RECORDING AND LICENSING AGREEMENTS

RECORDING AND LICENSING AGREEMENTS
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What is a Recording Agreement?
Does the artist own the recordings made under the Recording Agreement?
What is a Licensing Agreement?
How long does a Recording Agreement last for?
How long does a Licensing Agreement last for?
What happens if I want to record for another record label?
Does the record label have the right to sell my records worldwide?
What is the record label’s obligation to actually release the sound
recordings?
How does the record label get paid?
How much will I get paid?
Will I get paid from the first record sold?
How long will I continue to be paid royalties for?
Will there be any deductions?
Are there any other royalties I will be paid?
Are there any other ways royalties can be paid?
When will I be paid?
Will the record label pay for tours?
Will the record label pay for videos?
What is a 360 deal?
This Fact Sheet has been made possible by the funding
received by the Creative People’s Centre from the New
Zealand Law Foundation.
This Fact Sheet is not legal advice. This information is intended to
provide a general outline of the relevant legal issues and further
professional advice should be sought before any action is taken in
relation to the information contained in this Fact Sheet.
This checklist remains at all times the property of the Creative People’s
Centre. You may make use of this Fact Sheet only for your own
personal information. Under no circumstances may this Fact Sheet or
the information in it be copied or distributed to any third party by you
without the prior written agreement of the Creative People’s Centre.
What is a Recording Agreement?
A Recording Agreement is a legally binding agreement entered into between
an artist (either a band or a solo performer) and a record label. Under a
traditional Recording Agreement a record label agrees to finance and support,
to a certain specified extent, the recording and commercial release of music
by the artist. This means the record label will pay a certain amount towards
the cost of recording the music and will also cover the costs associated with
the manufacture, marketing and distribution into stores of the finished product.
It is also common for a Recording Agreement to provide a record label the
option of also recording and releasing a certain number of future recordings
by the artist.
Does the artist own the recordings made under the Recording
Agreement?
Usually the rights in the ‘sound recordings’ made by the artist under the
Recording Agreement will automatically belong to the record label. This is
because under New Zealand copyright law the record label has entered into
an arrangement with the artist to make the specific sound recordings and also
initially pays for the sound recordings to be made. For further information on
copyright please refer to our Fact Sheet on ‘Copyright for Musicians’. This
means that the recorded version of the songs made under the Recording
Agreement will always be owned by the record label. The artist will however
always retain the rights in the songs themselves that are the subject of any
sound recording made under the Recording Agreement.
What is a Licensing Agreement?
A traditional Licensing Agreement is set up just like a Recording Agreement
with one very important difference – the ownership of all sound recordings
always remains with the artist. This is because under a Licensing Agreement
the artist themselves must deliver finished recordings to the record label
which are ready for the record label to manufacture, market and distribute. As
the record label never finances the actual recording of the sound recordings in
question, the record label will not obtain any ownership rights in them.
As the record label has no ownership rights in the sound recordings of the
artist delivered under the Licensing Agreement, a Licensing Agreement will
always have to provide the record label a licence to manufacture, market and
distribute the sound recordings. It is also common for a Licensing Agreement
to provide a record label the option of also licensing a certain number of future
recordings by the artist.
Although under a Licensing Agreement all the initial recording costs must be
financed by the artist, there are long term benefits for the artist in this, in that
once the term of the Licensing Agreement has finished, the artist can
themselves sell and otherwise make commercial use of the recordings and
keep all the associated income. This is in comparison to a Recording
Agreement where the artist will only ever receive the relatively much smaller
royalty paid out by the record label.
How long does a Recording Agreement last for?
The term of a Recording Agreement is usually based on how many albums
the artist and the record label agree the artist will record for the record label.
Although there will normally be some protection provided in a Recording
Agreement for the actual length of time a Recording Agreement can last for,
the ultimate determining factor will be based around the recording of a certain
number of albums for the record label regardless of how long this takes.
The number of albums an artist has to record for a record label will depend on
the deal they are signing. However, these days in New Zealand it is unusual
to see more than four albums being required. Under a Recording Agreement
a record label will also usually have a right to end the term of the Recording
Agreement early if they don’t wish to work with the artist on any future albums
provided for under the Recording Agreement. An artist will never have these
rights of early termination under a Recording Agreement.
How long does a Licensing Agreement last for?
