Key Takeaways:

  • Types of Recording Contracts: Different types exist, including traditional record deals, licensing agreements, production deals, and distribution deals.
  • Revenue Streams: Recording contracts define how artists earn money, including royalties, advances, and recoupments.
  • Rights & Ownership: The contract stipulates whether the label or artist owns the master recordings and how long the label has control.
  • Exclusivity Clauses: Most contracts require artists to record exclusively for the label, limiting independent releases.
  • Contract Duration & Options: Labels often retain the right to extend contracts with additional album options.
  • Territory & Distribution: Contracts outline where the music can be sold and distributed, often covering global rights.
  • Royalty Structures: Deals specify royalty percentages and how they are calculated, including deductions.
  • Marketing & Promotion Obligations: Labels may or may not be contractually required to promote an artist’s music.
  • Potential Legal Issues: Artists should watch for predatory contract terms, especially in recoupment clauses and rights reversions.

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 a legally binding agreement that allows 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 this way so that any technological changes are automatically covered under 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

Types of Recording Contracts

A recording contract can take many forms, depending on the relationship between the artist and the record label. Understanding these different contracts is crucial before signing an agreement. Some common types include:

  1. Traditional Record Deals – The label provides funding for recording, marketing, and distribution while owning the master recordings.
  2. 360 Deals – The label takes a percentage of all revenue streams, including touring, merchandise, and sponsorships.
  3. Production Deals – The contract is with a production company, which then secures a deal with a record label.
  4. Licensing Agreements – Artists retain the rights to their music but license it to a label for distribution and marketing.
  5. Distribution Deals – The label solely handles distribution, and the artist covers all other expenses, retaining ownership of their recordings.

Each of these contracts has different implications for an artist’s career, and understanding their nuances is essential before signing​.

Recording Contracts — Exclusivity

A recording contract will normally grant the recording company exclusivity, meaning the artist cannot record for another company without permission or terminate the contract due to dissatisfaction. 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.

Contract Duration and Renewal Options

Recording contracts typically cover multiple albums, but labels often include option clauses, allowing them to extend the agreement unilaterally. This means that even if an artist fulfills their initial obligations, the label may decide to renew the contract for additional albums.

  • Fixed-Term vs. Open-Ended Deals – Some contracts specify a fixed duration (e.g., five years), while others are based on album cycles.
  • Album-Based Agreements – The contract may stipulate that the artist must deliver a specific number of albums, with the label controlling the release schedule.
  • Early Termination Clauses – Some contracts allow the label to drop the artist at any time, but rarely grant artists the same flexibility​.

Artists should negotiate limits on the label’s ability to extend the contract indefinitely and clarify under what conditions they can exit the agreement.

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.

Distribution Rights and Territorial Restrictions

Most major labels sign artists to worldwide contracts, meaning they control the distribution and marketing of the music globally. However, independent labels and some niche agreements allow for divided-territory deals, where different labels handle distribution in different regions.

  • Exclusive vs. Non-Exclusive Rights – Some contracts allow artists to sign with different labels in different countries.
  • Digital vs. Physical Distribution – Contracts should specify whether the label’s control extends to streaming platforms and physical formats like vinyl and CDs.
  • Local Licensing Agreements – In some cases, a label may sublicense distribution rights to regional companies, which could affect how the artist’s music is marketed in different markets​.

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.

Royalties and Revenue Distribution

The royalty rate determines how much an artist earns per sale, stream, or use of their music. However, these rates are often subject to deductions that significantly reduce an artist’s earnings.

  • Gross vs. Net Royalties – Labels may deduct marketing expenses, packaging costs, and distribution fees before paying royalties.
  • Streaming Payouts – Royalties from streaming platforms are typically lower than traditional sales, and some contracts define separate rates for digital versus physical sales.
  • Mechanical Royalties – Artists earn mechanical royalties when their songs are reproduced, such as on CDs, vinyl, or digital downloads.

A key concern for artists is the recoupment clause, which allows labels to deduct advances, recording costs, and promotional expenses from future earnings before paying royalties. Negotiating non-recoupable expenses is critical for ensuring the artist sees a fair share of their revenue​.

Ownership of Master Recordings

Who Owns the Music?

One of the most critical aspects of a recording contract is the ownership of master recordings. In most traditional deals, the label retains ownership, meaning the artist cannot freely use, distribute, or re-record their own songs without the label’s permission.

  • Work-for-Hire vs. Artist-Owned Masters – Labels may classify an artist’s recordings as “work-for-hire,” granting them indefinite ownership rights.
  • Reversion Rights – Some contracts allow artists to regain ownership of their masters after a set period.
  • Buyout Options – In some cases, artists can negotiate the ability to buy back their master recordings.

Independent artists should strongly consider retaining ownership of their masters, as this determines long-term financial and creative control​.

Marketing and Promotion Obligations

Who Pays for Promotion?

A common misconception is that record labels are contractually obligated to promote an artist’s music. However, many contracts do not guarantee marketing support, leaving artists responsible for their own promotion.

  • Marketing Budget – Some contracts specify how much the label will invest in promotion, while others leave it at the label’s discretion.
  • Tour Support – Labels may or may not provide funding for touring expenses.
  • Publicity Commitments – Some contracts require artists to participate in promotional activities, including interviews and appearances.

Artists should negotiate clear promotional commitments to ensure their music gets adequate exposure​.

Frequently Asked Questions

  1. What should I look for before signing a recording contract?
    Artists should pay close attention to royalty rates, ownership of master recordings, contract duration, and recoupment clauses. It’s also essential to ensure marketing and promotional obligations are clearly defined.
  2. How do recording contracts handle royalties?
    Royalties are typically based on a percentage of revenue, but labels often deduct various expenses before paying artists. Understanding recoupable vs. non-recoupable costs is crucial to maximizing earnings.
  3. Can I leave a recording contract early?
    Most contracts do not allow artists to terminate agreements unilaterally. However, negotiating an exit clause or ensuring clear contract duration terms can provide an eventual way out.
  4. Who owns my music after signing a recording contract?
    In most traditional deals, the label owns the master recordings, meaning they control distribution and licensing. Some contracts allow artists to regain ownership after a period of time.
  5. What happens if I don’t make enough money to cover my advance?
    If an artist’s earnings do not recoup the advance, they may not receive additional payments until the debt is paid off. This debt does not typically have to be repaid out-of-pocket, but it can limit future income.

If you need help with recording contracts, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.