By Ben McLane, Esq.
Upon being offered a record deal, most artists are very interested in the amount of money they will be paid to record the album. The money which a label pays to an artist to sign and record an album is called an "advance". However, as this article will point out, an advance is similar to a loan and thus it has to be paid back, or "recouped", from the artist's royalties. In other words, the advance has to be paid back in full before the artist sees any money.
There are essentially two kinds of advances. First, there is what is known as a "signing advance". A signing advance is a sum paid to an artist to induce the artist to sign the deal. Generally, this money will be used by the artist to live on while the artist is making and promoting the record. The other type of advance, which is more widely used today, is called the "recording fund". A recording fund is a set amount of money which is utilized to record the album. Whatever the artist does not spend on recording costs, the artist gets to keep. The label normally prefers to offer a recording fund because it is tied to a recording budget which the label has preapproved. Hence, this tends to keep the artist from recording a terrible album in order to pocket the majority of the money.
The amount of the advance is based upon a number of factors. These factors include, but are not limited to, the style of music the artist creates, how badly the label wants the artist, whether the artist has had any success in the past, the projected sales of the album, and how strong the negotiators are for both sides.
In reality, it is more than possible for an artist to never even see a royalty. Remember, the advance is paid back from royalties. For example, if the artist got a $100,000.00 advance but only earned $60,000.00 in royalties, the artist is still unrecouped by $40,000.00 and would not see a dime until the label was paid back in full. Moreover, even if the artist may have sold enough records to be fully recouped, by the time the label has made an official accounting of the sales in order to pay a royalty, it will already be time for the artist to go back to the studio and borrow another budget from the label. Hence, there would not be a royalty until the artist has paid back both advances.
The key is to use the advance monies effectively and economically. Depending on the circumstances, it may be best to negotiate a smaller advance and a higher royalty rate. Furthermore, it might be smart to negotiate a smaller advance and have the label increase the amount of money used to promote the record. Finally, since advances are recoupable only from royalties, even if the record flops and the artist is dropped by the label, the artist does not owe the label personally.Copyright 1998, Ben McLane
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