Whether you’re an established artist, budding songwriter, or independent TikTok phenomenon, signing a record deal seems like an obvious stepping stone to certain stardom. Various contracts play a crucial role in developing an artist’s career, providing essential support for recording, promotion, and marketing. The flattery and excitement that comes with a record deal offer often overshadows the absolute necessity of doing the research to fully understand what you’re signing before committing to a contract. Good thing you’ve come to us – this article is a great place to start doing your homework on the music industry and the law behind it.

There are far more record label contract variations than you’d expect, and they can be between artist and record label, distributor, publisher, or producer. Within each category, though many of their terms are shared, small differences between them can make for hugely different outcomes for you depending on your needs. Let’s firstly go over a couple things you must understand before studying these deals, and then break down what each main type of artist contract entails.

Key Takeaways:

• Tradition record deal
  • Substantial advance
  • Depending on label, either given as personal financial support or as an investment in the project
  • 80/20 royalty split (at best) after recoupment
  • Label owns the masters and any songs written/recorded during the contract term forever unless specified otherwise or sold down the line

• 360 deal
  • Substantial advance
  • Label pays for everything but expects everything to be paid back, not just the advance and recording costs
  • Label owns everything – masters, as well as your image and likeness
    • Therefore controls where your music is used, and where your name and picture ends up
  • After initial recoupment, label takes a percentage of ALL revenue streams

• Profit split deal
  • Substantial advance
  • Label owns the masters
  • Label recoups on advance and all other expenses
  • 50/50 royalty split after recoupment

• Distribution deal
  • Only covers distribution and playlist pitching – everything else is the artist’s responsibility
  • Sometimes an advance, but not always
  • Artist owns masters
  • 75/25 royalty split after recoupment (depends on contract)

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1. Terminology You Should Know

What is an advance?

An advance is a lump sum of money given to an artist by a record label/distributor/music publisher upon signing a contract with them. It is essentially a loan that can be used by the artist to fund their lives while they are in the process of recording and preparing their next release – kind of like early income. It is similar to a loan because, almost always, it must be paid back using the income earned from the music. Depending on the services offered according to the contract, artists must sometimes use the advance to cover any costs related to their project, as well as up-front payment for their team (managers, lawyers, etc.), as they are not being covered by the label.

What is recoupment?

Recoupment is what we call the payback process of an advance and recording expenses (or other expenses if that is within the contract terms). Future royalty earnings are what will be used to pay back the advance and recording expenses. Let’s say an artist receives a $50,000 advance from their record label, and costs for time at a recording studio and hiring musicians comes out to $10,000, paid for by the label during the production process. Once an artist’s record sales have hit $60,000, the advance and recording costs have been “recouped”, and any future earnings will be the artist’s to keep (within the royalty agreement of the contract).

What is a royalty split?

Royalties are shares of income, so a royalty split is who gets what percentage. When you sign a deal with a record label, they often take a majority of the royalty split. If you see “80/20 split” for example, that means the label takes 80% of earnings from that income stream, and the artist takes 20%. Remember that royalties are not earned by an artist until after recoupment (unless there is no recoupment required in the deal). Only then will they begin receiving their percentage.

What does “owning the masters” mean?

A “master” is what we call the final recording of a song – the one that is distributed to streaming services, radio, social media, etc. It is one of the two main types of ownership in music, the other being ownership of the song itself (melody, lyrics, composition). When a label “owns the masters”, that means it owns the official recording of an artist’s song. When you own masters, you are the overseer of where the music is used, and can approve or deny the use of the recording in different scenarios. Therefore, if you own your own masters, you have control, and if the label owns the masters, they have control.

What are the different types of income streams in music?

It is important to understand how many channels through which you can generate revenue in the music industry, as certain contracts may ask for a percentage of more than just record sales. Here are the main income streams, though there are other small ones that pop up along the way.

• Music sales (streams and physical sales of CDs, vinyls, etc.)
• Touring (ticket sales)
• Merchandise
• Features (the rate you charge to be a feature artist on a song)
• Licenses (use of your music on TV, in movies, video games, etc.)
• Performances (from a festival or private event to perform)
• Appearances (by venues or events to just show up)
• Sponsorships (brand partnerships, either commercial or on social media)
• Selling beats

Without further ado, here are the main types of record deals in music:

2. Traditional Record Deal

A traditional artist contract is the most common type of deal between recording artist and record label. Record labels will pay a relatively large advance in exchange for their services and ownership of the songs written and/or recorded during the term of the contract. After recoupment, the label will take a roughly 80/20 royalty split, but the artist’s share ultimately depends on their bargaining power. The smaller the artist, the smaller the advance and royalty split. If an advance is used wisely and a project is marketed strategically, it can get enough traction to recoup in full off of one release and allow the artist to receive better offers before starting work on the next project.

The services offered by the label can depend on the contract. This can be anything from recording costs (studio time, engineers, instruments, musicians) to distribution and marketing. If you are being given an advance and most services are included, you can use your advance as your own income until you start receiving earnings from your music. If you get an advance but project-related costs are not included, you are expected to use the advance to pay for them. This version is essentially an investment in your project by the label as opposed to personal financial support. Any unused money left over if a project is under budget can be kept, though your manager often gets a percentage.

The most standard deal is that the advance can be used however the artist chooses, as long as it, plus recording costs, is eventually recouped.

With major labels, they are such huge companies that they can afford to provide all resources as long as they recoup the advance and recording costs. Given their power, however, royalty splits are likely to be very small for newer artists.

