What should my indie label's artist deal include?

February 28, 2012

Dear Music Lawyer,

I want to start a record label, but I don't know what type of deal to offer bands. What kinds of things do I need to think about before talking to bands about signing to my label?

—Brandon

Dear Brandon,

In addition to the general steps one needs to take to start a business (e.g., choosing a name and business entity, filing requisite paperwork, opening a bank account, etc.), answering the following questions should help you decide what type of deal to offer bands that you want to sign:

• Will the band be signed to your label exclusively (i.e., they can't record for anyone else without your permission)? If yes, can artist record as a sideperson with other artists without your permission?
• How long do you want the artist signed? In other words, what is artist's recording commitment for label? (Note: A typical major label recording agreement is anywhere from 5 to 7 albums.)
• How many albums do you want to guarantee to fund and will they be EPs or LPs? (Note: Many labels just guarantee to produce the first album and then they have an option or a series of options to produce future albums.)
• How long does artist have to record/deliver mixed masters? (6 months? a year? as long as they want?)
• How do you want to compensate artist for exploitations of the recordings? Per unit royalty? Net profits split? (Note: Net profits split is increasingly common, especially for independent labels.)
• If a net profits split, will you be paying mechanical royalties separately or is the profit split inclusive of mechanical royalties? (Remember that mechanical royalties are payments for reproduction/distribution of the songs embodied on the recordings.)
• How frequently will you account to artist? (Note: Common is quarterly or semiannually.)
• What if a bigger label wants to sign the artist? Do you have a buyout amount?
• Is artist contracting with a producer? If yes, is the producer a royalty participant?
• How are recording and other production costs to be recouped (off the top or from the artist's share)?
• Will label be the 100% owner of the masters as work made for hire? If not, who owns (or what is the split if co-owned)?
• How do you want to deal with the artist's recording budget and what is recoupable? Mutually approved budget? Who is responsible for overages?
• Who handles/dispenses recording funds?
• Do you want artist to assign any publishing interest in their songs to the label? If so, what percentage? (Note: This is often hotly contested by artist lawyers, but can be an important source of income.)
• Do you require that all songs be previously unreleased?
• What are your distribution plans (e.g., digital only, physical and digital)? Will you distribute worldwide? Who will be your distributors?
• Do you have the right to create/control an artist website?
• Do you have the right to create promotional videos?
• Do you want the right to issue master use licenses in connection with the audiovisual use of any masters recorded by you (e.g., in connection with television shows, video games, motion pictures and commercials)? If so, do you need prior artist approval? (Note: Many times I've drafted agreements so that you don’t need artist approval unless it's a potential unsavory use such as tobacco, feminine hygiene, XXX, political, etc.)
• What are your marketing plans? How involved can artist be?
• Will you provide any tour support?
• Who is responsible for providing artwork? If artist, who owns the artwork? If label, does artist have to approve?
• Do you want to prohibit artist from recording the songs they record for your label after the term of the label deal expires? (Note: This is known as a re-recording restriction. They frequently last 2 to 5 years after expiration of the term.)
• Do you wish to participate in ancillary income such as income from artist merchandise or gigs? If so, what percentage of such income?
• Do you want to be able to produce and exploit your own artist merchandise? (Note: More and more labels are requesting that they get to produce/own at least one unique design. They may compensate artist with a lower percentage split and/or agree to provide artist with a limited quantity to sell on their own.)
• Will you offer product to artist to sell at gigs or from the artist website? If so, how much will such resale product cost to artist?

As you can see, starting a record label involves careful consideration of many different issues. There are also several books that you may find of use when starting an independent record label. One of the most popular is "Start and Run Your Own Record Label" by Daylle Deanna Schwartz. It is now in its third edition, and you can purchase a copy online here.

—Amy E. Mitchell