The Focusrite Guide To Releasing Music: Part 3
Signing the deal: how to get the best contract for your music
Words: Chuck Fishman
If you’ve followed the series so far, you’re probably thinking that releasing music involves an awful lot of steps. The thing is, following them will help you to reach the most engaged (if not largest) audience possible, with the greatest opportunities to generate income from the release. In order to reach this audience, you will need to spend some money, but investment at this stage will pay dividends further down the road. For instance, in part two of the series (check it out here), I talked about copyrighting your songs, which can cost up to $100 in the USA per composition. That’s quite a bit of time and investment that follows finishing each album, EP, or even an individual song, but it is well worth it to protect your work and your future musical career.
In this part of the series, I’ll be discussing the terms of a deal that you’ll want to negotiate with an independent record label, if you’ve been able to find a label receptive to backing your music. If you decide you can’t get the deal terms you’d like, or you feel that you’re the best party to release and market your music, I’ll take you through how to find a music distributor who can deliver your physical and digital release to music retailers and streaming services.
Registering as a songwriter
Whether you’re releasing with a label or on your own, there is an important next step to take if this hasn’t already been addressed in your music career: you need to register as a songwriter with a performance royalty organization (PRO). Registering within the US, your two main options are ASCAP and BMI — for a complete list of copyright collection societies worldwide, click here. ASCAP charges songwriters a one-time fee of $50 to register, BMI offers free registration. Once you’ve registered as a songwriter, you will be assigned an IPI/CAE, a nine digit number that identifies you as a songwriter globally. You are going to need this IPI/CAE number to get paid for the streaming of your songs whether you’re releasing music on your own or with a record label. You can also register with BMI and ASCAP as an individual song publisher or set up a publishing company. No matter how you intend to release your music, first ensure you have your songwriter number set up.
Determine the extent of the deal
You’ll also want a lawyer to review any deal you sign with an independent record label. There are specific points of the deal you should ask to be included (and excluded) and the duration of these (number of years of contract), should also be reasonable.
Let’s assume you have the songs already mixed and mastered, copyrighted and ready to go to market. Make sure that the deal you are trying to achieve with the record label is only for the release(s) you’ve pitched. You’ll probably want to avoid deals that ask you to deliver another album, EP or more singles at your own expense. Also, you may be presented with a deal that promises you cash upfront to deliver future albums. Do keep in mind that if a record label is investing in your career, they may ask for a 2-3 release deal with you so that they can develop you as an artist.
A deal to avoid is one that attempts to take ownership of your artist name, your brand, your non-music merchandise (e.g. t-shirts) and your live performance/DJ/ touring revenues. Such record label artist signings are called “360 deals” and are designed to allow a record label to fully invest in an artist’s career development. For the purposes of this article I’m assuming you’re looking to release just this set of songs, and 360 deals take too much of a stake in your overall career to simply achieve that purpose. Also, as you’ve already copyrighted your songs and retain the copyright, there should be no provision in the deal asking you to assign copyrights to the record label.
Licensing your masters
The licensing of your music masters for streaming and physical copies (CDs, vinyl) is the biggest point of any record deal. This should be an exclusive license to the label - meaning that no other record label can come along and be able to sign your music. This allows the record label to really invest in your music without fear of competing against another party in the market. If you feel you might outgrow your label at some point, you can add a provision that if another label - bigger in size or based in another country - wants to license the songs, they could do so at a price paid to your label, and that your label would have the right to negotiate this.
The term of an exclusive license of masters to a record label should really be no more than 10 years. It’s my belief that a five-year license is a bit too short and that the last thing you want to do is to try to re-negotiate a license to remain part of a record label’s roster. Additionally, a 10-year license is beneficial in terms of your visibility in the market. For example, if a label is doing a “Best of” compilation, a “10-year anniversary” album, or something similar, there’s an opportunity for your music to be included. Another way to structure the deal is that the label gets a license to your masters for five years, after which it renews with the same terms for another five years unless you object.
How much do I get paid for licensing my music?
