn't want to continue for the additional one, it's called an option. Now if you don't want that in there. It is. Oops, no, go show bull. Wow, I can't type today or Spell. It is often negotiable. So you might say three albums followed by an option for one albums, you know, one albums. When album, you might say you don't like that. And so if you have negotiating power, you might get them to change that to no options, followed by a 0 additional albums. In which case your contract will be over. And if they want to release more albums from you, they need to give you a new contract. That's generally better because you'll have updated terms. If you've been really successful on that album, you're going to make more money under a new contract. But if you haven't been really successful, you're gonna get booted before your chance to make their fourth album, which might be the one that is really successful. So it's a gamble. But that's what options are in a recording contract. 20. Making 10 Albums Doesn't Mean Releasing 10 Albums: Okay, last thing on this topic. Well, actually this kind of transitioning to the next big topic, but making an album or producing an album does not mean releasing the album. So you might have an obligation of 10 albums with a record company. That doesn't mean they're obligated to release 10 albums. It might be that you make ten and they might say the tenth one. They might just say, you know, your stuff just isn't selling anymore. And because think about it. Let's say today. And a record label gave me a deal for 10 albums would be insane. This would not happen, but let's just say hypothetically at that, because I'm making super hip and super relevant stuff, right? And let's say I release an album every year, okay? So that means that there'll be a lot that would be fast. So the 10th album is going to come out in 10 years. In 10 years from now, am I going to be super relevant and interesting to the audience? Probably not. So it might be that they signed me for a 10-year deal, ten album deal. And then by the time we get to the tenth one, I make it and I gave it to them and they say, Okay, thanks, your contract is over. And they don't release it because there's no money to be made on it. Because I'm not interesting anymore. That's possible. If you want to make sure that the label releases what you give them, what you need, is something called a release commitment. Something that says they will release it on a certain timeline. Or if they don't, you get the album back and you can release it with a different label or on your own. So the next big chunk of stuff I want to talk about is the release commitment. And I want to go into actually a really good story about release commitment when it comes to an artist named Fiona Apple. So let's go into that section now. 21. The Fiona Apple Situation: Okay, So release commitment. So the case of Fiona Apple's album extraordinary machine is a perfect example of this idea of a release commitment. So what happened was in 2000 to Fiona Apple. Well, first, let me tell you who Fiona Apple is. If you're not familiar with her work. She's a singer-songwriter and pianist. A very crude way to think about her is thinking about the nineties version of Billie Eilish is pretty much exactly what she was. And still is actually if she's still making music and she just put out an album last year. And it got really good reviews and I enjoyed it. It was, it was pretty good. So she's still making music and she's still around. So she had, her first album was called title. It was kind of a hit, really launched her onto the scene. She got a big record deal and everything was great. Or second album was a little weird. It was called when the Po1. And it definitely kind of veered into some different areas. That was kinda surprising to everyone, which I'm sure was surprising to the record label. And it didn't have any big kind of pop hits like the, her first album did. So for her third album, she recorded it. It was called extraordinary machine and it was, it was weird. It was pretty goofy. I had a lot of like really kinda boom chick kind of tunes on it. Had a lot of like tympani and chimes and plucked strings, just like really kind of goofy stuff, even though her music lyrically has always been kinda dark. Okay? Billie Eilish. Billie Eilish. Weird. Anyway. So it was recorded in 2002. It was scheduled to be released in 2003. But after she finished recording it, she gave it to the record label and they said, thanks, and they did not release it. They shelved it, meaning like metaphorically put it on a shelf to be forgotten about. And when pressed, they had no intention on releasing it because the record label wants to make money. That's their whole job, is to make money for music. So they didn't hear a way to make money off it. They didn't hear any good singles. It was just too goofy and weird. They didn't think people would buy it. So they had no intention of releasing it. So let's take a listen. I'm gonna give you a link just after this to one of those original versions of the album. Now this is the unreleased stuff. This album eventually did come out after it was rerecorded, but we'll talk about that in just a second. So the next thing here is going to be a link to one of these original unreleased versions of the tracks. So listen to that and then come back and we'll talk more about it. 22. So What Happened?: Okay, So kinda weird, right? Like it's just like weird. That was just one song. But that was the unreleased version. And the whole album was recorded. And it all has that kind of feel to it. So that's, that song is a pretty good representation of it. So what happened? The fans of hers revolted. They they had a letter writing campaign. They protested and they yelled and screamed, and she was not very happy about it either. And she was complaining about it in interviews and things that the label just wasn't going to release this album. So a few of the tracks leaked on the Internet. Now, that might not surprise you. However, keep in mind, this is 2002 or 2003. And tracks leaking on the Internet wasn't really something that happened yet. Now it's fairly common. But it didn't, it wasn't a common thing at all to happen. It was really bizarre. So some people heard the music and then people got even more excited. So now there's like email campaigns and just people going bananas trying to get their hands on this full album. And the record label just said, no, we're not going to release it as too much of an investment for them to release it. So eventually, after a lot of public pressure to release the album, the record label, I believe was Epic Records, said, Okay, we're not going to release the album, but we will send Fiona Apple back into the recording studio to re-record the whole album with a new producer. Someone who can kinda keep track of what's going on and maybe try to find ways of getting some, some pop hits out of this. So a new producer rerecord all of those songs, the same songs, but we record them and then we'll release that. So the album came out in 20063 years late. And she had to record the whole thing again from scratch. So now let's listen to that same song we listened to, but the new version, the version that was actually released. Okay, so and the next little bit, there's going to be another link that's gonna take you to that. So listen to that and see if you can hear what's different. 23. How did it get Solved?: Pretty similar, right? Yeah. They're pretty close to identical. If you listen close side-by-side, there are differences. Little more of a Roomba and they're released one, I think there's a verse that's slightly different, but it's really similar. You know? And if you listened to the whole albums, both albums side-by-side, they are really, really similar. The released one, I guess you could say, is slightly more commercial but still pretty goofy. So when this version came back to the record label, that one they eventually released. I don't think they were very happy about it because it was so similar. And but they had agreed that if she recorded it, they would release it with this new producer. So they had to release it. The fans were just pounded down their door and eventually they released it. And 2006. So how did it do? It did pretty well commercially. It wasn't the biggest album of the year anything. However, it's worth noting that it won the Grammy for Best pop vocal album that year. So not bad. I mean, So it was, it didn't really quite well for what they were expected. So what's the moral of the story? The moral of the story is that in her contract, she did not have a release commitment. Released commitments are much more common now. And it's a clause in the contract that basically says how unreleased music works. Specifically what the labels obligation is to the artists in terms of releasing their music. Okay, so I guess it's go to a new video and we'll go over the details of their release commitment. 