10 Record Deal Red Flags

This guest post by Canadian entertainment lawyer Byron Pascoe originally appeared on the Bandzoogle Blog

When a band receives their first record deal, there’s a sense of accomplishment. Someone likes me! Where do I sign?

Before signing a contract with a label, it’s important to understand what you’re signing.

When I’m reviewing a record label agreement for an artist, it’s not uncommon for there to be a number of “red flags” – warnings to watch out for in the agreement and/or the relationship with the label.

The following list (in no particular order) provides some common red flags to keep in mind.

1. Inconsistencies between what you are told and what’s in the contract

It may be on purpose, or not, but just because the A&R gal at the label told you one thing, doesn’t mean the record deal you’re asked to sign is completely consistent.

An obvious example is if you’re told you’re getting an advance of $5K, but the agreement doesn’t provide for an advance. Also, if the title of the agreement is “non-exclusive record label agreement”, in order to put you at ease… that doesn’t mean the agreement is actually non-exclusive.

2. Being asked to give more rights than are needed

The role of publishing music includes the role of placing music in films, TV series and advertising. Getting placed can be very lucrative for whoever owns and controls (1) the master recordings and (2) the publishing rights in the compositions (music and lyrics).

A record label doesn’t need publishing rights to distribute your music. As such, if you are being asked to provide publishing rights to the label, then you’re being asked to provide more rights than are needed to accomplish the label’s main function – distributing your music digitally and physically.

Unless you’re being appropriately compensated for the publishing rights, and the label is the right fit to be both your distributor and your publisher, then the requirement to grant publishing rights to your label is likely excessive.

If you read that the label wants publishing rights, ask what they intend to do with these rights and how you’re being compensated.

Also, is the label asking to own your masters? This isn’t needed to distribute your music if you give them a sufficient license to distribute your masters. If the label owns your masters, they get a piece of publishing revenue (generally, half of the upfront fees), and control the use of those masters for publishing opportunities.

3. Lack of clarity

A key reason for an agreement is to clearly define the rights and obligations of each party signing the agreement, and get on the same page about the general way you and the company will work together. Without clarity there can be confusion. When there isn’t clarity about when the label’s rights start, there isn’t clarity about when the label’s rights end. When there isn’t clarity about what you need to deliver to the label, how can you prove you delivered everything you needed to deliver? Unclear terms should be clarified.

4. Future sales advances

Labels generally ask for the option to extend their rights. For example, a label that has the rights to distribute your first album, may require the option to distribute the second and third albums once those albums are produced.

The label may promise you an upfront cash advance (against future sales) if they decide to extend their rights – which is referred to as exercising their option(s), but are you automatically entitled to get an advance? The label may have written the agreement in such a way that based on prior sales, they can access those additional rights by paying you a lower advance than the number in the agreement, or no advance at all.

5. Uncapped expenses

The formula used to determine how much money you make from music sales from the label might be gross revenue less the label’s expenses multiplied by a percentage. However, without any limitation on the label’s expenses, you may never get paid anything.

6. Controlled compositions

If you’re both a writer and performer, a label will usually try to force you to receive fewer mechanical royalties as compared to the standard royalty rate.

For example, you may be required to accept 75% of the mechanical royalties for up to 10 songs, even if you need to deliver 13 songs. While this is not an uncommon (yet unreasonable) request, consider how much you’re paying in mechanical licenses to your co-writers and the people who wrote songs you covered. Are you paying more mechanical royalties than you’re receiving? That would be a very bad situation!

7. Not getting it in writing

What do you want the label to do? Spend some money on marketing and promotion? If they aren’t willing to put their verbal commitment in writing, maybe the label isn’t going to do what they verbally promised.

8. No provision to get details

The label is responsible to pay you. As such, they should also have an obligation to give you details about how they calculated your payment. Also, you should have the ability to make sure the numbers are accurate by having the right to take a look at the label’s records (referred to as an audit).

9. Lack of balanced rights

There are a variety of “general” agreement terms, from representations to indemnity, which are found in all types of agreements including record label agreements. Just because they’re commonplace, doesn’t mean the terms you’re reading were drafted reasonably. Many “standard” terms can be written favourably for one party or the other.

10. Lack of clear termination provisions

If there isn’t a clear way for you to get out of the contract, you will wish you had a way out, including if the label isn’t paying you what you are entitled to receive, but are still selling your music.

Also, if you’re told a label agreement is take it or leave it, and the label won’t answer your questions about the agreement, they may not be the most trusted partner.

On a brighter note, if you read a record label agreement before signing, get some assistance from fellow musicians and/or a music lawyer, and the label is willing to discuss and reasonably negotiate the agreement, it may be the start of a beautiful relationship…

Also check out: Major vs. Indie: What really happens when you sign a record deal

Byron Pascoe is a Canadian entertainment lawyer with Edwards PC, Creative Law and can be reached at byron.pascoe@edwardslaw.ca

Edwards PC, Creative Law provides legal services to Music, Digital Media, Game, TV, Film, and Animation industry clients. Byron works with musicians and music companies to assist with record label agreements, publishing contracts, distribution deals, producer agreements, band agreements, etc. This blog is for general informational purposes only and is not to be considered as legal advice. Please contact a lawyer, if you wish to apply these concepts to your specific circumstances.