You can determine what you think your masters are worth for this five- to 10-year period. Consider the upfront expenses you incurred in producing the music, such as studio time, and mixing and mastering engineers. Maybe you want the licensing deal to help you cover those costs. If a label really loves your music and they want to release it, they’ll consider paying you an upfront licensing fee. If you have some well-known guest musicians on your songs, that could also push forward the idea of getting a license fee for the masters.
Some smaller labels will not agree to pay for the license, especially if they are investing in marketing and manufacturing costs (usually for vinyl). In many of the deals I have signed, I did not require the record labels to pay a licensing fee for my masters as I felt the labels should instead spend money on marketing my music. Also, many labels will consider paying you a licensing fee as an advance against your future royalties.
Don’t let the word “Royalty” confuse you - it just means the income generated from the sale and listener playback of your music - whether it’s physical sales of vinyl/CDs, streaming of music, or some other play of your songs, such as radio and TV. I am simplifying the royalty streams here: they are quite complicated, so I suggest you dig deeper into how music royalty streams are calculated.
Make sure your deal is at least industry standard where you receive at least 15% of revenue from sales of vinyl, CDs, and audio downloads (e.g. sites like Qobuz, Beatport, Traxsource that sell audio files). Note that 15% of the revenue comes from the wholesale price of the record or CD, downloads and even the streaming revenue. If you didn’t achieve an upfront license fee for your masters, you may also ask for a higher percentage of sales revenue so you’re making more money from the sale of your music.
Also it is industry standard for a record label or music publisher to earn mechanical royalties on top of the revenue generated from physical CD or vinyl sale or song stream. The word “mechanical” means it’s a fee associated with making a copy of the music. For physical CD and vinyl sales, this rate today is 9.1 cents per song or about $1.00 for an album, a ten song release. The mechanical royalty rate for streaming is about 6 cents per 100 streams of a song. The percentage of mechanical royalties that an artist gets to keep is determined by the agreement an artist has with their record label.
Publishing Terms and Performance Royalties
When a song is played on the radio, TV and elsewhere, a performance royalty is generated. Streaming services also pay out a small performance royalty in addition to the mechanical royalty they pay for streams. The songwriter(s) and music publishing company will split the performance royalties 50/50. If there is more than one songwriter on a tune, it’s up to the songwriters to determine how that 50% royalty share is split up among the songwriters. Most record labels have their own in-house publishing company, or a third-party publishing company that represents the label’s catalog. As part of a record deal, the songs being licensed to the label will probably be published by the label as well.
You may have been told that you should retain the publishing of your songs in any deal with a record label. The idea of retaining publishing ownership makes sense if you feel you have a few big hits on your hands - as you’ll get paid more every time the song is played on the radio and TV – and you’d be getting 100% share of those performance royalties as you’re both the publisher and the songwriter of your songs. What is the value of the deal to the record label if they aren’t getting a share of the performance royalties from your music, though? They have less incentive to market and promote your music.
Furthermore, I believe it is NOT a good approach to keep 100% of the publishing of your songs in a release deal. Usually, a record label will have relationships with music licensing representatives looking to place songs from the record label’s catalogues into TV shows/films and advertising. If the label has no publishing share of your songs, they won’t make the royalties from the placement of them in these cases. The use of your music with video is known as audio-visual sync licensing. It’s likely the label will push other songs in their catalogue for sync - songs where they own the publishing.
My advice is that if the record label has a good track record of investing marketing in their portfolio of artists, allow the label to publish the songs you are licensing as part of a particular release. Also, record labels typically employ a publishing administration company that works on collecting performance royalties from across the globe. Your deal for the release of your music with the label could also include you and the additional songwriters of the songs signing a songwriter deal with the label’s publishing company. A songwriter deal would ensure that the record label’s publishing arm would be collecting and paying you directly your 50% songwriters’ portion of performance royalties. Otherwise, it’s up to the performance royalty organization (PRO) that you registered with - BMI, ASCAP or whoever - to collect those songwriter performance royalties for you.
If you want to receive the publishing portion of a performance royalty, you can ask to be the publisher of your songs, or split the publishing share with the record label’s publishing company. The complexity of splitting publishing ownership shares between two or more publishing companies can make collecting performance royalties much more complicated, but such publishing ownership arrangements are also very common.