TLDR:

• Substantial advance
• Depending on label, either given as personal financial support or as an investment in the project
• 80/20 royalty split (at best) after recoupment
• Label owns the masters and any songs written/recorded during the contract term forever unless specified otherwise or sold down the line

3. 360 Deal

A 360 deal, stemming from the 360 degrees in a full circle, means the label controls everything. Though this may sound like less work for the artist, it comes at a hefty cost. In this case, because the label pays for everything, it also owns everything – we’re talking about the masters as well as the artist’s likeness and image. 360 deals are one of the most exhaustive music industry contracts, covering every aspect of an artist’s career.

The record label provides a recording artist with an advance that they can use as income, and it pays for recording, marketing, touring, merch, promotion, and all other costs. In exchange, every one of these costs are entitled to recoupment, and the label takes a percentage of ALL income streams once expenses have been recouped. Trad record deals only recoup from earnings off of music sales, while 360 deals take either a flat rate across all revenue streams, or take a different percentage per revenue stream depending on the contract. Regardless, no matter how much you make and by what means, the label takes a chunk. This includes appearances, merchandise, and even features.

Ownership of your likeness and image means that only the label has a say in where your music is used and where your name or picture may end up. They do not need your permission for any of it.

TLDR:

• Substantial advance
• Label pays for everything but expects everything to be paid back, not just the advance and recording costs
• Label owns everything – masters, as well as your image and likeness
  • Therefore controls where your music is used, and where your name and picture ends up
• After initial recoupment, label takes a percentage of ALL revenue streams

4. Profit Split Deal

A profit split deal is a combination of a traditional record deal and a 360 deal. The recording artist is given a large advance and gives up the rights to their masters, but gets an even 50/50 royalty split with the record label after recoupment. This type of profit split deal is a form of recording contract that allows for greater earnings on music sales, but while trad record deals only expect to recoup the advance and recording costs, this contract demands that anything spent on the artist must be earned back. Unlike the 360 deal, the label does not take a percentage from any income stream other than music sales.

This type of deal is great for artists who already have a decent following but just need more resources. If you need support for production expenses but know your music will make the money back and then some, this is a good deal to sign. The more ownership you have over your masters, the better.

TLDR:

• Substantial advance
• Label owns the masters
• Label recoups on advance and all other expenses
• 50/50 royalty split after recoupment

5. Distribution Deals

Another party with which an artist can strike a deal is with a distributor, or the distribution branch of a record company. This is ideal when an artist does not necessarily need support for things related to the making of a project, whether it be the recording of the songs or the filming of the music videos. Distribution deals mean that an artist gives exclusive distribution rights to a distributor. They are then responsible for making your music available on streaming platforms, social media, radio, and in physical stores (CDs, vinyls, etc.). Most of the time, they also cover playlist pitching.

Distribution deals do share characteristics with label deals, however. Some deals offer an advance followed by a 75/25 (on average) royalty split after recoupment. Because the artist took care of the making of the project themselves and did not need assistance until release, the artist retains ownership of their masters.

This type of contract is great for indie artists who are able to cover the production process without help, but need to get their music in the right places. Remember that marketing and promotion remains your responsibility.

TLDR:

• Only covers distribution and playlist pitching – everything else is the artist’s responsibility
• Sometimes an advance, but not always
• Artist owns masters
• 75/25 royalty split after recoupment (depends on contract)

6. Things to Remember Before Signing

Lawyer up

Though we completely believe in your ability to do your research before committing to something, it is wise to get an entertainment lawyer if you can. They have seen it all, and will be able to not only read the fine print but also recognize any potential scams or loopholes you may not know to look out for. You will also be able to tell your lawyer exactly what you want out of your deal and what your non-negotiables are so they can communicate with the other party accordingly. In addition, having someone backing you legally looks great for credibility purposes and how seriously a record company is going to take you during the negotiation process. As an alternative to a full hire, you can always do all your research, write down your questions, and then hire a lawyer for a one-hour meeting to go over everything with you. You’ll be saving money and getting expertise, even though it’s for a short time. Just come prepared!

Everything can be negotiated

All contracts can be negotiated, especially in music. These artist contracts are very common, but their terms, particularly the advance and royalty splits, differ per musician. Some musicians receive $20,000 advances while others can negotiate upwards of $1,000,000. The more bargaining power you have, the better the deal, so make sure the label knows how much your audience wants music from you. You can leverage your fanbase, social media following, press write-ups, and any other promising accolades to show proof that your music is sought after, and they can take a risk on you. If you have another record company offering you a deal, you can use this to negotiate a bigger advance and better royalty rates from the label you want to sign with.

Contract length

The importance of understanding contract length cannot be overstated. Contract length can be by time or number of projects. Make sure to take both into account when you are considering a deal. What if you sign a 5-year contract but get an amazing response in your first year, and suddenly you’re stuck with a bad royalty rate for another 4 years? What if you sign a deal for 3 albums but no longer want to give them ownership of the masters following the second one? The best thing to do is sign a deal for one album cycle, and see how it goes. You will then be able to renegotiate terms if things go well, or sign somewhere else if it’s not a good fit.

Other Contract Types

Keep in mind that these are by no means the only contracts that exist in music, these are simply the main recording artist contracts. Artists might also encounter music production agreements and contracts with production companies. If you are a songwriter, you can look into deals with music publishers and music licensing contracts. If you’re a producer, you can look into producer contracts with record labels. There is something for everyone!

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