Paying For The Album Does Not Mean The Artist Gets To Own The Album (Why Record Contracts Are Horrible For Artists)

Money on fireIn this excerpt from Ryan Kairalla's new book "Break the Business: Declaring Your Independence and Achieving True Success in the Music Industry," we get an unvarnished look at what it really means to sign a record contract.


By Ryan Kairalla, from his new book "Break the Business: Declaring Your Independence and Achieving True Success in the Music Industry."

To understand how a record contract imposes a financial burden on the artist, you have to understand the process by which an album gets made under a recording agreement. You might feel like you know something about how the recording process works, particularly if you’ve seen movies like Ray, Rock Star, or Dreamgirls. Those movies will usually show some kind of recording session scene or montage taking place in a label’s studio. The scene is a well-worn film trope: It starts with a nameless studio technician pointing to the artist-protagonist on the other side of a glass partition, signaling to the artist that the recording has begun. The band starts to play together, and they nail the song perfectly on the first try, because they are the heroes of the story and heroes don’t need two takes. All the while, the camera pans to a couple of label executives sitting in the control room, smiling and patting each other on the back because they know that they just heard the next big hit.

BreakTheBusinessLike many things presented to us by Hollywood, these scenes are wildly inaccurate. For one thing, high-quality music recordings are never produced perfectly and simultaneously in one take. In fact, each instrument is usually recorded separately for ease of editing. Many takes for each instrument are usually required. And, after the standard band instruments are recorded, some additional instruments and other “sweeteners” will be overdubbed to create a richer sound. Then, someone has to edit and comp the whole thing. This process typically involves some poor engineer pondering his life choices while he spends eight hours repeatedly listening to the same seven seconds of playback until he can get the sound to come out just right—or until he kills himself—whichever comes first.

The trope of the smiling label executives in the company studio is also quite fictional. The vast majority of recording studios these days are not label-owned, and executives are usually nowhere to be found in most recording sessions. Instead, studios tend to be independently owned and located in crappy neighborhoods where industry suits fear to tread. In fact, most artists are usually surprised to find out how little involvement record companies tend to have with the making of the actual record. After the label approves the song choices and sets the recording budget, the record contract tasks the artist with doing everything else required to deliver a finished album to the label. Sometimes, the artist is even responsible for doing the requisite menial paperwork to make the album, such as preparing all of the tax, immigration, and union forms for all of the participants in the recording process. Given most musicians’ extensive background in tax, immigration, and labor law, this is obviously no problem for them.

But let’s put that little annoyance aside for a moment and get back to the main issue: who pays for your masterpiece to be recorded. The record contract usually provides for the handling of recording costs in one of two ways. Either the label will cover the expenses outlined in the approved recording budget, or it will pay a “recording fund” to the artist and the artist will pay the recording costs out of that fund.

So far, the funding process for an album seems quite equitable, doesn’t it? The artist supplies the labor and the label supplies the capital. Sounds fair. It seems conceivable that what would happen next is that the sales from the album would then be split in some way to compensate each side for what they contributed to the project. The artist would get a chunk for their investment of time and labor, and the label would get a chunk for their investment of money. And if enough albums are sold, then both sides profit from their investment. That’s totally how it works, right?

Not a chance. If it worked that way, I wouldn’t be writing this book. You see, the scenario I just described would be an example of a fair business deal—one in which the artist was not getting turbo-screwed by his or her label. Instead, standard record deals state that the artist does not receive any “royalties” (i.e., the artist’s cut of record sales) until the label makes back every dollar of what it spent on recording costs. This is known as “recoupment.” Once that wrinkle gets added to the mix, the business arrangement starts to look a little more one-sided. Recoupment allows the label to start feeding at the trough long before the artist does. The artist does not get so much as a nibble for their work until the label makes its recording investment back.

And if you think that is unfair, wait until you hear the best part. Record contracts also stipulate that the label recoups its recording costs solely from the artist’s royalties. Wrap your head around what this means. Before the artist gets any money from sales of the music, the label gets to recoup recording costs not from all of the money made, but just from the artist’s share of the money. And, because the artist’s share of the royalties is a pittance, the album generally has to be a smash hit in order for the artist’s royalties to get over the recoupment hurdle and finally start making their way to the artist’s pocket.

One implication of this is that it will take a much longer time for the artist to see any royalties, because the label is using a smaller pool of money to recoup its investment. Another implication is that the label’s “investment” in the artist is actually not an investment at all. Let’s call it what it really is: It is a loan, pure and simple (and a loan with horrifyingly bad terms, at that). The record company is the bank, and the artist is its debtor.

The book is available on Amazon.

About Ryan Kairalla: Ryan Kairalla is a lawyer, author, podcaster, and teacher. He advises clients in the music industry on a wide range of entertainment and business matters including recording agreements, publishing agreements, management agreements, music licensing, media appearances, live performances, entertainment litigation, copyright and trademark counseling, and corporate matters. He has represented chart-topping hitmakers and up-and-coming musicians alike.