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Disc
Makers' Fast Forward e-Newsletter
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| Avoiding
Distributor Tricks |
Distributors
are notorious for not paying artists. Often, nothing short of a lawsuit
will bring payment. However, most simply negotiate out of their responsibility
to pay.
Distributors often try to legally bind naïve artists and producers
to detrimental contracts. The following information may seem a little
dry and complicated, but stick with it. It could save you thousands
of dollars.
In a straight distribution deal, the company simply takes a 25-40%
fee and distributes albums made by the band. All other costs fall
on the artist. However, since many artists can't afford all the costs
of recording and manufacturing an album, distributors sometimes negotiate
"intermediate" deals, where other costs are picked up and subsequently
recouped.
Remember, there is no "standard" deal—it usually depends on how
badly the distributor wants the product, how much money both parties
have, the band's status in the marketplace, and whether a prospective
analysis guarantees certain sales.
Wholesale vs. Retail
When the distributor fronts the funds for the album, artist and producer
royalties are based on a percentage of the retail price after production
costs are recouped. These can range from 7% for new artists to 13%
or more for star artists. The standard is 7-13% of suggested retail
price, or double that for wholesale. Distributors will often attempt
to set the royalty at 7-13% of suggested wholesale, cutting 50% of
the artists potential income, since suggested wholesale is roughly
half of suggested retail.
Solution
Read the contract! Artists, both new and established, have a tendency
to sign terrible agreements to "get it over with." Distributors know
this, and take full advantage of it. Remember, if you sign it, you
live with it, for the written contract rules. Most courts ignore statements
made by either party during negotiations that conflict with the written
agreement. No matter what's promised, if it's not in the contract,
it doesn't count. Look in the compensation section and take note of
how the royalties are calculated. Make it clear during negotiations
you know the difference between wholesale and retail.
Deduction for Returns and Artwork
Royalties have traditionally been based on 90% of the suggested price,
with a 10% deduction to cover the cost of returns. Today, this is
unnecessary since all distributors keep a return fund from royalties
due, but the practice of deduction continues. Thus, if the suggested
retail is $1.00, 10% deduction for returns will make the royalty base
90 cents. There's a further deduction for art and cover work. On CD's
and tapes, it can be as high as 25%. Twenty-five percent of 90 cents
is 22.5 cents. With a few legal strokes of the pen, your royalty base
has been reduced to 67.5 cents on a $1.00 suggested retail. If you
allowed royalties to be calculated on suggested wholesale, the royalty
base is reduced to 33.75 cents per dollar. Your 7-13% is then calculated
from that base amount.
Solution
Try to negotiate out the 90% provision, pointing out that there's
a return fund. As for the art and cover work, offer to do it yourself
and reduce the deduction, or negotiate the lowest rate possible on
the precept that without the music, there is no artwork. The higher
the base amount, the higher the royalty. If the distributor likes
the album, they'll likely work with you on the percentages. Set a
base amount you can live with, then work from there. For example,
if you decide the minimum you'll accept is .70 cents on the dollar,
tell the distributor. Make it clear this is the lowest acceptable
royalty base with all deductions.
Return Fund
Distributors will often hold a return fund, which can be as high as
25-30% of royalties due, whereby artists are only paid on albums actually
sold, and some distributors deduct the cost of unsold and returned
albums against royalties owed. The distributor usually holds this
money until the very end of the relationship.
Solution
Request that the fund be based on actual returns. For example, measure
at the end of one year and adjust the fund to that percentage. Further,
insist on being paid interest on withheld royalties. In theory, if
the distributor offsets the wholesale price of returns that can't
be resold, you bought them. Insist on receiving the physical product,
and retain the right to sell it on your own, through the Internet,
at concerts, or any other medium that doesn't directly compete with
the distributor.
Suggested Sources
The Business of Music, Shemel & Krasilovsky Releasing an Independent
Record, Gary Huswit
Law and Business of the Entertainment Industries, Biederman, Pierson,
Silfen, Glasser, Berry, Sobel.
* The Musician's Survival Guide
* Music Law Forum
www.lawgirl.com
Record Contracts from the Artist's Perspective
Author Michael Heicklen is an entertainment attorney located in LA.
He can be reached at (818) 881-9600, or mjh@pacificnet.net.
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