This Article Originally Published February 2003

by Diane Rapaport

Major Labels
When seeking record deals with major labels, the question that artists and their managers must be able to answer is this: Why should record companies risk the money, time and effort to sign this new artist?

Although talent plays a part in that answer, other factors are equally compelling:

Independent Labels
Independent labels look for artists that fit the genre of music they specialize in. Because they are devoted to their genres and committed to helping their artists achieve success, talent is a major component of their decisions.

The second major component is artists' willingness to perform live and tour. Because exposure on major media radio, television and print is sparse, many consumers first hear independent label artists at live performances. Performances help create the excitement (buzz) that is needed for alternative and college radio stations to play recordings and for reviewers to write about them.

Contracts Between Record Companies and Artists
Recording contracts between record companies and artists are complex. Managers and artists must find attorneys that are well-versed in negotiating these contracts. The greater the artists' proven value in the marketplace during negotiations, the better the negotiation will go.

Most major recording labels combine advances and recording costs in an all-inclusive recording fund (all-in). The fund provides incentives for artists to minimize recording costs to maximize the amount of available cash for band members.

Payments to producers are part of this all-in fund and, depending on the artists contracts with producers, producers may additionally receive a percentage of artists' royalties. If artists negotiate a 12% record royalty and contract to pay producers a 2% record royalty, the artists net a 10% royalty. Royalties for sales in new technology mediums (such as limited digital downloads) are evolving.

No label guarantees the amount of money it will put into promotion, even though the expenditures of many promotional costs, such as the production of videos and radio promotion, is recouped from artists' royalties. This issue is particularly controversial in the area of video production, where artists are asked to repay 50% to 100% of costs that can exceed entire recording budgets.

Who gets what promotional support depends on many factors, among them the stature of the artists; previous sales histories; whether new recordings contain what the key executives consider will be hit songs; the clout of the attorney/management team; and the allies artists and their managers have within the record companies.

Here are some of the most contested points of record contract negotiation.