So you’ve been contacted by someone who appears to be a legitimate label representative, or maybe you’ve piqued a label’s interest after contacting them first. When they send you a formal record deal offer, what should you pay close attention to and be prepared to discuss with your lawyer? You should definitely read the entire document closely, but certain terms are more likely to raise significant questions than others. Here are 5 common provisions you may encounter when you get a record deal offer:
Disclaimer: for general educational purposes only. This blog post is not legal advice and does not create an attorney-client relationship. Contact a licensed attorney for personalized advice.
- Options. Record deals will sometimes include a provision called an “option” that grants them the right to extend the initial term of the deal. A label deal will often run for an initial period, which could end after a certain number of years or after the artist releases a certain number of albums. However, once that initial period runs out, the label might grant itself the option to extend the deal for another term, which may be fixed or may be renewed for successive periods indefinitely. Proceed with extra caution if the label grants itself this option unilaterally and states or implies that it does not need the artist’s consent to exercise this option. Options can be helpful if you are happy with the results you are getting from your label, but they can also lock you into excessively long terms, with little recourse if you decide later on that you would like to explore other labels or go independent.
- Intellectual property rights. As part of an exclusive agreement, record labels will ask you to either transfer or license your intellectual property rights to them. There is a major difference between transferring ownership of your intellectual property rights (copyrights and trademarks, in the context of record deals) to a label and licensing your intellectual property to a label for a period of time. Instead of giving up all ownership of your intellectual property, I recommend licensing your intellectual property to the label for a limited period of time. Intellectual property transfers may sometimes revert after a certain period of time, but I prefer to see artists retain ownership of their intellectual property and grant their labels permission to exploit their works for a limited time through a license. However, watch out for perpetual licenses, as well as licenses with expiration dates that are conditioned on the recoupment of your advances. I usually recommend avoiding the former, and proceeding with caution on the latter; depending on the size of your advance, it may take years before your advance is recouped.
- Advance amount. A large advance will give you plenty of funding to work with, but remember that an advance is a loan that must be recouped. The termination of a label deal and the expiration of the label’s license to exploit an artist’s intellectual property are often conditioned on the recoupment of the advance. When determining whether an advance amount makes sense for you, your lawyer will consider the results you are likely to get by working with that label. The better your likelihood of success with a certain label, the more likely you are to recoup your advance within a reasonable amount of time. If a small label conditions the termination of its record deal on the recoupment of an advance, you may want to consider the time it will take to recoup that advance, given the label’s potentially limited resources and depending on the size of the advance.
- Restrictions on creative control. A label might condition its acceptance of your music on your compliance with certain quality control measures. The label might stipulate that the music you deliver for release must be of a similar character and style as the music you have released in the past, which could restrict your ability to explore different styles. The label might generally stipulate that it has sole discretion to approve the music you deliver, which leaves plenty of room for the label to impose unwritten requirements. I often prefer to see a requirement of mutual approval between the artist and the label at minimum, specifically denoting the items to be approved.
- Termination. It is crucial to understand how a record deal may be terminated. Breach of contract, impairment of your ability to perform, and failure to release the contracted-for works are all common reasons for termination. Pay special attention to whether termination is only valid when the label gives notice, or if either party can give notice of termination, to the means by which the terminating party must give notice, and to the method of termination. For example, termination may only be valid if confirmed in a document signed by one or both parties, or one party’s written notice of termination may be sufficient.