Record Deals and Contract Tips (Part 1)

Should you sign a recording contract? The short answer is, ‘it depends’.

I wanted to connect the themes of the record business (more generally) with contract tips, so have separated the discussion into two articles. Part 1 provides some background/context around record deals and recorded music generally, and Part 2 discusses specific contract deal points within record contracts that artists should be mindful of.

When determining whether to sign a recording agreement, artists should have a basic understanding of BOTH the current state of the recorded music business, as well as, of course, the record contract itself. You could have a great record contract/deal, but if paired with little understanding of the record business, where the business is going, and how YOU fit (or see yourself fitting) within that business, the end result could be disappointing.  

What follows are some thoughts on the business of recorded music in 2019, which I think is helpful context before reviewing specific contract deal points in Part 2.

The music biz continues to change, so get used to it: It's no secret that the music business has undergone and continues to undergo massive amounts of change (like all industries). However, what has remained consistent over the years is (1) people love to listen to music; and (2) those who create music want to distribute their music to as many people as possible. HOW people/artists consume and distribute music, on the other hand, has dramatically changed over the last 10 years.

There is still a place for traditional label functions: Although artists certainly have more tools at their disposal in 2019 to economically produce recordings, distribute their music to the masses (via a digital distributor or otherwise), and market and promote their records (Facebook, Insta, Twitter, YouTube, etc.), doing all of those things well, while at the same time developing as an artist and worrying about making great music, is a difficult task. In addition, consumers have access to more music than ever before given the world of digital streaming, so cutting through all the digital noise is challenging for any artist. Therefore, securing a deal with a record label to perform some or all of the traditional label functions (e.g. recording, manufacturing, distribution, artist development, promotion, marketing,  connecting artists with the right partners, etc.) might still make perfect sense depending on the deal, the label, and the artist’s unique circumstances.

Of course, in exchange for the label’s services, artists will be asked to give the label a share of all record revenues from 1 or more records, and will be asked to assign or exclusively license copyright in the record(s) to the label for the life of copyright or a set/fixed period of time (more on this in Part 2). The question then becomes - is giving up a portion of a significant revenue stream (or potentially multiple revenue streams) plus some degree of control, worth the value added by the label. This is a commercial decision and needs to be considered very carefully.

The record biz has taken a severe beating, but there is reason for optimism: Although the business of recorded music was on the decline for a number of years, recent statistics suggest some rebounding taking place. For example, in 2018, album equivalent consumption grew 23%; there was a 49% increase in on-demand audio song streams (611 billion in 2018); vinyl sales were up 15%; and after 15 years of decline, global recorded music revenues have been in their 4th consecutive year of growth. In addition, according to the 2018 IFPI Global Music Report, Canada is the 7th, largest recorded music market in the world.      

But…there is still reason to be somewhat discouraged: Is the current state of the business all sunshine and rainbows? No. Physical record sales are a mere fraction of what they used to be, and digital downloads continue to decline rapidly. As Frances Moore stated, Chief Executive of IFPI, “[f]or music to thrive in a rapidly evolving digital world, there must be a fair digital marketplace. To achieve this, we must fix the value gap.” If you are an artist who made $76 last year from on-demand streaming, you know that there is a long way to go before streaming equitably replaces your prior income from physical record sales (and it may never fully replace it). However, as digital service provider revenues grow (particularly subscription-based), artists should, in theory, reap the benefits of higher royalties from on-demand streaming services (this also depends on the deal between the label and the online service provider, and the deal between the artist and the label). Regulatory process changes and legislative amendments regarding tariffs applicable to online service providers would also benefit artists, but that discussion is for another day.

In short, artists need to understand that the record business is tough, and think about their plan of attack in navigating the complex terrain. However, with all of this change comes the opportunity for creativity and innovation; so if you decide that this business is for you, you might as well embrace the challenge, work your ass off, and do everything you can to set yourself up for success in the future (whatever 'success' means to you).     

Final Thought: Before figuring out whether you want to shop around for a record deal, or whether you should sign a record deal that has been presented to you, consider your goals, your needs, your plan for thriving in the everchanging business of recorded music, and how the label you are communicating with will help you achieve those goals, needs, and execute on those plans. Speak openly and candidly with the label before a contract is even presented.   

With that context in mind, my next article “Record Deals and Contract Tips (Part 2)”, will provide an overview of some key contract deal points to consider if you are presented with a recording contract.

As always, feel free to reach out with any questions, comments, or insights on the above.

*Disclaimer: This article is not intended to constitute legal advice. Please contact a lawyer to discuss your specific circumstances and any questions you might have.