It is hard to make it in the music industry on your own. On top of writing your music, you have to mix and master it, market it to your intended audience, make radio and streaming deals, set up concert dates, make royalty payments - you get the gist. Not many people can boast wearing that many hats and staying fully independent. You may be the star quarterback, but you can’t accomplish anything without the rest of the football team. 

Record labels are the teammates that boost your career.

Music marketing company Planetary Group describes signing to a record label as an investment bank for the artist. The label provides all the resources from promotion to artistic direction in exchange for profits off the artist’s music and associated works. However, labels want an artist that’s most likely to produce a return on investment. That means recruiters are constantly looking at social media platforms such as TikTok and YouTube to measure an artist’s potential for profit.

I can’t tell you how to reach the most people or make music that’ll blow up in popularity. The last time I made music was playing Hot Cross Buns on the recorder in elementary school - I’m not your guy for that. Instead, I’m going to tell you something equally as valuable: how not to get ripped off by recording labels.

Remember, these groups want to maximize profits off an artist. As you look over your potential contract with a label, be sure to pay attention to these important clauses. Otherwise, you may risk losing your music ownership, royalty payments or even your brand image.

First, Know What You’re Signing

Writing for Symphonic Blog, content specialist Randi Zimmerman explains six different types of record label contracts: 

  • Exclusive Recording: the artist works only with that label, meaning they can’t release music through any other label,

  • Music Distribution: the artist or label keeps ownership, but the distributor has the sole right to distribute songs in various formats,

  • Non-Exclusive Recording: a label licenses specific recordings from the artist,

  • 360 Deal Recording: extends across other forms of revenue beyond recorded music, such as merchandise and sponsorships,

  • Music Composition & Recording Service: the artist is essentially contracted to produce music for a company, in which the company receives full ownership, and

  • Recording & Publishing Agreement: the publishing & recording rights belong to one label, with both of these rights having separate durations.

What’s important to take in is what these agreements imply. For instance, you may find yourself in a non-exclusive agreement if the label isn’t willing to commit long-term just yet. However, if a label sees huge potential in what you can contribute to their image, they may pursue a 360 deal. Be careful - the more they want to kick in to help your brand (marketing, distribution, merchandise, etc.), the more you need to give up ownership. That could mean losing the exclusive right to perform your music or missing out on extra income from merch and concerts. 

As I’ve talked about in a previous article, major music labels have sought to gain further control of artists’ re-recording rights by gatekeeping when an artist can re-record their original works after leaving a label. This is a defense mechanism by music labels to protect their revenue source. They want their biggest breadwinners to continuously make money for them long after their time at the label. 

It’s not necessarily bad to have your music and image owned by someone else. Sports do it all the time with NIL deals (you can read more about that here). However, there’s some key provisions you need to be aware of. 

Don’t Ditch Your Creative Control

Pop quiz! Who knows more about music - the music executive or the musician? Well, it depends on who’s got the right to say so. 

If you’re going to sign away your recording and publishing rights, there has to be two things you’re absolutely sure of. One, the label has the capability to support your creative vision. Two, the label wants to support your vision.

Neither of these requisites were met when Billy Joel signed a recording & publishing agreement with Family Productions in 1971. On the lead-up to his debut album, Cold Spring Harbor, a mishap in the mastering process of the album caused the entire tracklist to be sped up, leading to a higher pitch than intended. When Joel asked for the error to be fixed, Family Productions founder Artie Ripp shut him down and released the album anyway, claiming to have already spent $450,000 in developing Joel. To make things worse? Ripp didn’t even promote the album sufficiently, leading to a commercial failure.

Cold Spring Harbor (album) - Wikipedia

Although the album had potential for critical acclaim, no attempt was made by Family Productions to market Billy Joel's debut more aggressively. Pictured: Cold Spring Harbor by Billy Joel.

