Updated November 17, 2020:

Recording contracts are legal agreements between a recording artist and a record label, where the artist creates a song, album, or record for the label to promote and sell. Artists under contract are normally only allowed to record exclusively for that label and may receive royalty payments from a percentage of sales.

Recording Contracts Explained

A recording contract is considered a legally binding agreement that enables recording companies to market an artist's performance through an audio recording in exchange for royalty payments. A recording contract is an agreement record companies use to claim their ownership over an artist's recording session and their licensing rights in promoting the album. Also, record companies use the contract to highlight the amount of funds the artist will receive based on a salary, royalty payments, etc.

A music recording contract may also be referred to as a:

The record company will capitalize on the artist through album sales, public performances, broadcasting, streaming, etc. A contract will usually define an album or record to include all audio-visual devices. This is described and included this way so any changes in technology will automatically be included in the scope of the contract. For example, the transition from cassette tape to CD would not require a new contract to be written.

A recording contract may define the terms of the distribution and recording process. It will also provide contractual guarantees to the record company regarding the conduct and performance of the artist from the beginning of the recording process to the release of the album. A recording contract may address the amount of autonomy the artist will be granted in the creation of the album and the costs that will be covered by the recording company. A recording contract should include the following:

  • Artist and record company contact details
  • Production details
  • Recording details
  • Exclusivity clauses
  • Confirmed and expected payments and royalties to the artist
  • Promotional appearances
  • Termination provisions

Recording Contracts — Exclusivity

A recording contract will normally grant the recording company with exclusivity, which means the artist can't record for any other company without permission, nor terminate the contract if they're not pleased. The recording company always has the freedom to promote and sign as many artists as they wish. Record companies claim it takes a substantial investment on their part in order to "break an act." Therefore, they believe the significant amount of control over an artist is necessary in order to protect their investment.

Recording Contracts — Territory

When the term "territory" is used in a recording contract, it is referring to the geographical area in which the record label is allowed to promote and sell the artist's album(s). Most of the time, major recording companies sign the artist to a worldwide deal. Divided-territory deals are rarely used with major record companies, but smaller, more independent labels may be more open to negotiating this type of deal.

Recording Contracts — Advances

The term "advances" is used to describe sums of money paid to an artist when signing with the record company. Generous advances are usually linked to the exercise of additional options, such as setting a date for a future album release. Before a recording artist receives royalty payments, they may have to effectively repay expenses that were fronted by the record company. These are generally called recoupments. In other words, recoupment occurs when a record label expects the artist to repay the advancement of funds before any royalty income may be received by the artist.

It's important for artists to remove any wording in the contract that relates to making the advancement repayable. This is because, at this point, the advancement would turn into a loan or personal debt. In addition, the debt may be callable by the recording company at any time. If the record company insists on including a recoupment, make sure it only occurs after album sales have generated enough royalties to cover the payment. Remember, the advance will most likely have to be divided among the artist's manager and other members of the band, as well as with the IRS. So, although it may seem like a substantial amount of money at first, it may quickly be spent.

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