Your deal should also include an agreement that you receive a royalty statement at least twice a year and that if you like you can audit the label’s accounting once a year if you feel that there is a problem.
Be aware of recoupable expenses
No deal to release your music should wind up costing you money. You will see many independent deals structured to pay you the royalties only after income made from the sale and streaming of your music fully covers the costs of marketing, distribution (for digital music) and manufacturing (for CDs/vinyl). These are called “recoupable expenses”. Also, if you ask for a licensing fee upfront for the use of your music, many labels will also ask to recoup that fee from the mechanical and performance royalties owed to you. Such deals can leave you owing money back to the label.
Let’s say you received a $1000 fee for licensing the songs to the label. After the release, only $800 worth of vinyl copies sell. Your sales royalty from that is $120 (15%) but since they aren’t net positive yet, that royalty is absorbed. However, you would still owe the label $80 before the recoup of the licensing fee is paid off. Or, if the label agrees to pay $1000 in marketing and promotion for the album but lists it as a recoupable expense, and overall you make $500 in mechanical and performance royalties combined due to physical sales and streaming, that $500 will first go to the label; you get paid zero and still owe the label $500 back for marketing costs. I have signed several small release deals to get FSQ EPs and songs out, but I never sign any deal that includes recoupable costs.
Record deals vary in terms of structure
As an example, Aaron Schultz, founder and owner of Bastard Jazz Records, offers artists 50% of net profits from a release. It’s not a wild request to ask that your deal matches that, even though the industry standard sales royalty rate is only 15%. I have said that it’s best to allow your label to be the sole publisher of your songs so they will focus on sync opportunities for your songs. However, Schultz prefers his artists to have an outside publishing administration company, because that means there are more people working on placing the music for sync in TV/advertisements, beyond the Bastard Jazz label doing it themselves. Aaron also says he prefers to sign artists to a deal that would have them turning in 2-3 EPs or albums with Bastard Jazz. “It’s about building long relationships with artists and being fair - putting money in artists hands. We do well because we are fair.”
Whatever you decide, it’s best that a lawyer review the contract, which should only cost you about an hour of their time - reviewing a contract is unlikely to cost more than $200. The cost is worth it, though, to protect yourself from any arrangement where you could wind up making zero or even owing the record label.
Music technology company CreateSafe offers the Record Deal Simulator which allows you to plug in royalty percentages that a record label would offer an artist, to see what their potential earnings would be with such a deal.
What to consider when signing a contract
In our example, the contract is limited to a single release (album, EP, single), but you may consider a two or three release deal.
- Ensure there is an upfront licensing fee paid to you covering the use of the music release by the record label for a five- to 10-year period
- The label should agree to spend a reasonable amount of money on marketing of the release, but should not charge the artist for this investment or any associated costs
- If the label does consider the master licensing fee to be recoupable, try to work out an agreement where this happens over time and is not drawn from 100% of the incoming royalties. In addition, ask for a higher royalty rate
- The standard royalty rate from sales and streaming is 15%, but you can ask for up to 50% - this really depends on how much investment you think the label is making. The less investment they are making, the higher your royalty rate should be, as they shouldn’t be making more money than you when you’ve invested more in the production
- During the five- to 10-year period where your music is licensed to the record label, they should only sell this particular release and gain no additional revenue from your performances or artist-branded merchandise
- The label should have sole publishing rights on your songs for duration of the release, but will sign you to a non-exclusive songwriting deal so that they can easily administer and pay out performance royalties
- You should allow sync uses of your music
- You should receive a bi-annual royalty statement during the period of the deal (five- to 10- years)
If you can’t come to an agreement that aligns with these terms, which are reasonable for both parties, you’ll have to decide whether you would like to ditch the potential deal with the independent record label and keep hunting for another label. Alternatively, you may want to release the record on your own.
For the next part of this series, I’ll be taking an in-depth look at how music distributors operate. I’ll explain how to work with them to release your record and I’ll also cover self-publishing. You probably realise by now that having a record label to release your music cuts out a lot of the work you’ll have to do when you self-release. Regardless, even if you have a label deal or are hunting for another one, you should get familiar with the workings of the music distribution and publishing industry, because there could come a time when you’ll need to go your own way without a label.