Other Major Deal Points

This Article Originally Published March 2000

by Donald Passman

Did you know that most record deals for both new and midlevel artists (and even some superstars) don’t require the company to even make a record? Almost all of their forms contain a provision whereby the company, instead of recording the album, can merely pay the artist a sum of money equal to (in the first draft of their agreement) minimum union scale for an album or (after negotiating) the difference between the recording fund and the cost of the last album.

This is called a Pay-or-Play provision, meaning, as the name implies, that the record company has the option of allowing you to play your music or to pay you off. Should you come across this and are unable to get it out of the deal, at least be sure that once they pay you off, the deal is over. This shouldn’t be hard to get, but it isn’t in any form agreement, and without it, the copany could, in theory, hold you without making records. (On the other hand, since they don’t want your records, they probably don’t want you around, either. But it’s cheap insurance to add language making sure.)

Options

Record deals are traditionally structured with the company having the smallest obligation that it can negotiate, while keeping the option to get as much product as possible. For example, a company may commit to record one album of an artist and have the option to require the artist to record an additional five to seven albums, each one at the company’s election.

Options in New Artist Deals

With new artists, the companies like to commit to only one album but insist on the right to get six to eight albums total. This is an improvement over recent years–the companies used to insist on options for up to eight to ten albums. Optional albums might be one at a time for the first, second and maybe third albums, but thereafter I make the company take at least two albums at a time (or else they have to let the artist go). In other words, the company can opt out of the agreement after the first, second, or perhaps even third album, but if the deal continues beyond that point, the company must accept the fourth and fifth albums before it can again opt out; similarly with the sixth and seventh, etc. (If there’s an extra left over at the end, they of course only have to commit to that one album.)

Options Aren’t Good for You

I remember a friend of mine from high school choir who came in jubilant one day because she had signed a “ten-album-deal” with Capitol Records. In reality, it turned out to be a deal for one single only, but she had given Capitol the option to require up to ten albums. <p>
While my friend has faded into obscurity after recording only that one single, her attitude is not unusual. Many artists still think of record company options as being good for them, but in fact, this is never the case! If you’re a flop, you’ll never see the money; if you’re a success, it will probably be less that you’re worth. So train yourself to think of options only as the chance for the record company to get out of your deal. They are never good for you.

Making the Best of Options

Despite my high-mindrd speech, the reality is that you have to live with options at all but the superstar levels–this industry custom is too well-entrenched to buck. However, since you are giving the company a chance to drop you after each album or two (to protect their tushies if there’s no success), I think you’re entitled to more goodies if they do keep you. This can be done in two different ways:

Royalties

For optional albums, you should get increased royalties. Typically, the increase is around .5% to 1%, both in your basic rate and in any escalated rates.

Funds

You should also get increased recording funds for optional albums.

These new option numbers usually look very enticing to you in the later option periods–but DON’T BE FOOLED. OPTIONS ARE NEVER GOOD FOR YOU. They only mean you’ll get dropped if you’re not worth the price or you’ll get too little if you’re a smash! So repeat after me–OPTIONS ARE NEVER GOOD FOR ME. Now write it on the blackboard twenty-five times!

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."