Royalties in Recording Contracts Explained

Royalties in recording contracts will come from either Net Receipts from the exploitation of the recordings or a percentage of the price the records are sold to dealers (i.e. distributors). Now, the amounts the label and the artist will receive will vary according to the way in which the recordings have been exploited to make a profit and the percentages agreed between parties.

record royalties

On a Net receipts type of deal, the label and artist will usually get a fairly even split regarding the actual sale of the albums or EP, usually 50/50 after the label has recouped items such as recording costs, video clips, tour support and certain promotional activities (such as hiring independent publicists). For other ventures, such as synchronisation licenses, broadcast income and printed sheets of music, the proportion of profits will usually be higher for bands, around 70% of the Net Receipts.

The basis of this split is that the label has invested their time and effort into making the recording itself, its production, distribution etc. The synchronisation deals rely heavily on final product, which impresses the third party licensee.

As mentioned, another way of account royalties in respect to record sales whereby a label offers the artist a percentage of the dealer price for every record sold (PPD – Published Price to Dealers). For this type of royalty accounting, label will customarily pay for promotional costs from his share of income as opposed to ‘Net Receipts’ type of deals where all costs are recouped from income before applying the 50/50 split. As guideline, a basis royalty of more than 18% of the dealer price calculated on 100% of records sold with deductions for packaging of no more than 20% would be considered OK.

There are some catches as to when an artist will receive these royalties. If a band receives an Advance before the recording is made, you may be able to afford Tesco finest sausages but it ain’t free money; it’s an advance on future earnings and they are recouped from YOUR share of royalties! (not off gross income). Additionally, and this is when reading the document is very important, Budgetary Expenses provided by the record company for promotion and other things may be due back to the label. In both instances, this money is effectively owed to the label and will need to be earned back through net receipts until paid in full at which time the artist will start to receive the royalties.

Finally, artists should be aware of contract provisions related to record sales that do not actually attract a royalty and try to negotiate these deductions down to a reasonable minimum. For example:

  • Records given away by the record company as promotional records to publicise you or your records;
  • Records returned to the record company as unsold, defective or wrongly shipped to dealers;
  • Records given away by the record company as ‘bonus records’ to dealers. This sales incentive schemes are commonly called ‘free goods’;
  • Records sold at or below cost or in the course of deleting a record from the company’s catalogue. Deletions are very common with single; many company will delete a single after it has reached its highest chart position to promote sales of the album that contains the track.

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