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by Donald S. Passman
First Refusal
Suppose you make a demo deal and record a spectacular demo.
Can you thank the company very much for their help, and then
go shop the demo to other companies, thereby running the price
of your deal through the roof? Not very likely. The company
that paid for the demo attaches the following strings:
- In exchange for the company's giving you demo money, you
have to give it a period of time after it gets the demos
(about thirty to sixty days) before it has to decide whether
or not it wants you. You're sitting in limbo while the company
decides--you can't go to another company during this period--so
the shorter it is, the better for you.
- If the company decides it wants you, one of two things
happens:
A: Many companies, in their demo deals, spell out the terms
on which they have rights to your services if they go forward.
These terms will be within the parameters of new artist
deals. So if they want you, the deal is all set.
B: Some companies don't spell out the terms in the demo
deal, but instead just require you to negotiate with them
and try to make a deal (called a first negotiation right).
If you make a deal, everything's great. If you don't make
a deal, however, the company gets a first refusal (also
called a last refusal). This means that, if you get an offer
from another company, you can't just accept it. Instead,
you have to come back to the original company and give it
a chance to match your offer.
Here's an example of a first refusal:
After making a demo, you first negotiate with the record
company making the demo (let's call them the Demo Company).
You insist on $200,000 for your first album, but the Demo
Company only offers $125,000. You say you're insulted and,
in a beautifully choreographed fit of righteous indignation,
you walk away to shop your deal around town. Finally, another
company offers you $150,000. However, the Demo Company says,
"Not so fast, Charlie." Under the first refusal, you have
to go back and offer the deal to the Demo Company at $150,000.
If the Demo company wants it at that price, you have to
sign with that outfit; if not, you're free to go elsewhere
(although you can't sign for less than the offer you told
the Demo company about without giving it a chance to match
that deal, for reasons I'm sure you can figure out).
Here's
some goodies to negotiate on your first refusal:
- You only have to come back to the Demo company if the
offer you get from somebody else is less than the last offer
that the Demo company made to you. So, in our example, since
it only offered you $125,000, you wouldn't have to come
back to it if somebody else offered you $150,000. This is
pretty hard to get. Remember, when you're making a demo
deal, you haven't got a lot of bargaining power (if you
did, you'd be making an album deal).
- You only have to come back if the offer you get is less
than the last offer you made to the Demo Company. Since
the new company offered you $150,000, and you last offered
the Demo Company $200,000, you'd still have to come back.
This provision is a bit more possible to get, but the Demo
company may still insist on your coming back with any offer,
higher or lower.
- However you end up under 1 or 2, you should limit the
time within which the Demo company can accept or reject
your offer. The best for you is the shortest possible. Ideally,
I'd like to see five business days, but more realistic is
ten or fifteen business days. ("Business days" are Monday
through Friday, excluding holidays. So ten business days
is two weeks, if there are no holidays). Companies may want
as long as forty-five to sixty days (regular "calendar days",
not business days), which is an outrageous amount of time
to hold you in never-never land. You could sit around all
this time only to discover that (a) they decided not to
take you, and (b) your other deal has gone away. Try never
to go beyond thirty days--after all, the company heard your
demos a long time ago.
In this article, we'll continue
with Demos and discuss Cost Reimbursement as well as Non
Record Company Demo Deals--those made and funded by producers,
publishers, recording studios and/or friends of the artist.
Donald Passman is a Los Angeles-based
music attorney with the firm of Gang, Tyre, Ramer & Brown.
Specializing in music business law for over 20 years, his
clients include major publishers, record companies, film companies,
managers, producers, songwriters, and artists such as REM,
Janet Jackson, Quincy Jones, Tina Turner and Green Day. On
a regular basis, we will be excerpting from Mr. Passman's
best-selling book, "All You Need To Know About The Music
Business."
From "All You Need To Know About The
Music Business" by Donald S. Passman. ©1991, 1994, 1997
by Donald S. Passman. Reprinted by permission of Simon & Schuster,
Inc.
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