24. The Release Commitment: Okay. So the release commitment typically, and they vary a lot, but typically it says that when an album is delivered to the label, they have a certain amount of time to release it, usually something like one year. And so they can release at anytime in a year, which is important, right? Because there are very good reasons that a label might not release something right away. They might want it to line up with a season. They might want it to line up with the holiday season. They might want it to line up with summer if it's like that feel-good hit kind of tune. So there are a lot of reasons that a record label might kind of want to position it strategically. They should do that. That's their job. But after a year, it becomes, you know, it starts to look like they're not going to release it. And so typically, there are consequences for the label, for not releasing something. They could be that the artists could terminate the entire contract. So it could say, you could have this clause that says, if you don't release an album I give you within one year. I'm I'm free, I'm out of the contract and I get to keep that album. That's possible. More likely as blocking any options to extend the agreement. So earlier right up here we talked about options where the record label could say, you have three albums followed by one additional album. If they don't release something they fail and the release commitment than the artist can block any options like that. That's possible. Most common, I think, is the artist's gets the master back and can release elsewhere. So if they don't release it within a year, the artist gets the master and all the copyrights and everything back. And they can release it wherever they want so they can go to another label, even though they're still under contract with the first label. If the first label refuses to release something that artists can go to another label, probably a smaller label, and release it with a different label. So those are all kind of things that we could see in a release commitment as the consequences for not releasing the album. And that would be for if the record label decides to not release the album. 25. The Million Dollar Record Deal: Okay, now, onto one of the most misunderstood things about a record deal. And possibly one of the most important things to understand if you're ever looking at a record deal. So I like to use this phrase, like I got a $1 million record deal. So let's talk about a $1 million record deal. This is something that people say, um, you know, someone might signed to a label and be like Yo dude, I got a million dollars a record deal. I'm swimming in it. Awesome. Not quite. Here's what that actually means. It's not as good as it sounds. It's not bad. Don't get me wrong. Someone gives you a million dollars to make a record. Here. You're doing pretty good. But it's a little deceiving, right? So that $1 million record deal is actually alone. The million dollars of the loan. The record label is in the business of making money. They're not in the business of giving you money. So their hope is that the two of you, the artist and the label, make money together. That's what they want to have happen. But like all businesses, they realize that you have to spend money to make money. So they're going to typically give their artists some money to make some things happen, to record the album, possibly to live for a while as the album comes out. And but that's really just going to be alone. That's not that doesn't mean they got paid a million dollars to release an album. That's not what that means at all. That money has to get paid back before the artist makes another dime. So the reason they do this is that money will get used for things like recording expenses. So recording the album to live and look like a rock star. If that's important to you or to the artist. The artist might be someone who drives fancy cars and wears a lot of gold chains. And that's all expensive. So in order to keep up appearances, they might need a million dollars to do that. It's fine. So the label will give you that money. However, you don't make another penny until something magical happens called recoupment. Or in other words, recoup. You have to recoup before you make any money. So let's talk about what recouping is. 26. Recoup: Okay, recouping means that the label has made back all of their money. So you get a $1 million record deal. That means you are starting at negative $1 million. So then let's say you sell. I'm a million dollars worth of records. Let's just say albums will slice this apart in terms of digital stuff later. But let's just say you sell a million dollars worth of albums. It's great. You sold a million dollars worth of albums. That's awesome. But you're still in the hole. Because from that, depending on your deal, you might get something like, let's just say 20 percent of the album sale, okay, so you get 20% of the album sale. That means that the label gets 80 percent. So from the million dollars, you get 20 percent of a million is 200000. So you get 200 thousand. Label gets 800 thousand. Cool. Now, remember you started off in the hole at a million dollars. You're the one that has to pay back a million dollars, not the label. So now after you sell a million dollars worth of albums, you are now in the whole $800 thousand because your $200 thousand goes to paying back the record label, this million. Oops. So even though the label already made $800 thousand, you're still in the hole. You haven't recouped yet. You're going to have to sell Swanee million dollars worth of this album. So that you are 20 percent is a million. And then you will be back to 0. So that is recoupment. After you hit 0, you will start to get your 20 percent. But not until the label has recouped everything that they've spent on you. So when you get that $1 million record deal, when someone walks around me and like I got a $1 million record deal just means you've got a $1 million loan and it's probably going to take you a really, really long time to pay that off. The smarter move for artists is to, you know, maybe you might get offered a $1 million record deal, but actually take little amount of money as you need to do what you need to get the album out. It's basically a business loan. I've barely high-interest wanted that. So this is effectively why people go bankrupt. Because they're in the, in the whole, when they start to the record label, yeah, You see people who are hugely popular artists that have hit records and they go bankrupt. You see that all the time. This is why. 27. Payback: Okay, one other thing about this that I just want to make sure is clear, because this is another common misconception is that let's say you are this artist and you are now, you know, you sold a million dollars with a records and now you're $800 thousand in the hole. Then let's say the record label. Let's say you have a one album deal, right? And it's done. The album isn't making any more money. The label is 4 has washed their hands of you. And they're not going to use any options. They're not going to renew your contract. You're done. So now your contract ends and your $800 thousand in the hole, what happens now? Typically, you do not owe them the balance. Now there could be a deal, whereas you do. But it's not common. Typically if an artist is in this situation and the label is done with them, the label says, we lost $800 thousand. That was that was bad. That was a bad business move. And then they they just counted as a loss. And they don't demand you pay back the difference. That good, but it's very unlikely. So if that happens, you tend not to owe them the balance. So when in those cases of bankruptcy, I guess it's usually because the record that the contract continues and the artist is just not making any money. Because remember, you got this $1 million at the beginning of the contract. You made the album. Since then. Since doing that, you haven't made a penny. So you might have blown a million dollars on a house and a bunch of cars. But what then? If you blew that million dollars? You, you've got no way to eat, man. So you might be in trouble. And I think that's where bankruptcy comes in. They