Basic Types of Music Business Contracts

There are many types of contracts used in the music industry. Some are very detailed and specific to any number of services that may be provided. It is a good idea to have an understanding of the basic types of music contracts that you are most likely to see if you are (or intend to become) a music professional.

However, it is first important to understand the basic forms of rights and compensation. Songwriters, publishers, and performing artists are compensated in a variety of ways. In the United States, there are specific rights in direct accordance with Copyright Law as well as rights associated with specific usages. Contracts are used to firmly establish rights and compensation in all cases.

First, Copyright Law provides for songwriter compensation and publishing compensation. The Law guarantees the payment of those folks holding the rights for a specific work. While these amounts have a set rate, they are generally split 50/50 between songwriting and publishing rights. Of course, songwriters, publishers, and record companies will negotiate for portions of these guaranteed payments and the provisions are generally outlined in a contract. This portion of the compensation is usually monitored and distributed for registered works through the professional rights organizations such as ASCAP.

These days, there are many more options available for an artist. The more traditional option is to sign with a record label that will take care of the distribution and marketing. For someone signing with a record label, there is additional compensation for performing a song. This is usually paid to the performer by the record company in accordance with a separate contract. This contract may or may not additionally address the above rights which are guaranteed by law. For example, payment from the record company may also be direct to an artist which does not necessarily involve the rights described herein.

Advances are a form of payment that a record company may offer to an artist, but it usually operates like a loan from the bank. That is, until sales reach a specified point, a specified portion of income received by the record company and expenses accrued on behalf of the artist are maintained in the artist’s account. In this case, the advance is already in the account as a form of “debt” to the record company. It is possible for an artist to actually “owe” money to the record company long after release if sales are weak and the terms are not favorable. Cross collateralization is a term that refers to using the funds from an additional, separate work to “pay off” the “debt” from a previous work.

By contrast, the independent artist will hire services or provide their own distribution and marketing. In this case, the profit from the sale of material becomes much less complex in nature but the ability to reach the public becomes very difficult as the traditional infrastructure for gaining exposure remains very much in play. That is, relationships that exist between record companies and the mass media outlets are very strong. Nonetheless, there are increasing numbers of independents who are finding markets for their music and the profit margins are much more favorable when an audience is found. online contractThe proceeds from the sale of digital downloads and tangible media are then collected and apportioned by the artist or someone managing the money for the artist.

There are also Mechanical Rights that are collected and paid for each public play or in most cases, compensated with blanket fees. These rights are monitored and collected in a similar fashion as the above described songwriting and publishing rights. The Harry Fox Agency is one of many companies that monitor the usage of songs as a service to an artist. Some publishers also perform this service on behalf of the artists they represent as it is also in their interest to make sure the publishing component of the fees are paid.

Finally, there are synchronization rights which are associated with films and television shows. Forms of compensation for commercials may vary but are generally paid directly to the associated parties by the sponsor.

All of these forms of compensation are separate and require specific agreements to protect the parties involved. These forms of compensation also require a level of diligence to insure that payments are received when the material is used. The following types of contracts are intended as an aid to help you, the music professional, better understand the types of arrangements that you are likely to encounter:

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