How To Build A Record Label: 3 Top Contract Secrets When Signing Artists
If you are thinking about starting your own record label, then you need to know that the contract is one of the most essential things. Here are the top 3 contract secrets you need to know when signing an artist to your record label.
- Ownership. The key to ownership is your label contract and how you word it. If you don’t have a contract, then the ownership of the music stays with the people who made it. The way we set up our contracts is like this: the artist is on the label and the music created during that time, during that relationship, is usually owned by the label.
Copyright law requires written contracts. If you don’t have a signed writing saying that the artist gives the music to the label, then there has not been a legal transfer of ownership.
Make it clear in the contract. Remember that the language and wording of the contract is extremely important, especially when it comes to who is going to own the music, or more specifically, the “Masters.” Remember, the Masters are the final recorded version of the songs.
At the end of the day, if you’re going to make an investment into your artist, to help them grow their careers and to get different opportunities, you’ve got to make sure you’re also protecting your end of the bargain, and you do that by having a solid record label contract.
- Advances. The second most important contract secret is the amount of money the record label is going to pay to the artist. It can be the chunk of change or lump sum an artist gets for signing with the label. Or, it can be the expenses which include studio sessions, mixing, mastering, or photo shoots.
Pay careful attention to how everything is defined in the contract. Clarify that everything that is paid for the artist is going to be considered an advance. Make sure that you establish how you are going to get paid back.
Most commonly, the way you are going to get paid back is through royalties. Royalties are the monies being earned from the music or the masters, which includes streaming from platforms like Spotify, as well as digital downloads. Based on the contract, you determine what the revenue split is going to look like. Be aware that reimbursement is key. The first amounts of money that come back in go to pay you for what you have advanced for the artist.
Avoid having a future dispute with an artist by making it clear in the contract what happens with the expenses, and how you get paid.
- Securing Your Investment. The way to secure your investment is by having “Options” in your contract, which gives you the right to extend the contract for additional albums. With any business venture, there is always risk involved, so you want to have the ability to extend the contract.
Create a healthy dialogue by negotiating the Options ahead of time. You can tell the artist that you can support them with one album, and if it goes well, you will have an Option to extend the contract for additional albums.
You never know when artists can take off and go viral. Because you are not getting into this to fail, having some kind of extension via an Option for future products is a smart move for your record label.
And finally, as an extra pro tip, when you first decide you want to work with someone, don’t just sign a contract. You want to work together first to see if there’s a fit. It goes both ways. There has to be a courtship or a partnership. You need that artist working just as hard as you are to make their career a success. Consider not sending full contracts right away, and instead, start off with deal memos that include things like helping with studio costs instead of any advances. You can break it down into a couple of bullet points of how you want the deal to look, and both parties can negotiate from there . When you feel like it’s time to move on to that final step, that is when you get the full-length contract into place.
