The State of the Music Biz Nation

By Fate Sensation

Issue #05 (October/November 2006)

12-06-06

Most recording artists dream of signing a recording contract with a record label. However, for many artists the reality does not match the hype.

Hawthorne Heights Sues Victory Records

Back in August, Hawthorne Heights, a post-hardcore band from Ohio, sued its record label, Victory Records, alleging breach of contract and fraud. According to the band, while they have sold over 1.5 million CDs and DVDs and generated over $10 million in revenue for Victory Records, they have received no royalties and still owe Victory Records $1 million in unrecouped expenses. Ouch!

Fate Sensation does not know whether Victory engaged in fraud or whether Hawthorne Heights just signed a really bad contract.  Fate Sensation's hunch is it's the latter.  Let's explore how such unpleasantness can happen…

When a recording artist signs a recording contract with a record label, their compensation is usually based on the number of “points” they receive for their CD sales. A “point” is equal to one percent of a negotiated price. So an artist who receives 10 points on an agreed upon price of $15 would receive $1.50 in royalties for each CD sold.

The label will also provide a recording advance which is the amount the label agrees to spend making the artist's record. From this, the artist will receive a small stipend to cover their living expenses. The recording advance and everything else the label spends on the artist's behalf is recoupable, including money spend promoting the artist. This means the artist must pay it back out of their future royalties (the aforementioned $1.50) before the artist will receive any further compensation.

Most recording contracts also include a number of deductions which reduce the royalties the artist receives. These can include charges for packaging, breakage and a variety of more insidious and difficult to understand royalty-reducers.

If the label does not recoup their expenses and provides the artist with a second recording advance to make another record, the royalties from the second record will first be used to pay off the unrecouped expenses from the first record and then from the second record.  This will also be true for all future records.  The artist will not receive royalties until the label recoups all of its expenses.

Many recording artists make little or no money from the sale of their sound recordings. Smart artists should attempt to capitalize on their fame (hopefully created by their record label's promotional campaign) to make money in other ways, i.e. touring, merchandise sales and songwriting royalties.

Recording artists should take steps to educate themselves about the contracts they sign. To learn more about record label contracts read Moses Avalon's Secrets of Negotiating a Recording Contract. To learn more about negotiating read Martin Latz's Gain The Edge! Negotiating To Get What You Want. Artists should also hire a reputable music industry lawyer to help protect their interests. In the music business, you don't get what you deserve, only what you negotiate for.

Fate Sensation wishes you a wonderful holiday season and a most excellent New Year!

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