Copyright Information: Advanced Demo Deal Negotiation

This Article Originally Published August 1998

by Donald S. Passman

part one | part two

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:

1. 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.
2. 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:

1. 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).
2. 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.
3. 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.