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MATHEMATICS Financial realities of the music business


by Wendy Day founder of Rap Coalition ( and


here are a multitude of different deals out there for any recording artist. It depends solely on what you agree to contractually. There is no such thing as a standard contract; a contract is just an agreement between two people that says who will do what by when, what happens if they do NOT do it, and how everyone gets paid. You don’t get what you deserve in this business, you get what you negotiate. A contract can tie you up for three to seven years, so be VERY careful what you sign! Just like every deal is different, so is every record label. While one may be great at radio, another one might suck at radio but be great at blitzing the streets. It’s important to know the label’s strengths and weaknesses when negotiating a deal. In the deals I negotiate, I always make sure the artist is compensated for the area in which the label is weak. So if the label is weak at radio, for example, I make certain there is an additional budget for the artist’s team to hire their own radio promotion people. When dealing with an independent label to do a deal, it is important that they know what they are doing and have done if before, are properly financed, and are well connected in the industry. Any idiot can spend $11 at Kinko’s to print business cards saying they own a record label. You are an even bigger idiot if you sign a deal with one. It is important to have an entertainment attorney finalize any deal (or negotiate it, if you are not skilled in this area - I have done numerous deals and still always have a lawyer by my side in every deal) because it isn’t always what’s written in a contract that can hurt you, but often what is missing. Every contract is different because every situation is different! Recording contracts are set up to benefit the label and not the artist, so many changes are needed. In fact, I once heard that the average contract goes back and forth seven times. My deals go back and forth even more than that. David Banner’s paperwork went back and forth for nine months until it was right - by the time he signed his contract and got paid, his first CD had been out for six or seven months. This is not standard, nor do I recommend anyone ever put out a CD before the contract is signed. There are basically three different types of deals and then everything in-between. Deals are not quite so cut and dry, so I have outlined the three basic types of deals, but a deal can fall in between any of these extremes. All deals are attainable based on the leverage of the artist, how badly the label wants to sign the artist, who is on their team that the label sees as added value (for example, a successful producer or a connected manager), if other labels are bidding for the artist as well, and the track record of success of the artist or producers.

Head Entertainment had its short-lived deal with Universal, it was this type of deal, according to Roy Jones, Jr. The only thing the major label or distributor is really responsible for with a distribution deal is getting the CDs into stores and collecting the money. The artist does everything else. The length of the deal usually runs 3 years and rarely, if ever, goes to an artist who doesn’t already have proper funding already in place. The artist always owns the masters. This is the type of deal a successful independent label would seek with a major label after they have released numerous successful independent projects regionally. This is also the type of deal an independent label would seek from an independent distributor such as Select-O-Hits, Navarre, and/or Bayside Distribution. This is an area where artists and indie labels MUST understand the difference between being a label and being a production company. An indie label has the money to effectively market and promote a CD, the experience and know-how to do so successfully, and a strong work ethic since the indie label does everything but get the CD into the store and collect the money. A production company makes a great CD, but needs to have a label to deliver it to, because that’s all they have is a great CD. If you have a great CD but no experience and no money to market and promote, you are NOT an independent record label - I don’t care what your Kinko’s printed business card says. You are not a record label. This is why Koch, Asylum, Fontana, and TVT exist. They offer deals that allow people to think they are their own record label, but they do most of the work and advance most of the money, making it more of a joint venture deal, and usually a 60-40 split (60% to the indie label, that is). Joint Venture Deal: This is also a deal that is not easy to get from a major label without a track record of success. It is usually around a 50-50 split, and the term can run from 3 to 7 years. Most labels split the work with the artist (or indie label) but offer the sole funding for the deal. There can be an advance, which is always recoupable before the splits, and it is up to negotiation whether the label owns the masters or splits them with the artist. Most joint venture deals are not profitable for the artist, because most major labels never recoup all that they have spent. Unless you have some say over what is spent, how and where it is spent, it is hard to control this type of deal.

Distribution Deal (sometimes called a P&D deal for “pressing and distribution”): This is the most difficult deal to get. It can be an 80-20 split, with the major label making 20% and the artist making 80%. There is rarely money advanced (in a few cases I have seen pressing costs advanced).

Artist Deal: By far, this is the most popular and common record deal. The label does everything, except record the album (although they pay for it), and they have complete control and ownership. The term is usually for 5 to 7 years, and the average percentage for the artist is 12% (meaning the major label keeps 88%). Out of that percentage, the artist pays back everything the label spends that is recoupable, rarely leaving the artist any money unless the sales are exceptional (meaning platinum).

This deal is usually reserved for the most successful artists where the label perceives little risk and sees value in allowing the artist to do the bulk of the marketing, promotion, radio, and video work. Cash Money has this type of deal, as did No Limit back in the mid-90s at Priority. When Body

Hope this quick breakdown gives you a starting place to do more research!! In my next Mathematics column in the next issue of OZONE, I will break down the exact financials of an artist’s record deal. If you have any questions, please write to me at OZONE AUGUST 2005


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