RECORD PRODUCER AGREEMENTS: THE BASICS
The basic provisions of record producer agreements are as follows:
1. Payment of Recording Costs and Ownership of Masters. The record company pays the approved recording costs. Often there is an itemized recording budget attached to the producer agreement. The record company will own all masters and will normally have approval rights over the masters. This gives the label the right to reject any masters which are not technically or commercially satisfactory.
If the producer owns the studio where the project is going to be produced, generally the producer will submit a recording budget for the estimated studio fees and the miscellaneous recording costs (e.g., session musicians). These expenses will usually be referred to in the producer agreement but generally will not be considered as part of the advance to the producer.
2. Payment of An Advance to the Producer. The agreement will provide for the producer to be paid a certain cash advance. This advance will be recoupable from the producer’s future royalties, as shown in the example given at the beginning of this article.
Sometimes, the advance is paid on a “per track” basis, and the amount per track can range from $1,000 to $25,000, and even more for top producers.
3. Producer Royalties. Usually the producer royalty is in the range of 3% to 4% of the retail price of records sold. For hot producers, the royalty is often higher.
In most instances, the band’s recording agreement with the record company will provide for an “all-in” artist plus producer royalty. For example, if there is an "all-in" artist/producer combined royalty of 14% of the retail price of records sold, then if the producer royalty is 3%, the artist will receive the remaining 11%. This remaining percentage payable to the artist is usually called the "Net Artist Rate." (Incidentally sometimes, particularly in the case of country music recording agreements, the royalty rate provided for in the recording contract is an “artist only” royalty, and not an "all in" (artist plus producer) royalty rate. In that situation, the artist's royalty rate is not affected by what the producer's royalty rate is.)
Producer agreements and recording agreements usually provide that no royalties will be paid to the producer until all recording costs have been recouped at the so-called “Net Artist Rate." Using the example from above, if the producer royalty is 3% and the “all in” artist plus producer royalty is 14%, then the “Net Artist Rate” is 11%. Once the amount of artist royalties (calculated at the “Net Artist Rate”) equal the total recording costs, the producer will be entitled to be paid royalties. As discussed in more detail below, the "artist royalties calculated at the net artist rate" will not actually be paid to the artist; this calculation of artist royalties is merely an accounting process, and is only done in order to determine the point at which producer royalties must be paid.
Example: Let’s say, to make it simple, that the total recording costs are $125,000, and that the 11% "Net Artist Rate" here equals $1 for each record sold. Once 125,000 records are sold, the recording costs will have been recouped by the record company (at the Net Artist Rate of $1 per each record sold), and producer royalties will then be owed to the producer at that point. Under the terms of most record producer agreements, those producer royalties will be calculated on a "record one" basis (discussed below)
Again, no artist royalties will be paid to the artist for those 125,000 records.
4. “Record One.” The term “record one” is a term often used with producer agreements. It means that once the recording costs are recouped at the Net Artist Rate, the producer will be paid for all records sold, beginning with the very first record sold. Again, this is referred to as being paid “from record one.”
This concept has very important ramifications for both the artist and producer. In short, producers are typically paid from “record one,” but artists are not. So, using the above example, once 125,000 records are sold, the producer is paid for all records back to the very first record, but under the terms of the typical record deal, the artist would typically be paid artist royalties on only those records sold after those first 125,000 records. In other words, the artist, using the sample numbers listed above, would not be paid artist royalties on those first 125,000 records. Therefore, as a practical matter, the producer typically gets a bigger piece of the total artist/producer royalty pie than their respective royalty rates would suggest.
Here's a (somewhat oversimplified) example how all of this works: Let's say a producer is paid a $20,000 advance, and that the producer’s royalty rate equates to 25 cents for each record sold. If, using the sample numbers above, 125,000 records are sold (such that the $125,000 in recording costs have been recouped at the $1/record “Net Artist Rate"), the producer is owed $31,250 (125,000 multiplied by 25 cents for each record) for those 125,000 records. But since the record company is entitled to recoup the original $20,000 producer advance from the producer’s royalties, the record company must pay the producer only another $11,250 for those 125,000 records (the $31,250 in total producer royalties up to that date, minus the producer's original $20,000 advance).
For all records sold after those first 125,000 records, the producer will continue to receive additional producer royalties at the rate of 25 cents for each such record sold.