The term of a Licensing Agreement will normally work in exactly the same
way as the term of a Recording Agreement, with the exception that it will be
defined by the number of completed albums, ready for release, which an artist
must deliver to the record label. Under a Licensing Agreement a record label
will usually also have a period of exclusivity following the delivery to it of an
album during which it has the sole right to sell the album. This period of
exclusivity can be anywhere from a couple of years to ten years depending on
the deal.
What happens if I want to record for another record label?
It is normal for a Recording Agreement to provide that during the term of the
Recording Agreement, unless the record label gives its permission otherwise,
that an artist can only record music for the record label. After the term of the
Recording Agreement has finished the artist will be free to record for whoever
they want and can enter into a new Recording Agreement with a different
record label. The original record label will of course however always retain
ownership in the sound recordings the artist recorded for the record label
under the original Recording Agreement.
Similarly under a Licensing Agreement, the record label will usually also
require the exclusive rights during the term of the Licensing Agreement to
sound recordings of the artist. Following the end of the term of the Licensing
Agreement the artist will be free to record for whomever they wish, but as
noted above, the record label will retain the exclusive rights to sell the sound
recordings licensed to the record label under the Licensing Agreement for a
further certain period of time. After the end of this further period of time the
artist will be free to sell the previously licensed sound recordings themselves
or even enter into a new Licensing Agreement with a different record label.
Does the record label have the right to sell my records
worldwide?
It is common for Recording Agreements to provide the record label with the
right to sell the records anywhere in the world.
However Licensing
Agreements usually define specific countries (often referred to as ‘territories’)
in which the record label can sell the sound recordings licensed under the
Licensing Agreement.
Careful consideration should be given to what territories a record label will
have the right to sell any licensed sound recordings in, in terms of whether the
record label actually has the practical ability to do this in an effective way.
Both Recording Agreements and Licensing Agreements should also have
some right for the artist to arrange for someone other than the record label to
sell the sound recordings in a certain territory if the record label becomes
unable or unwilling themselves to arrange for the selling of the recordings .
What is the record label’s obligation to actually release the
sound recordings?
In the case of either Recording Agreements or Licensing Agreements, the
record label should agree to release the sound recordings within the
applicable territories within a certain period of time of receiving the finished
sound recordings from the artist. This is often provided as being three months
but will be conditional on the artist providing the record label with all
information and materials that the record label reasonably needs from the
artist. If this release obligation is not met then the artist should have the
option to arrange for the release of the sound recordings themselves in the
applicable territories in which they haven’t been released and in which case
the record label should also lose the right to distribute sound recordings in
those territories in the future.
The record label should also be obligated to keep the sound recordings on
continuous release within the territory during the period of time they have
rights in the applicable sound recordings or else the artist should be given the
option of arranging for such ongoing release themselves.
How does the record label get paid?
In return for taking the risk of providing the financial backing and other
services the record label supplies under a Recording Agreement or Licensing
Agreement, the record label will keep most of the income earned from sales of
an artist’s music.
How much will I get paid?
Under Recording Agreements and Licensing Agreements an artist will receive
a set percentage of the total income received by the record label for each
sound recording (be it an album, EP or single) sold. This is known as a
‘royalty’.
The exact royalty payable on each sound recording will differ depending on
the format (e.g. album, EP or single) that the sound recording is sold in. The
royalty is also not based on the price the sound recording is sold in the stores
for, but rather on the wholesale price that the record label sells the sound
recordings to the store at. This is often referred to as the Published Price to
Dealer or ‘PPD’.
In respect of the sale of sound recordings in digital format, as there is no
physical goods as such being purchased by a digital retailer for on sale, the
concept of the ‘PPD’ is often replaced with the straight measure of the amount
received by the record label from the digital retailer for each sound recording
sold.
Will I get paid from the first record sold?
Under Recording and Licensing Agreements there are certain costs which will
be described as ‘recoupable costs’. The most common type of recoupable
costs are any cash advances that may be given to an artist on signing a
Licensing or Recording Agreement. Another common type of recoupable
costs is the recording costs incurred in making sound recordings under a
Recording Agreement.
Recoupable costs are costs that the artist is deemed to owe the record label
and are payable to the record label from any royalties due to the artist under
the Recording Agreement or Licensing Agreement. An artist should never be
personally liable to the record label for the repayment of any recoupable costs
outside of the income due to them under the Recording Agreement or
Licensing Agreement.
What this means in practice is that any royalty that would otherwise be
payable to the artist will first be applied to any unpaid recoupable costs that
the artist has incurred. Consequently an artist may not actually start to
receive royalty payments directly until quite a number of sound recordings
have been sold.