might not, they might get booted from the label and not 0 the balance, but they still have nothing. They still make no money for these several years that this one on. So it can be a real kinda horror show if you're not really paying attention. Smart artists have a team that will help them negotiate this, including an accountant, perhaps even a financial planner, who really understands what's going on here. And we'll make sure that you don't spend what you're not going to make. We'll talk more about the artist's team near the end of everything here. So watch out for the $1 million record deal. 28. What kind of Royalties?: Okay, Up next is royalties, how you get paid. We looked at kind of royalty right here. We assume 20 percent of the sale, that's actually really high. You're not gonna get that much. We'll come back to this little math problem later. But first. Okay, So royalties. Why are we talking about royalties here? Because we talked about royalties all the way back when we talked about the PROs, right? You get a royalty based on performances. This is a very, very different kind of royalty, okay? This is a sales royalty. This has nothing to do with the PRO. This has nothing to do with licenses or anything at all. This only has to do with your record contract and what percentage of sales you get, okay? So if someone buys an album for $10, Let's say. So let's say you press it on vinyl and someone buys a vinyl record for $10. How much of that goes into your pocket? After all is said and done? Is it 20 percent? So you get $2 of that ten? Or is it less? It's going to be less. So sales royalties, another notes. What the actual percentage is will be something listed in a recording contract. It's something that isn't negotiable To some extent. It can be. And you can argue that you need to get a higher royalty rate. But you can also argue that the royalty needs to come from a different place. There's kind of two different things. There's what are we basing the royalty on, and then what is the actual royalty rate? So let's go and do those first. So what we base the royalty on is called the royalty basis, okay, So is it the retail cost or the wholesale cost, things like that? So let's go to a new video and talk about that. 29. Royalty Basis: Okay, The royalty basis. So what your royalty is based on? This could be a few different things. It could be the retail price of the product. And I'm gonna say product here because it's easiest to calculate when we're thinking about a physical thing, like a vinyl record. But The same number will hold true for streaming royalties. But the math is just a lot harder to figure out. So bear with me here while I just talked about like a vinyl record because it's just easier to think about a physical purchase. I used to talk about this in terms of CDs, but I think final records are more relevant to most students than CDs at this point. By the way, 2020 is the first year that vinyl records outsold CDs. Crazy. So let's talk about this in terms of physical products. For now, we will get into how streaming royalties work in a minute. So the royalty basis can be on the retail price, it can be on the wholesale price. So that would be while the retail price would be like what the consumer pays for it. So if we're selling it for ten bucks, it's going to be 10 bucks. The wholesale price is what the record store pays for it. So that's going to be a little bit cheaper. That might be sudden bucks. So if they buy it for seven bucks and then they sell it for ten bucks, they made $3. The record store needs to make something. It could be based on the actual net revenue. That's going to be smaller yet that might be something like $5. That would be how much the record label makes on it. So if the wholesale price is $7, we the record label is that going to make $7 on it because they had to get the record to the record store. So there's shipping. There might be some taxes. If we're going out of the country, there might be some tariffs. So it's going to be a little bit less. So actual net revenue is going to be a smaller number. And it could be a few other things to something like PPD stands for published price to dealer. That's kind of like a it's kinda like the wholesale price, but it could be a little higher or lower depending on if there's any special promotions. It's kind of a weird term. So for the artist, the artist always wants it to be based, the royalty basis to be the highest number thing, which is going to be the retail price. Because if I'm getting 20 percent, I want 20 percent of $10, that's $2 instead of 20% of $5, that's $1, right? I want to dollars. So the artists always wants to be the highest thing. The label is going to want it to be the lowest thing. Because they don't want you to take your cut before they take their cut. If this is what they're actually making off of it, they don't want to give you $2 because that means they only get three. So that's always a negotiation and that is something that can be negotiated in a recording contract. What is the royalty basis? 30. Royalty Rate: Okay, So the basis really only tells us how the rate is going to be applied. It doesn't give us the rate. So the rate is something that can be negotiated separately. But in general, the royalty rate is based on a few factors. Status as an artist. Is this a contract for a major celebrity, someone who's maybe a minor celebrity, someone who's just getting started. You're gonna get a higher, you're going to be able to demand a higher royalty rate. If you are someone who the label is going to think it's going to make more money, right? So they want to use that rate to get you to sign the contract. They might make it more favorable to a bigger name artist. If you're a smaller artist or an unknown artist, the royalty rates going to be a bit smaller. Also factored into the decision will be the potential to be marketable. In other words, our sales is going to be really high. You might be an unknown artist, but you've got this project that is going to blow up and they know it. So it's gonna make a lot of money. You might be able to demand a higher royalty rate. Sometimes the genre can be factored in pop music versus classical music, right? One makes more money than the other. Rarely, classical music doesn't make a lot of money on a label, so they might give it a smaller royalty rate. Okay? All that being said, a typical rate is usually in and the ballpark of oops, 12 percent, 20 percent would be a kind of average royalty rate. So let's do that for the sake of argument. You know, someone who's a big artists might be able to get as high as 20. I think that's kind of insane though. Someone's smaller, it might be 9%, 8 percent, something like that. But 12%. So if we go back up here, remember I based this on 20 percent and we did this really depressing math. So in reality, we should have done it based on 12 percent, which is going to be even more depressing math. And we'll do some depressing math to top that in just a second. But before we do that, we need to talk about what comes out. Because there weren't, we don't just get, you can sense my cynical attitude towards record labels here, but we don't just get 12% of the basis because there's things that have to come out of our 12 percent burst. So we actually get less than 12 percent. So let's go through a list of kind of all the deductions are not all the deductions. Some of them most significant and interesting and in some ways humerus deductions that can come out of your cut. 31. "All In" Contracts: Okay. So some contracts are listed as all in contracts. That means that your 12 percent includes any other staffing that needs to come out of it? Not all staff, not like this, the assistant to the president or whatever. But on the production of your recording, the biggest one that's typically included there would be the producer. So if the producer needs to get paid and it's an all in contract, then the producer gets paid out of your 12 percent. Okay? So the producer might get something like 3%. If that's true. If their producer gets 3% and we are on an all in contract, then your rate is now 9%. Okay? So on are all in contract. That producer cut comes out of your C-A-T cat so that you don't want that. Because now you're down to 9%, which sucks. So you want the producer's cut to come out of the record labels cut if possible. That might be a sticking point. So it might not be possible, but watch out for that all in contracts. Okay, Now, the next, I don't know, eight or so things are going, we're just gonna kinda rapid-fire go through some of these deductions that happen. These are just little ways that we chip away at your royalty rate. The thing to remember here is that the record label is going to want to get paid before you get paid. Okay, So anytime they get paid less, they wanna make sure you get paid less also, okay, so that you're sharing the responsibility. That's the general idea here. So if something happens where this one album is sold at a discount, because if some reason they want to be sure that what you get reflects that discount also so that you don't get a 100 percent of your royalty when they don't get a 100 percent of theirs, right? So let's go through these deductions. And these are not all the deductions by the way. These are just some that I've latched onto it to be particularly interesting. 32. Deductions: Breakage: Okay, first one, breakage. So what breakage means is that it's a small percentage that's taken out of the royalties based on the percentage of things that break. Imagine you have a box of vinyl records and you ship them across the country. It's been factored that well, it's been figured out that when we do that, roughly 10 percent of the records and in that box are going to break as we ship them. Okay, so in order to keep things simple, the record labels going to say, well, we'll just deduct 10 percent off the top and call it breakage 10 percent of your 12 percent based on what? They're not able to sell. And again, this just means that the record label isn't going to be able to sell it, so you're not gonna get a royalty off of it. So if you're getting a royalty off the albums that they send to the store, they're going to deduct 10 percent of that because 10% are going to be destroyed in shipping. Just the way things go. This idea of breakage, this deduction of breakage, stayed true when we entered, when we were in the world of CDs because the boxes would break, the jewel cases would break and all that other stuff. So it stayed in there. How does it apply to digital sales? It really shouldn't. If you see that in a contract, if you see breakage apply to digital sales, you know that that's an obvious cash grab. And you should do everything in your power to exit out. But it has been seen in some contracts to be on there for digital sales, to deduct 10 percent of digital sales to breakage, which makes no sense, right? Because there's no such thing as digital breakage. That doesn't happen. So but it can be a negative 10 percent. I don't need to write that down. Just right off the top. And again, it's going to be not 10 percent in the way that's going to take your 12 percent down to 2%, that's going to be 10 percent of your 12 percent. Okay, so do that math. Well, we'll go through a calculation of how this actually works in a minute. But 10 percent of your 12% 33. Deductions: Licensed Re-Sellers: Okay, Next, license resellers. This one does apply to digital stuff, kind of a lot. Actually, it's kind of a big one. So, so far what we've been talking about mostly has to do with when the record label cells the album. You get 20, 12% of the sale or whatever. But sometimes there are middle people and not just a record store, but something bigger, that, that bigger thing we'll take a cut. The best example of this is back when before, there was this weird period. Before we were before our streaming had really caught on where we were selling digital files. Okay, so you would go to like Apple Music and you would buy a song for a dollar, right? When that was happening, apple was the license reseller and that case. And they took 50 percent of everything, everything that was sold, they took 50 percent. So in that case, there a license for Reseller. They're selling the music and keeping 50 percent for themselves. So that means you have to deduct 50 percent from your 12 percent royalty. I'm in order is all you're going to get, right? So that license reseller thing doesn't always happen, but when it does happen, it's usually a pretty big cut. 34. Deductions: Container Charges: Okay, Up next, container charges, chargers, charred jazz charges. This usually has to do with the media that the music is on. Vinyl is more expensive to produce than a digital file. So you're going to make less. There's going to be a deduction that happens. For that. Also. If you print a physical CD and it has a 20-page book in it, that's going to be more expensive to make that a digital file, right? So there's going to be a deduction based on the production of that physical book that gets put into a CD. So this one doesn't really apply to digital files. So if we're really only talking about a digital release or digital sales, this shouldn't apply it all. And to be honest, as cynical as I am about record labels, I've never really seen this one applied to digital sales. So which is good because it shouldn't. So small victories for the artist. Container charges. 35. Deductions: Bargain Bins: Okay. Bargain bins. So think about the last time you were driving across the country and you stopped at a truck stop to get gas and a sandwich. And they had like stacks of CDs for sale. It's like weird compilations or something like that. If you end up on one of those, there's going to be a pretty big deduction to your royalty rates because that's just usually, well, if it's an error, if it's a compilation album, it's a little bit different. But if your albums get dumped into a bargain bin, It's going to be the album trying to move a whole bunch of them really fast. And they're gonna take a big cut from the royalties, do it because the way they get those bargain bins to move is they tell the people selling them like the gas station in that case, that they can take a bigger percentage of the profits and they can pay the record label less. So therefore, your gonna have to match that deduction that they take. So the royalty rate will be quite a bit smaller based on that, the way it was sold in that it was part of a bargain bin. Move a bunch of copies, quick thing. 36. Deductions: New Configurations: All right, there's a fun one called new configurations. That means like if you're trying to do anything weird, it's going to cost the record label more to get it all set up. And they might have to build kind of a system around the weird thing that you're doing. And all that time you're going to have to basically pay back to them via a lower royalty rate. Good example of this would be like couple of years ago. I just kind of a while ago now, Nine Inch Nails released an album digitally, but in two different versions. One was, I came up with they called it but like the radio version, just the normal version. And then they release a separate version of it called the audio file version that was mixed up differently. And it would have higher fidelity. It was it has to do with a mastering process. We won't get into that. But it was kind of for audio nerds to be able to like, hear it better on like good quality speakers and stuff like that. So in order to do that, the label would have had to bounce around a little bit to figure out how to release this kind of audio file version. And then how to had multiple versions of the same album rolling around, charged different rates for the audio file version. So that probably would have gotten a new configurations deduction. Now, perhaps it actually didn't in that particular case because Nine Inch Nails is a known quantity. I was going to sell a lot of them. And so the record label that they were width, let them get away with it. But for the average unknown artists, if you're going to do something like that, you're going to take a cut, a hit in your royalties from the new configurations clause. 37. Deductions: Foreign Territories: Okay, Next, there is a deduction for foreign territories. When your albums are sold overseas. And in different places. Mostly this has to do with a small cut based on a percentage of currency exchanges that's relatively small. But the bigger thing is tariffs and import export costs. So that can be 10 to 50 percent of your cut lost in the, I'm just in selling an album outside of the United States because of what it costs to export the album solid and then exchange the money back. Depending on, in some ways, depending on the political climate going on. Even here in the US. There's all kinds of new hoopla. About or last year there was about tariffs, new tariffs happening. And I don't think physical or digital albums were affected by that musical instruments were. So it could be that, you know, digital sales of albums overseas are going to be subject to tariffs and the future, we don't really know, but it's possible. But regardless, physical albums getting shipped overseas, sold, and then the money brought back are subject to quite a bit of taxes, tariffs, and exporting fees. So can be a pretty significant chunk. 38. Deductions: Sales Incentives: Okay, Next, let's talk about sales incentives. So sales incentives, shockingly are a deduction. Because what happens is a lot of time labels will send out copies kind of in the name of marketing. For stores to sell. Cheap, right? They'll be like here's ten copies of the album at half off. In hopes that the store will prominently display it to maybe play it over the PA maybe and put it right on the counter and say the new album by so and so in hopes of that kinda snowballing into more sales and more attention for the album if the store has an incentive to sell it. So when they do that, the label makes less money, you make less money. So that can be a pretty big chunk of your royalty on those particular albums that are being sold. This is a little bit different than when labels just give away free copies. Which is the subject of our next and last deduction. 39. Deductions: Promotional Copies: Okay, So promotional copies, this is when the label might send out copies for free to, you know, maybe if people who work at the record store, radio stations, press blogs, social media, tastemakers, stuff like that. Obviously, the label doesn't get any money off them, so you don't get any money off those either. However, this is a case where it's as simple as you don't make any money if the label doesn't, it's not an overall deduction to your royalty rate. However, I have seen it done that way where a contract will say something like we're going to send out 1000 copies of this thing for free to get promotion out of it. Therefore, to pay for those, we're going to deduct a 0.5% from your overall royalty rate. I have seen it done that way. I don't think that's common anymore. I think that was an earlier thing, but it can be done that way, so I'd watch out for that. But typically it's a simple these are copies that you don't make any money off of because the record label doesn't make any money either. 40. Calculation for Royalties of a Physical CD: Okay, let's do some math. One disclaimer here. I'm terrible at math, super terrible at math. So I've done this all in advance. I probably screwed it up somewhere. So please don't bust me for it. What we're trying to do here is get to the approximate correct number for how much will make off each thing. So we're going to first do this on a physical CD that will do it for a digital sale. Okay? So let's try it for a physical CD. Physical compact disc. Okay, let's assume a royalty rate of 12 percent. And let's assume our basis is the wholesale price of $7. Okay, so typical CDS like 12 to $15 wholesale is probably around $7. Okay. So that means so far, just based on that, 12 percent of $7 is going to be 84 cents. So without anything else, if I was releasing a CD with this record label and I got a 12 percent royalty on a wholesale basis, I would make $0.84 per copies sold. K. Well, let's keep going. Let's assume the breakage charge gets added. So we're only actually getting paid on 90% of sales. That takes me down to 75 sets. Now let's assume container charges takes out an additional 25 percent. That takes me down to 56 cents. Now let's assume the free goods, which is usually, oops, for Gibbs. Free goods would be promotional copies and perhaps sales incentives combined. This would be, this is often calculated at just 15% of sales. So that's going to take me down to $0.48. Okay, Now let's think about the producer. We left that out before. So if this is an all in contract and I get 12 percent, we need to go all the way back to the top and take out 3% for our producer. Okay? So if the producer owns, if we owe the producer 3% of the total, then 3% of the initial 12 percent is about 25 percent. So that takes us down to 36 cents. So assuming no other deductions happen. So we know other deductions. We're down to 36 cents per album, not per track, per album. For the whole album, we're gonna get 36 cents on this deal. Let's assume that's like 12 tracks. Cool. So that's great. You know, we've got a saw a lot of albums. In fact, let's figure that out. Assuming R $1 million record deal, how many albums do we need to sell in order to recoup? Let's do that math. 41. Recoup Amount: Okay, So assuming in order to make this album, we took out a $1 million advance. In order to recoup it at 36 cents a copy, we need to sell 2,777,777 copies to recoup. Yikes. That's a lot. Is that even possible? How many albums do you think someone actually physically cells? Well, if we're talking about physical CDs today, that's difficult. But just for the sake of argument, let's do it. In 2019, which is the last year that we have finalized data for. The top selling physical album. Physical CD was, and he guesses, tell you, guess it was the greatest showman soundtrack. Which makes sense, right? Because we're talking about physical CD sales here. So we're talking about an older audience probably. So film soundtrack, something kinda family-friendly like that. Makes sense. It did have some good tunes on it though. And that's sold about 3.5 million. So if we're only counting on selling physical CDs, we need to come pretty close to being the top selling album of the year in order to just break even, just to recoup. That's what we need to factor in. So don't take that million dollars. But there's more to this story, right? Because we're not just talking about physical albums, we're talking mostly about digital sales. So let's flip over and talk about digital sales a little bit and do the math that way. 42. Calculation for Royalties of a Digital Sale: Okay, so we're going to talk about a digital sale. We're going to do the same math. Now, the digital sale that I'm talking about here is exactly what it sounds like. A digital sale, not a stream. Streams worked very, very different. And with streams we typically get fractions of a penny per stream, like 000, 000, 000, depending on the platform. And that a chunk of that will be taken by the record label. But that's a kind of a different calculation for a digital sale. What we're talking about here is let's say someone goes on Apple Music and buys the song, they're typically going to spend something like $0.99 per song. So let's figure that one out. So we'll assume the same specs of the deal. Based royalty is 12 percent. And our basis is well, we have to do a little bit different basis here because the resale wholesale thing doesn't really work. So let's assume as the retail cost of $0.99, okay? So retail cost of 997 basis. So here we go. First, we have to consider that this is a reseller deal, right? So Apple Music is going to take 50 percent no matter what. So if we apply our 12 percent to with 50 percent reduced, let's round that to not $50, that'd be sweet, but $0.50. We are now down to $0.06. Okay? But keep in mind, you might be thinking, well, we're already at $0.06 versus what we ended up here, which was 36 cents. Not so fast, because here we're talking about the whole album and here we're talking about a single track will convert these to match when we're all done. So we're down to $0.06. Okay? So as well. So lets us do assume free goods is the same, that can still apply. And that's going to be 15 percent cut. That's gonna take us down to, oops, ¢5.1. The producer is still going to apply the container charges and breakage. We're going to assume don't apply. We don't need to deal with those. But the producer still does. And they're gonna take 3% of our initial 12. That's going to take us down to 0.0382. So 3.8 to sense, that should go there. Okay, So assuming no other we're deductions, we're down to 0.03, roughly $0.03. Let's round that up to $0.04, 40 cents per SM. Okay, So let's assume 12 songs per, per album. So we're going to multiply that by 12. So we're up to actually $0.48 for the album. Not bad. Okay, I mean, well, not good. But we're doing 48 cents for the album here. Up here, we did thirty-six cents for the album. So that's our final solution. Okay, now, let's figure out the advance again with the new math and we'll see what's better. 43. Recoup Amount: Okay, I guess it's kind of obvious since we're making more per album here then before. But we're still pretty high. In order to recoup our $1 million, we need to sell 2,083,333 copies of this track of this album, actually. So that's a lot. So multiply that by 12 to figure out how many copies of this track need to sell. A lot. 24 million and changing. Okay, So what did we learn? Making money selling records is hard. If no one told you that yet, then I'm sorry. But it is, remember that we haven't factored in streaming yet. Streaming is a whole other complicated animal. And the way streaming works is a very, very, very small royalty, but you get a whole bunch more of them because it's par, listen, not per sale, right? So a lot of the term still apply where the label is going to take a similar percentage of the streaming royalties. So you can almost calculate the same math from it, but it does work a little bit differently and actually, I don't know the details of those contracts. So moving on, let's talk about some of the other intricacies in a recording contract that one might find. 44. Merchandising Rights: All right, Let's talk about merch. Now you might think, you know, the, the typical thing is that you put out records with the record label. You tour on your own. And part of touring is selling t-shirts and merch and junk, right? That's true. That's been true in the past and that is sometimes still true, but it is also sometimes true that inner record label, you will sign over your rights to some rights to make emerge to the record label. This is particularly true in bigger record label deals, deals with some of the big record labels. So why there's a lot of money to be had in merch, simply put, the record label might want their fingers in that pot. So if if you are looking at a contract that is requesting merchandising rights, you have to be pretty aware of what they're asking because merchandising rights are actually a pretty big right. There's no specific a legal right called merchandising rights. What they're asking for in merchandising rights could be and probably is multiple rights included. For example, if they want to use just your name, like the name of the artist on a t-shirt, right? That would be right of publicity. So we talked about that in the earlier part, but that is the right for the artists to control their name and other things. But for the purpose of this, let's say their name. So if they put your name on a t-shirt, then That's right of publicity that you'll be signing over to them. They put your band name and possibly ban logo. That can be a trademark issue that you're signing over to them the right to use your trademark for merchandising. It could be a photo of the band, right? In which case it's both right of publicity and probably a copyright issue with whoever took that photo. If that photo is owned by the band and it's a copyright issue. So there's a lot of different rights that they would be asking for, that you would be giving away if you sign a merchandising rights deal. But it might also be worth it. Because if they're going to go hog wild and merchandising and make a ton of different things and pay for it up front, which is presumably money you don't have, then that might be good. You'll probably only get 50 percent of the sales back. It's pretty standard agreement 50 percent. But that 50 percent might be a lot more than you're gonna make owning a 100 percent of it on your own. So you really have to weigh those things when you see that in a contract. So the other thing you need to think about is if you could actually make that, those things on your own. So let's go to a new video and talk about that. 45. Merch Companies: So one thing that is cropped up over the years is merchandising companies. So companies that just do merch for artists and bands doing it this way would effectively, in most cases, cut out the record label. But I want to point it out because it's kinda one of those things like what we talked about at the beginning of this section when we started talking about record labels, is that there's a bunch of things that the record labels use to do that we can do ourselves without them now, right? And merchants, one of them. If you wanted to, you can or bands do hire a Merch company. And what that Merch company will do is, will there generally kind of full-service, but what they can do is make all of this stuff. So make all the t-shirts, stickers, posters, whatever you want. And then oddities, stuff like bands like the gig with weird stuff. They can make all that stuff and they can send it on the road with you and make sure that you're always supplied with enough. You'll pay for this service. It can be a flat fee or more likely it's probably a cut. I even heard of some companies that are willing to send people on the road with you. So for like a bigger tour, there might be a band that just says we don't want to deal with merge, but we wanna make the money. So they hire one of these companies. That company sends one or two people on the road with them. They show up at the gig with the merch. They set up, they sell them merch. And they do all the accounting for the merge and send a check to the band at the end of the tour or however it's organized. So these companies do exist and I know a lot of bands at use them, and it's pretty cool. It's a good service. You generally keep a lot of the money. That way. I'm keeping in mind that there's always cuts taken out in merch. Either it's by the record label or it's by the merged company, or and very often by the venue. The venue that you're playing in gig at will often insist on a cut of merch sales that happened there. That's very common actually. So don't be shocked if you ever see that. But these words, companies exist and they can be a great asset to bands that don't want the record label getting involved in merch. 46. Payments: Okay, One important thing here that can come up with merch is that if you have a deal with a record company and let's say you've taken an advance. So let's go back to our $1 million advanced situation. Okay? You've taken $1 million in advance and let's say now you've paid back a good chunk of it, but you're still negative 800 thousand. Okay, so how does this relate to merge? Does because if the record label is selling merch on your behalf, you're going to get 50 percent of that. What you really want is, and this is something that can be negotiated into the contract, is you want it to be not cross collateralized. No way I spelled that right. Collateralized. And specifically against and add fans, which means any money you make from work, from merch, you want to go into a separate pot of money you actually get. You don't want that to go against what you owe them for the advance, right? That's cross-collateralization. Collateralized. So it can be put into a contract that any Merch sales or any sales involving your brand identity, anything like that, which is essentially merge, but it can extend outwards to advertising or endorsements, things like that. That can be not cross collateralize against the advance you might owe. So if you get 50 percent of merch, you get 50 percent of merch. It doesn't just chip away at what you owe here, right? That's generally what you want. Unless you're really intent on Digg and out of this advance. Remember that if everything falls apart, you generally don't owe the balance here. So the merge can be a nice chunk of money and merchants big business. So there's a lot of money there. So it can be a nice chunk of money coming in while your record sales are paying off and advance. 47. Works For Hire: Okay, Let's talk about music videos for a minute. So this actually has changed and could mean multiple things. What we're really talking about here is like produced music videos, meaning the videos that an artist and the record label will hire someone to make for a particular song. We're not talking about stuff made exclusively for YouTube by the artists, like little one-off things. We're talking about, kinda the bigger budget music video stuff. Okay. So the first question we have to ask is, is it a work for hire? Yes. The answer is yes, but the question is, who's doing the hiring? That's the sticky thing, right? Like the person making the video is working for higher, right? So they're not going to own the rights to the video unless they've negotiated something special. But it's the artist and the record label hiring that person to make the video. Right? But did the record label or the artist hire that person? Usually it's split. And the artist and record label are going to share the expenses of making that video. Typically, not always, but typically sometimes the artists will pay it all out of pocket. Sometimes the record label pay it all out of pocket. It used to be that the record label will pay it all out of pocket. Now it falls under, half of it falls under recoupable expense is kind of a common way it's done. But as with anything in a contract, anything can be adjusted, right? So it can't be done Harvey want. But typically the record label is very interested in promoting these videos because they promote sales of the sun videos or just commercials for albums. So now that we're not buying albums anymore, record companies are less willing to dump a whole bunch of money and making a big video. But artists making videos cheaply has become much more possible. So the kind of tables have shifted a little bit, but back to work for hire. Is it a work for hire? Yes, it is a work for hire. And depending on who the question really is, just who hired the video people to make the video. If the artist hires them, then they're going to own the copyrights. And it used to not really be an issue, right? Because you didn't really make money off the video. The video is, it's a commercial for the album. But now you can make money off the video by putting it on YouTube and having some ads on there. So there is some, a little bit of money to be made directly from the video. So who owns it becomes more important. Okay, so let's zoom in a little bit more and talk about kinda who pays for it and how that can be structured. 