How Recording Contracts Work

This article explains the basic concept of a record label contract.

Many up & coming artist’s seek out a recording contract with the mindset, that once they sign that contract, they “made it” and all the hard work they did as an unknown artist is no longer necessary. When in reality, the opposite is true. When a record deal is made between an artist and a label, this is where all the really hard work begins. For you to understand what i mean by this i will provide the following description:

Think of the record label as a bank, a music bank rather, and yourself  (the artist) as a bank customer seeking a loan (the record deal) for your music. When the bank (record label) has decided based on your assets (your music) that you qualify for the loan (record deal) they will give it to you, but only on the basis that you pay them back in full plus interest (your royalties). But, when you get the loan (record deal), it is not over, you now have to show the bank (record label), that you can keep up with your payments (royalties) by continuing to make hit records or songs. This is where the hard work comes in. If your records don’t sell or the radio does not play your songs enough so you can collect the royalties to cover your expenses i.e. the money you owe the bank (record label) you will default on your loan (record deal) and lose your recording contract.

It is very important that you understand these points before you sign that recording contract. Many music artists are under the impression that a record label’s job is to give out multi-million dollar contracts and make them rich and famous, when it is truly, like any other business, seeking to make the greatest profit with very little expense. Multi-million dollar contracts are usually only given out to artists who have shown themselves capable of making more profit than the original expense spent by the label. Every time a record label signs a contract with an artist, it is an investment by the label in the artist. However, through sales royalties (money from the sale of your music throughout albums) etc. the label quickly recoups that investment plus interest. The record label always recoups their expenses eg. cost of production of your albums, cost of distribution, promotion and any upfront payments,covering the personal expenses of the artist, usually called advance against royalties before the artist gets paid.

Now you may ask, so what’s the point of scoring a recording contract if they get paid before i do? Well, simply put, many record labels, have the resources to reach and market, you and your music, to millions of people worldwide, which can expand your fanbase and as a result increase your album sales, making more money for both you and the label. A label is equipped to handle all the major business dealings of an artist’s career, such as the collection of royalties and the copyright protection of the artist’s compositions while he/she concentrates on their music. If you are interested in marketing your musical talent on your own there are now many resources to do so, to find out who they are and what they cost as well as a more in- depth look at the different types of music royalties see our previously posted articles: