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Co-Written and Researched by Tyler Anthony
Most record labels make their money by selling sound recordings of song performances, which can be a tough way to earn a profit.
This article discusses some of the most common agreements record labels use to generate income from prospective artists, distributors, and film producers.
Licensing and Distribution Agreements
Licensing and distribution agreements are popular in the independent scene where labels have limited resources. With these deals, the independent label who owns the rights to a master recording licenses it out to a major record label or distribution company with better distribution capabilities.
Under a licensing agreement, the owner of the master recording — usually a record label — grants rights to third parties to manufacture copies, sell, distribute, advertise, and promote the music from the master recording. In exchange, the record label gets a piece of royalties from every sale.[DG1]
Under distribution agreements, a distributor agrees to issue copies of an independently-produced record to retail outlets. These deals sometimes include promotional activities.
While licensing and distribution agreements are declining in popularity, there’s another category of deals called pressing and distribution where the distributor also manufactures and distributes copies of the master record.
As their name suggests, 360 deals encompass virtually everything an artist does to make money. Record companies take a cut from all of the artists’ music and non-record related business activities such as film, sponsorships, and licensing agreements.
We’ll take a closer look at 360 deals in a separate article.
Master Use Agreements
These are the equivalent to a synchronization licenses for music publishing. Essentially, if a film producer wants to use a song in their production, they need permission from the organization or record label that owns the master recording of the song.
The recording company often will provide the producer a license that is either exclusive or non-exclusive to use the sound recording.
Master Purchase and Sale Agreements
When a record label buys and sells master recordings from other artists or organizations, they conduct the transaction through a master purchase and sale agreement.
The payment for the master can be a one-time flat fee, a staggered purchase, or a fee accompanied by royalties.
Some artists create new corporations to act as their signing party in a record label agreement. These so-called “load-out” corporations offer many benefits to taxation and liability.
Nevertheless, record companies often require the artist to execute a guarantee that states that if the loan out corporation defaults, the artist becomes personally bound by the terms of the recording agreement.
We cover the ins and outs of common record label contracts in our next piece.