48. Who Pays?: Okay, so who pays? Like I was just saying, This can be organized a whole bunch of different ways. But here is a very common way. The label and the artists are going to split it kinda. So we need to go back into our discussion of recoupment. So back to that artists that has a $1 million advance. Okay, so let's say they've taken the $1 million advance and haven't made anything yet. Okay. So we're still at, we're basically at negative $1 million is what is the relationship from the artist to the record label? Let's say the video costs a $100 thousand to make. Okay? So they're gonna spend a $100 thousand on that video. So where's that money going to come from? You guessed it? It's going to come from us. So that comes out of our $1 million advance. Typically. Now, it's also common that record label will split the cost, meaning only half comes from our advance. Okay, So if that was true in this case, that the record label is going to pay for half, then we have to pay $50 thousand out of our advance. Which means that, that money needs to get paid back by selling albums, right? There are other ways this can be done. But this is a way that I think is most common for kind of mid-career artists. People who are not brand new, but also not like the big, big names, big, big names. The record label is going to pay for him like a sting puts out a new album. Record labels probably going to fund a video of for that new album to promote it. And stink probably isn't going to take a big advance. He's probably not going to take an advanced at all. He doesn't really need one. So most common, I think, is record label splitting it by putting half the cost of the production of the music video into the advance that the artist has taken out. 49. Who's Vision?: Hey, another important thing to talk about with videos here is, whose vision is it? Meaning? If I have an idea for the music video, if I want to do this crazy thing. And the record label, can they say no? Can they control like who's who's driving the ship and what this is, what this is. That again, like everything is for negotiation. But I'm going to say a lot of the time it's the artist because the record label wants the artist to put out something that they care about, that they're going to be passionate about, and that's going to represent the music. Well. So they know a lot about that. So it's going to be the artist. It's also going to be the director of the video, wherever they hired to do the video. But the artist does have a lot of say in what gets put into the video. The record label has some, they're not just gonna say like, here's a $100 thousand go make a video. They do have a say in what happens, but it's usually kind of a veto power. I think. So if I said, I want to make a video where I'm going to cover myself in 500 gallons of petroleum jelly and then get thrown from a building. The record label might say, hold on. That's probably not a great use of money. Let's come up with something different. Possibly. They might say that or they might say, knock yourself out. They might also in that case, say, that sounds dangerous and you are valuable to them, so they don't want you to hurt yourself. So who knows? But the point is, I think the artist is in the driver seat for these videos more than you would think. You would think that the, the record label might put forward a real control over what gets made. But the artist does have a lot of say. The director probably has the most say, but the directors really working for the artist in this case. 50. Why?: Okay, Let's go back to 360 deals. So I explained what these were already. But let's talk about two things. First is why, why these exist and how they came to be. And the second is the kind of big Taylor Swift example. So first, why, why, why did these exist? The simple answer is because with digital sales are actually not digital sales, but with streaming comes a loss of revenue to record companies. So the record companies are making a lot less money than they used to. So what they're saying is, instead of just trying to get a piece of the streaming revenue, which they're already doing. What they're saying is, let's get a piece of everything the artist does. So they want a piece of touring. The biggest is touring, as we'll see when we talk about Taylor Swift in a minute. But they want a piece of touring. They want a piece of merch. They were maybe already getting a piece of merchants on deals, but now they are definitely getting it in a 360 deal. Not everybody has 360 deal. These are relatively rare still. There are big ones. You know, they're kind of an all or nothing deal. So they're saying we're not going to just rely on putting out the record. We're going to rely on we're gonna put out the record, but that's going to help us make money. All are all over the place. If we actually zoom back up to here. Remember that we talked about this like a single record or like kind of all recordings in a single record deal. It seems kind of weird in our modern economy, right? Because what that means is we're going to invest we the record label. I'm, I'm going to be the record label for a minute here. I'm going to invest a bunch of money into putting out this record and promoting this record. Now I can't do that without promoting that artist, right? So I'm going to promote that artists as much as I can. I'm going to say, this is the latest greatest thing. They're awesome. This artist is amazing by this record. So now, after that record comes out, a year later, that artist is gonna put out a new record, not on my label, but I invested all this money in promoting that artists in order to sell the previous record. So now all that money I put into promoting that artist is now going to somebody else, some other record company. So they're gonna take advantage of the money I invested in this artist. That's crazy. So that's kind of what brought 360 deals on is they said, look, we're gonna invest all this money in. These artists were not making much from records. So let's make sure we have a stranglehold on everything that they do. Stranglehold is probably the wrong term. But we have an investment in everything that they do so that we can. I'm not limit ourselves in the way that we invest in these artists, but we can go full speed ahead and really push these artists so that and we will get a return on everything they do, not just those albums they released for us. So hence, the 360 deal was created. Now, none is more famous than the Taylor Swift example. So let's go to a new video and let's walk through how that works. 51. Taylor Swift Example: Okay, Let's talk about Taylor Swift and specifically Taylor Swift right around 2017. Okay, So she had released an album called reputation. Now globally in 2017. That album sold about 4.5 million copies. Now that is, that number is physical and digital, right? And that also kind of aggregates streams a little bit, but it factors in about 4.5 million worth of albums sold. So if we assume each album was sold for about $10, that's roughly, let's say $40 million in revenue. That's great. So she made $40 million. Well, let's rephrase that. Her album made $40 million. But we have to slice that through the record label, right? So who knows what exactly she made? Maybe something like 12% of that. But $40 million was generated from that album. Album is the key here. She also toured a lot that year. On a tour. She might have 40 to 50 shows on the tour. Each show generates between 5 $9 million. So if she makes five to $9 million per show, you know, conservatively we can say 6 shows, roughly six shows equals total the record made. So that's way more money than the record made from touring, right? You know, that's roughly, let's say let's split the difference. Let's say 45 shows times C5 to $9 million, let's say 6, $6 million, that's $270 million, right? $270 million that year made from live concerts, $40 million made from the album. So do you think the record label is going to be happy with just the $40 million, or do they want to cut of the 270 million? They want to cut off the 270 million. Do they deserve a cut of the 270 million? Actually, as cynical as I am about record labels, I could buy an argument that says yes, because she has a 360 deal, which means the record label is investing everything they've got in making her huge, right? Making her a sensation. And that includes getting a cut. They invest a ton, they reap the rewards of that investment. So they get a cut of everything she does. Every iPhone commercial She's in, they get a cut. Every t-shirt you buy at that show, they get a cut. And every collaboration she does with Justin Timberlake, they get a cut of everything she does. And that was true until last year when her contract expired. And instead of renewing it, she went to one of the other major labels. I don't remember which one. And signed, not a 360 deal with them. So she's still going to be releasing albums and has the details of her new contract or secret, but she has. But we do know that it's not a 360 deal. So still albums will becoming out. A lot of people who will be making money. But she will keep a lot more of her revenue now because of that. So she had a 360 deal. She's out of it now. I think she made the most of it because she built a huge career. I think she's very talented, which it takes to do that. And now she's going to be very wealthy because of it. So good on her. 52. The Producer: Okay, Let's talk about the producer or a little bit. And its kinda of our last big topic here. So we've talked about this term, the producer, we've already talked about this and how it can just be really confusing. So the kind of Producer we're talking about here is the one that works in the studio. I think earlier I said there are kind of a coach during the recording session. That's kind of my term, but I think it works. Um, but they're not the person who's actually writing the music, but they might be really guiding the music quite heavily. We'll talk more about that in just a second. One of the most important things is that typically the producers working for the record label, okay? So the record label might hire them to be kind of their eyes and ears during the recording session. So they might be there and making sure like if, if the producer has a directive from the record label, make sure there's a pop hit here. That might be what the producer is looking out for. So there are these kind of rockstar producers that, that are brought in for different things, for different projects. And they tend to kind of sit in the booth next to the engineer and just kinda kind of project managed the whole album recording. So project managers probably better term than coach. But I think Coach works too because there are often some like interpersonal issues that the producer might get involved in. Like if, you know, two band members are arguing about something, the producer might get involved in that. But there are kinda famous examples. I can think of one in particular that happened to a friend of mine where they brought in a famous producer who really had a very different idea for the band than what they had an idea to do on an album. And the results were pretty disastrous. The producer really wanted to go this way. They really wanted to go that way. And the whole session was finding this compromise in the middle that was not interesting to anyone. And the album really kinda tanked. So the producer can really make or break an album in that way. So let's talk about kinda one of the most famous and that's George Martin. Let's go to a new video and do a little homework on George Barton. 53. Example: George Martin: Okay, so George Martin is probably one of the most famous producers ever. Sir George Martin, actually, he is sometimes referred to as the fifth Beatle. He was, he worked with the Beatles and the majority of their albums. And a lot of people say that The Beatles songs are amazing because of George Martin. He was there working on those songs with them. And sometimes there's a few kind of famous stories about this. The Beatles would come in with a really uninteresting sung. And George Martin would help them work through it. And out of it would come one of these classic tunes that we all know from the Beatles. So I wanted to kind of give a sense of how he was the kind of coach and what it was like. And I found this cool little video. So in the next thing I'm going to post this short little YouTube video about him meeting the Beatles. But in it you can kinda see them working together and what that relationship was like. So please check this out. It'll give you kind of an idea of how this producer relationship works. 54. "Development Deals" With a Producer: Interesting right now you might have noticed in that video that George Martin sign the veto. So their first deal, which maybe made you think that's weird because I thought the record label signed somebody, not the producer doesn't reproduce her work for the record label. Yes. Often. Kind of well-known producers will carry their own artists. This is sometimes called a development deal, where a producer will have the latitude with a label to sign artists under these development deals. Which basically means that producer is going to champion that artist and really take them under their wing. And they're willing to kind of bet a lot of their time on the success of that artist. And most of the time, the label will listen. Now the label might also give the producer what's called an imprint label. A great example of this is Dr. Dre. Now, Dr. Dre is a weird example of a producer because he's both of our terms of producers, right? He was a producer who actually makes beats and makes music and the hip hop sense, but also a producer who works with other talent to help craft their music. So Dr. Dre has been given so he's on Interscope Records and he's been given his own imprint, which is like another record label under the umbrella of the big record label. Okay, So there's Interscope Records is the big record label. But Dr. Dre has his own label within Interscope Records called aftermath. And to that he's signed many artists actually and worked with them in this development deal kind of way. So that's called an imprint. Imprints label is a label that usually has a single person behind it. I'm often a producer, but sometimes an artist. And they are part of a larger record label who's going to handle all of the big stuff for them. But they get to really kinda champion artists. So aftermath, and it is an imprint of Interscope Records. And aftermath is the the imprint label of Dr. Dre. 55. What Comes Next?: All right, that's the end of this big kind of section of this other mini class thing on record labels. Up next in the artist's guide series, we're gonna talk about distribution. So distribution isn't as easy as it sounds. When we talk about distribution, we're going to be talking about the old-school physical distribution, but really only as a model for how distribution works now, just how to get your music onto Spotify, apple Music or Amazon, tiktok, whatever, every, everywhere. It's easier than you think. It's quite interesting and there's a little, there's some really kinda fascinating history here about how the industry completely changed. Once digital distribution became a thing, it absolutely turned the world upside down in terms of music. So we're going to be focusing on that in the musicians guide to distribution coming up very soon. So please check that out. 56. Bonus Lecture: Hey everyone, want to learn more about what I'm up to you. You can sign up for my e-mail list here. And if you do that, I'll let you know about when new courses are released and when I make additions or changes to courses you're already enrolled in. Also, check out on this site. I post a lot of stuff there and I check into it every day. So please come hang out with me. And one of those two places are or both? And we'll see you there.