Before you read on, you should know that different music labels use different kinds of contracts, and as the financial stakes get higher, the contracts get more complicated. The information found here is most applicable to a small, independent record label, though the basic ideas can apply to any record label contract. Also, be aware that this advice is not binding and not intended to take the place of professional legal advice.
What Should Be In a Contract?
The first things that should be included in a contract between an indie label and an artist are the basics - who is making the deal and what the deal covers. It is usually a contract between the label and the artist or band, but the agreement can cover several different items, such as:
- A licensing deal for an existing album, already recorded
- A licensing deal for current album in production, plus a deal for the label to release one or more future studio albums
- A deal for a band to record one or more live albums that the label will release
- A licensing deal or recording deal with first refusal on one or more future recordings.
The term refers to the length of time the label will own the album covered by the deal. It is obviously in the best interest of the label to get the album for as long as possible, but the term can be anywhere from a couple of years to forever. A term of between five to ten years is fair, and depending on how much experience your label has under its belt, the lower end of the spectrum is expected It's good for indie labels to include an option to renew the term for another set period in the contract.
Keep in mind that the terms of ownership will be determined by whether you "buy" the album or if you license it.
An indie label contract should specifically state where the label has the right to sell the album. If you are a US based label, and the band already has a deal in the UK, then you can't very well try to sell the record there, too. A fair way to do this for bands and label is to have the contract cover areas where the label has distribution, but the band does not already have a deal and then include a clause in the contract stating that the label can seek licensing or distribution deals in other territories for the album.
Advances are advances against future earning of the band, so only promise an advance that you think you can easily recoup from the album sales. A good rule of thumb about advances, if you are a small label, is that big advances are a waste of cash. If money is tight, everyone is much better off if the label skips paying out a big advance and instead saves that money to spend on promotion. Selling records is an expensive business - if you want it to work, you need to spend your money on a promo budget, not an advance.
Bands don't make money until the label makes back all the money it has spent on the album (with the exception of mechanical royalties, which labels have to pay no matter what. That doesn't mean the band is required to let the label spend and spend and spend. It's good to include a spending cap in an indie label contract that says the label will consult the band after spending X amount of cash. It will save loads of hassle in the long run when the band is complaining about money and complain that you have overspent on their release.
It is the crucial part of the indie label contract. You need to specify how and when the band can expect to be paid. First, it is important to state here that the band will not be paid until the label makes back the money it has spent on the album (include the advance). Then the contract needs to state how any profit after the label recoups costs will be divided, for example:
- 50/50 evenly
- Percentage deal (in the label's favor such as 70% of sales to the label)
There's no real right or wrong here. Large labels almost always have percentage deals, but going 50/50 is sometimes the easiest way of accounting for a very small label.
Those Little Extras:
There are lots of extra expenses that crop up in the course of releasing an album, and now is the time to address them. For instance, if you're releasing on vinyl, if the band wants a full-color gatefold sleeve, you can include in the contract that they have to chip in up front. If you don't want to pay tour support, include that in the contract as well. Now is the time to anticipate any costs that might arise with a particular release that you want to avoid, and get it in writing that the label is not going to foot the bill for these expenses.
The Fine Print
The list above details the basics that an indie label contract should include, but that doesn't mean those things are the only thing that can or should, be on a contract. The following are just a few of the optional things that can be included on an indie label contract. They may or may not apply on a case by case basis:
- Accounting - This gives the band the right to audit the label's books relating to their release at a given interval - say once a year. It can be as simple as meeting for a drink and showing the band how things shake out, or it can be as formal as having an account come in and check things out.
- Licensing Deals - If the label licenses the album to a label in another territory, or if the label licenses a track from the album for use in the media, how does the fee get divided?
- Acceptance and Delivery - This clause is a major label contract staple that is seldom used by indie labels - but you should be aware that it is out there as an option. It means that the label does not have to release a record that deviates from the kind of music they thought they would be getting and that the music has to recorded in a format that could be played on the radio.