The Music Industry - Part 3: Record Label, Music Publishing, and Distribution Deals
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In my last post I went over royalties and tried to provide a few examples of how royalties are collected and paid to artist and songwriters. It was a rough guide because what you earn and how you earn it depends greatly on the type of record label, music publishing, and/or distribution deal you have.
Historically, in order to really “make it” in the music business you needed to have a record deal and support of a music publisher — or at least you did if you hoped to make any money. That’s much less the case in today’s music business. In an upcoming post I’ll outline a DIY strategy for independent artists and songwriters to distribute their music and collect royalties. But first, it’s important to understand record label, music publishing, and distribution deals.
Distribution Deals
With the rise and proliferation of high quality consumer recording technology, the most common deal for independent artists and songwriters is a distribution deal. Traditionally distribution meant manufacturing and shipping physical products like vinyl and CDs to record stores — and while many distributors offer physical distribution options, the focus has shifted towards delivering digital products such as sound recordings and music videos to Digital Service Providers (DSPs) such as Spotify, Apple Music, YouTube, Amazon Music, TikTok, Pandora, etc.
Good distributors will provide a number of additional services including:
Marketing support
Playlist pitching to DSP partners
YouTube, Facebook, TikTok, and social media claiming
Channel and page verification
Detailed analytics and reporting
Vinyl pressing and distribution
Music publishing administration services
Dedicated and responsive support team
A good distribution deal is a really crucial aspect of the modern music industry. For many independent artists, the relationship that you have with your distributor — and that your distributor has with the DSPs — can play a major role in how well your music performs on streaming platforms.
Distribution deals typically follow one of two fee structures:
In a percentage fee based distribution deal the distributor takes a percentage of all revenue — typically 10-25% depending on the services included. Percentage based deals are more common with established artists and labels where a certain volume of releases and revenue threshold can be expected. The idea is that the distributor is providing a higher level of service and is incentivized to push your releases since they’ll participate in the upside.
In the flat fee or annual subscription fee model, the distributor will charge an annual fee per release, for example a full album may cost $50 per year to distribute and a single may cost $10 per year. The benefit of this structure is that artists keep 100% of their royalties. The downside is that the distributor may not be as incentivized to focus on your release.
When the streams and dollar figures start adding up, flat fee vs. percentage can make a real difference. For example:
Percentage structure:
$10,000 + 15% fee = $8,500 royalty payment
Flat fee structure:
$10,000 + $50 fee = $9,950 royalty payment
Whichever distributor you choose be professional, organized, and create a good working relationship. Having a distributor that truly cares about your career and supports your music can make all the difference.
Check out some common distributors to get a feel for the options and services available:
Record Label Deals
The primary function of a record label is to finance the recording, distribution, and promotion of artist recordings in exchange for the master rights. Master rights granted to a label fall under two categories:
Master License
The artist grants the record label the right to exploit the recordings for a set period of time.
Master Ownership
The record label owns the recordings and the right to exploit them in perpetuity.
Most modern day label deals fall under the master license structure. Artists today are rarely asked to hand over lifetime ownership of their master recordings to the record label.
Record labels perform a wide array of services including financing, production, recording, marketing, promotion, distribution, licensing, tour support, creative services, international collections, and much more. Record label deals vary widely depending on the services included and financial structure. I’ll provide a high level overview of three common deal structures:
Net Profit Deals
Net profit deals are commonly found in independent record label contracts. The record label and artist split the net profit after deducting label expenses and any outstanding advances. The typical split is 50/50 in what’s commonly referred to as a Net50 deal.
Artist Royalty Deals
The traditional record label deal. The artist receives an all-in artist royalty typically between 10-25% of net record sales (after deducting expenses and any outstanding advances).
360 Deal
An all encompassing deal where the record label receives a share of all revenue streams including revenue that would normally fall outside of a label deal such as merchandise sales, touring, brand partnerships, licensing, etc. The expectation is that the record label is providing a higher level of support in all aspects of the artists career.
Advances and Recoupment
Another key concept to understand in relation to label deals is advances and recoupment. Record labels will often advance artists money that will be paid back via future royalties. These advances are recoupable, meaning that the advance must be paid back to the label before the artist receives royalty payments.
Record deals stipulate that certain expenses are recoupable or non-recoupable. Typically all recording costs and up to 50% or marketing costs can be recoupable. As royalties are generated the revenue is applied to recoupment and the balance owing to the label is drawn down.
It used to be the case that artists wouldn’t see a cent of royalties until their deals were fully recouped — leading to some pretty atrocious accounting practices and juicy budgets back in the day. In modern record deals it’s more common to see a capped % of royalties that can be applied towards recoupment in a given payment period.
Music Publishing Deals
Historically the role of a music publisher was to fund songwriters in exchange for the publishing rights to their songs. Music publishers would pitch these songs to record labels and artists to record and release them commercially. Publishers license and collect royalties for the composition copyrights that they control.
Music publishers provide a number of valuable services including access to co-writing sessions with other talented songwriters, financing demo recordings, PRO and MRO registrations, licensing, sync placements in film and television, and sub-publishing agreements with international partners.
The Music Publishing Deal
Under US copyright law each composition has two sets of rights called the writers share and publishers share. The songwriter inherently owns both sets of rights — but the publishers share can be assigned to a music publisher/administrator.
The three prominent music publishing deals are full-publishing, co-publishing and administration deals.
In a full-publishing deal the songwriter assigns 100% of the publishers share over to the music publisher in exchange for money. Payment is typically in the form of an up-front advance or paid in semi-annual, quarterly, or monthly installments. Any advances are fully recoupable by the music publisher. The term of the agreement can be for a set term or in perpetuity (the songwriter essentially sells the publishers share to the publisher). The songwriter retains 100% of the writers share.
In a co-publishing deal the songwriter only assigns 50% of the publishers share over to the music publisher rather than 100%. The music publisher collects 75 cents of every dollar (50 writers, 25 publishers) and applies it to recoupment of the advance. The music publisher receives the remaining 25 cents of every dollar. Again, the songwriter retains 100% of the writers share.
Unlike full-publishing and co-publishing deals, in an administration deal no ownership is assigned or transferred, only the right to administer the songs. The music publisher takes a percentage based fee, typically between 10-20% of gross royalty collections. The songwriter retains 100% ownership of all publishing rights.
Basically, you can think of full-publishing and co-publishing agreements as loans or asset purchases, while administration agreements are more like a service provider agreement between songwriter and music publishing administrator.
Delivery Commitments
Full and co-publishing agreements also often include something called a minimum delivery commitment, which means the songwriter must write a minimum number of songs that the music publisher considers commercially satisfactory for their purposes.
How this all works in practice
Performing rights societies like ASCAP and BMI collect performance royalties for both writers share and publishers share. They pay the writers share of royalties directly to the songwriter and the publishers share of royalties to the music publisher. The music publisher can then pay all, a portion, or none of the publishers share to the songwriter according to the terms of their publishing agreement.
In the United States, 100% of mechanical royalties are paid directly to music publishers (or self administered songwriters).
In Conclusion
Distributors, record labels, and music publishers play a huge role in the career of songwriters and artists, understanding the way these deals are structured as well as their pros and cons are essential for long-term success. In an upcoming post I’ll cover what I think is a great DIY setup that allows songwriters and artists to fully collect royalties while maintaining full ownership and creative control of their art.
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