Part Four: Basic Contracts for Operating Your Record Label – Signing Talent & Other Dealmaking

This is part 4 of our five part series on Starting a Record Label. In our previous posts, we introduced the idea of starting a record label – to begin thinking about what it means to run a record label from a business perspective (Part 1 of 5). We also discussed the steps you need to take in forming a business entity (Part 2 of 5) and the importance of protecting your brand name through federal trademark registration (Part 3 of 5)

In this part of Starting a Record Label, we will discuss the types of contracts a record label needs to operate and ultimately, sign talent. Like any synopsis of starting a business, it is impossible to cover every detail in one article. In this posting, we will identify the three most important contracts required to start a record label.

1. The Recording Contract: This document can range from 7-100+ pages in length. If you are signing an artist to a multi-record deal, there are various contingencies that must be addressed in the beginning. The choices are endless. But what is most important is that your record label obtains the rights it needs to press and distribute albums, promote the artist, develop brand awareness. Newer contracts, known as 360 deals, seek additional revenue shares from the artist – in addition to the earnings from album sales, almost all record labels are now seeking a share of the artist’s merchandise, touring, and “collateral entertainment activities”. As a start up record label, these revenue streams will need to be considered in the recording contract.
2. The Producer Agreement: While most record labels do not hire producers directly to record music for the artist, and instead provide the artist with a recording fund to manage, you may need to hire producers in the early stages of operations.
3. Agreements of the 360 Deal: While these agreements now encompass the recording agreement, they generally stand independent of the record contract. Exercising rights over your artist’s merchandising is much different than selling albums – the contract needs to be customized for these dealings. Same goes for touring rights. It is also important to understand the concept of cross-collateralization – your contracts will want to be cross-collateralized. This means that money owed under one agreement can be recouped under another agreement (or option of the recording contract) before royalties are paid under any agreement. While this provision is always contentious, many record labels believe it is an important safeguard against the large investments they are making.

The various contracts of a record label are crucial to the operations of business. As we’ve outlined in previous parts of this series, you need to create a business entity and ensure that your brand is protected. Those steps alone, however, will not drive your company – they simply provide the foundation for operating your company. The contracts and other third party ventures are the driving forces behind your company. So, build the foundation and then get out there and start signing artist; and more importantly, promote them, support them, and sell lots of albums (and digital downloads)!