No one wants their debut to suck. That’s why negotiating a co-publishing deal may prove beneficial if you have to sign a recording & publishing agreement. Global music rights management platform SongTrust explains co-publishing as a deal where, in most cases, “songwriters retain 100% of their writer’s share and 50% of their publisher’s share.” This doesn’t mean artists can distribute their works - the label can still seek out sync opportunities, or licenses to use music in films and advertisements. However, you not only retain the copyright for the melody and lyrics, giving you the freedom to edit your composition as you see fit, but you also get a share of the publisher’s revenue from your music. In addition, co-publishing deals often bake in an advance on royalty income, letting you focus on writing without worrying about money. You will have to pay back this advance after, though. 

Understand Your Royalties

You’re not just paid for the sale of your song. From radio airplays to digital downloads, you’re receiving royalties, but not always at the same rate.

There are two types of royalties:

  • Performance Royalties: fees paid when music is played in a public setting, including radio, bar shows, concerts, or streaming services, and

  • Mechanical Royalties: paid to songwriters and artist when music is sold or streamed

When your song is streamed, you receive both types of royalties. Mechanical royalties are set by a panel of judges that make up the Copyright Royalty Board, as mandated by the Copyright Royalty and Distribution Reform Act of 2004 (CRDRA). Performance royalties are collected by Performance Rights Organizations, or PROs. These include ASCAP, BMI and SESAC for U.S. music users. Music is registered with your publisher or a PRO, then any of your music that is publicly performed is reported to these PROs. All PROs are backed by the courts that set the minimum rates, but performance royalties are only collected for songwriters.

Digital streams not only include both mechanical and performance royalties, but pays them out to both songwriters and recording artists. There are dedicated platforms for collecting royalties on digital performances like SoundExchange, but they may not have the legal authority to enforce royalty payments. That’s because of a recent decision in the U.S. District Court for the Southern District of New York in August of this year, finding “that SoundExchange did not have express or implied authority under the Copyright Act to commence a legal action to enforce Section 114's royalty payment obligations.” Stay tuned for future updates - this may influence how you receive royalties in the future.

On the bright side, you may find yourself getting paid more for your streams if you choose to register with independent non-profits like SoundExchange, though you will miss out on royalties for radio performances as a recording artist.

What you absolutely must keep watch for is how the royalties are distributed by your label of choice. One common phrase is “recoupment of costs” - until the record company has earned back the costs associated with producing and recording the album, they will not distribute royalty payments. If you don’t make back enough, you don’t owe a dime; however, you won’t see any extra dimes in your piggy bank, either.

You can expect royalty rates between 10-20% as a new artist depending on the label’s expectation of your success. If you receive a larger advance on royalty income, your rate may decrease. On the flip side, if you don’t get any advance and put up all the costs for recording your album, you may get a much higher royalty rate. Furthermore, a 3% royalty will be taken out of your share for the producer of your album, unless the record company is paid the producer’s share from the streaming service. 

Unrecouped advances do add up! A couple of bad albums could prevent you from seeing any royalty payments. Some major record companies such as Universal, Sony, and Warner allow older recording artists to receive full royalty payments on future sales regardless of unrecouped balances, but it’s not required by law. 

Leverage Your Bargaining Power

Negotiations don’t have to be war, but your lawyer should be aware of all aspects of your brand that may garner you a more favorable deal. Record companies are investment banks, and you are tasked with convincing them you’re a risk worth taking. Or, that there’s no risk at all.

You should seek out advances in your contract and try as hard as you can to maintain your copyright. When a label has ownership of your released works after you’ve moved on, that’s a large source of revenue you can’t collect on. It’s not easy to buy them back, either - not everyone is Taylor Swift.

There’s so much more to cover when it comes to specific contractual terms that would be simply too much to write. So, I highly recommend checking out this book chapter from University of Oregon professor Larry Wayte titled Pay for Play: How the Music Industry Works, Where the Money Goes, and Why. Not sponsored - just a great resource to have.

You already know what I’m going to say. Before you even shake hands with the recruiter, you need a lawyer on speed dial. Knowing the terms is helpful for an easier reading experience, but a lawyer knows the magic words to help make those terms favorable to you. They want money, you want money, but you are the only reason they make money in the first place.