In the case of Recording Agreements it should also be noted that even though
over time the record label will be paid back the recoupable recording costs,
this does not change the default copyright ownership the record label has in
the sound recordings, as outlined above.
How long will I continue to be paid royalties for?
An artist will continue to be paid royalties for as long as the record label has
the rights to sell the artist’s sound recordings. Under a Licensing Agreement
this will of course be when the record label’s right to sell the sound recordings
following both the end of the term of the Licensing Agreement and the
following period of exclusivity as discussed above expires.
As under a Recording Agreement the record label owns the sound recordings
and can continue to sell them forever, an artist will always be entitled to
royalties from the record label for any sales the record label makes even if the
term of the Recording Agreement itself has finished and the artist is now
recording for another record label.
Will there be any deductions?
The royalties actually payable to an artist under a Recording Agreement or
Licensing Agreement will often be reduced further by making the final
royalties payable subject to certain deductions. For example, deductions are
often made for costs incurred by a record label in packaging the sound
recordings, paying for television advertising and also when the album is sold
at a reduced price. There will also be deductions related to discounts that
retailers have been given as encouragement to order in additional copies of
the sound recordings. From an artist’s perspective the effect of these
deductions on the final royalty payable can be massive, so wherever possible
in a Recording Agreement or a Licensing Agreement such deductions need to
be carefully considered and limited.
Are there any other royalties I will be paid?
Apart from the sale of sound recordings there are a number of other ways that
a record label can make money out of the sound recordings it controls.
Examples of these other uses include arranging for the sound recordings to
be used in films, TV programs, video games or in commercials or even to be
sampled in other artist’s songs. A Recording or Licensing Agreement should
specify the royalty an artist is to receive when the sound recordings are also
used in these ways and an artist will usually also have the right to approve
any such uses before they happen.
Are there any other ways royalties can be paid?
Apart from a percentage royalty of the income generated from each sale or
use of sound recordings, another way that royalties are sometimes paid under
Recording and Licensing Agreements is on the basis of a net profit split. This
net profit split may be 50/50 or may be any other variation depending on the
commercial deal the artist and the record label are prepared to agree to.
The difference between a net profit split royalty and a traditional royalty is that
under a net profit split royalty all the costs of manufacturing, marketing and
distributing (and recording in the case of a Recording Agreement) are
accounted for first before any royalty is paid out. In these cases an artist
trades off a guaranteed royalty on every sound recording sold for a potentially
much more favorable royalty split once all the costs of the project have been
recovered.
When will I be paid?
Under Recording Agreements and Licensing Agreements payment of royalties
is traditionally made either every three months or every six months. It is also
common to have a provision in Recording Agreements or Licensing
Agreements which allow an artist to audit the accounts of a record label to
ensure that all royalties due to the artist are being properly accounted for and
paid through.
Will the record label pay for tours?
Since touring normally increases sales of sound recordings, there may be
occasions where a record label is prepared to give financial support to an
artist to help offset the cost of a specific tour. These contributions are usually
referred to as ‘tour support’. From an artist’s point of view, it is preferable not
to have tour support treated as a recoupable cost for the reasons explained
above.
Will the record label pay for videos?
As music videos can be powerful promotional tools to help boost the sales of
sound recordings, under a Recording Agreement a record label will usually
agree to provide a certain amount of funding for each of a certain number of
music videos. From an artist’s point of view, it is preferable not to have this
funding treated as a recoupable cost for the reasons explained above.
Under a Licensing Agreement music videos, if it is agreed they are required,
will be something the artist will be responsible for funding and creating
themselves and then delivering to the record label along with the finished
sound recordings.
What is a 360 deal?
A 360 deal is a type of Recording Agreement or Licensing Agreement that
concerns more than just the sound recordings of an artist. A 360 deal may for
instance involve the record label making up front cash payments to the artist
or the artist receiving a much more favorable royalty on sales of sound
recordings, in return for granting to the record label a certain percentage of
the income that the artist earns from other sources such as from touring or
merchandising.
A 360 deal takes its name from the concept that in extreme cases such deals
can see a record label sharing in every aspect of the income an artist earns in
the music industry. This idea of a record label taking income from all angles
or the deal being all encompassing led to the term ‘360 degree deal’ (as in
360 degrees in a circle) which has since been shortened in common usage to
just ‘360 deal’.