This article has been written by Bhumi Agarwal, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
An independent record label contract is an important agreement in the music industry, which is signed between the small or medium record label company and the artist/singer/band, to have legal proof of its working with each other. This article aims to let the readers get aware of what is an independent record label contract, who are the parties to this contract, and what are the clauses that one should keep in mind while entering into such agreements.
What is an Independent record label contract?
An independent record label contract (indie contracts) is the agreement that record labels use in order to create their ownership rights over the music recordings of the lead recorder (singer/artist/band). Also, via this agreement they can get various licensing, selling, and promotional rights in relation to these recordings. There are various clauses in this agreement including the parties, duration, royalties, payments, advances, selling destinations, etc. which are important in order to create obligations on each party regarding the recordings. By way of entering this agreement, a record label company can avoid any sort of illegal claims on it such as those of patency, copyrights, etc.
What are the important clauses in an Indie contract?
Although every clause or provision in any contract is important as per law; but few clauses have more weightage and so are framed differently for different agreements. Here is the list of clauses that one should be aware of and include in any Indie contracts.
- Parties clause
- Purpose clause
- Duration clause
- Selling destinations clause
- Royalties clause
- Financial advances clause
- Clause for sending caps
- Clause for making profits
- Clause for extras
- Copyright clause.
So, let’s discuss each of these clauses in brief.
- Parties clause
The parties clause here lays down who will be the parties to this contract. These contracts are usually signed between a record label company and an independent singer/artist.
- Duration clause
This clause shall include how long this contract will continue to have an effect. It is usually for a shorter duration like 1-4 years but can be as long as the parties desire. As in an independent label contract, the contract is between a short to medium-labeled company and an independent and new artist so, it’s better to have a short-term contract in the beginning which can be further extended on mutual consent. To, extend the term it is important to mention the same in the clause like:
“1.1 The parties hereby agree that this Agreement shall remain valid for a term of 2 years subject to the condition mentioned in clause 1.2.
1.2 The parties hereby mutually agree that the Term of this Agreement may be extended if both the Parties find the same to be profitable by mutual consent.”
- Selling destinations Clause
The term selling destinations hereby denotes the places, territories, and areas in which the record label company will have the right to sell, distribute or publish the recorded album. This clause needs to be drafted as it must include only the places where such albums will get a chance to make more profits.
Example- If an artist has a deal with some record label company to sell its album in India, then there’s no benefit or right to execute another agreement with other parties for the distribution of the album in India only. Rather, it would be beneficial if the artist signs an agreement, which has different selling destinations, like the USA, etc.
The contract can either be for granting licensing rights or selling and distributing it at selling destinations.
- Royalties clause
Royalties are the percentage of the amount paid to the artists after each album is sold but after deduction of the several costs by the label company for the sale of the album. These deductions include packaging, promotional costs, shipping, taxes, venue charges, etc. The percentage paid as royalties to the artist is small and based on the profit of the album sold. In an independent record label contract, this percentage is usually set as 50-50 between the artist and the label company after proper negotiation. The problem with these royalties arises when the albums sold do not reach up to a level of gold i.e. if the album sold is less than 50,00,000 then, the profit made is less and so the royalties. When there exists a band with more people then the same royalties get divided among all the members of the band and the manager as negotiated as per the agreement. Suppose an album after deducting all the costs makes a profit of Rs 100 then, Rs 50 or otherwise shall be given to the artist as royalties based on the negotiation.
- Financial advances clause
The financial advances are the advance payment given to the artist by the label companies for their work on the album. It is usually based on the negotiations between the parties to the agreement but it’s always better to pay less in advance. When it comes to the independent label contracts you never know the ratio of income of profits you would be able to make out from its selling and distribution. So, to be on the safer side it’s better to first earn and then pay accordingly. It is good to spend more on promotional activities than to pay advances. This clause deals with what should be the amount of money that is to be paid in advance to the artists. Money plays a crucial role at every stage and so it’s important to provide advance only as your pocket suggests and the rest could be paid after the distribution of the albums.
- Sending caps
Sending caps in an agreement is like a limitation clause that limits the label company to spend money beyond the necessities. The artist is the party to this agreement has the right to put a cap on the expenditure done by the label company on the album. Although, it’s good to invest money to earn profits everything has to be done within the limit. So, the label company can be capped by the artists to limit their expenditure on the album to avoid unnecessary losses. Example- An artist can set INR 50 lakhs as a spending cap which means that nothing beyond 50 lakhs will be spent by the label company to sell, distribute or promote albums.
- Making profits
Making profits is an important part of this agreement. The parties must include this clause to make clear when the artist can expect to be paid by the label company. It is necessary to first mention that the artist will not receive any payment unless the label company recoups all its money spent on the album from promotion to sale. After recouping the money spent, the label company shall pay the artist the percentage of profit made by it. This percentage can be either 50-50 or otherwise as negotiated by the parties and this percentage of profit is not the money paid in advance but what is paid after the sale of albums or say after making an overall profit. There is no right or wrong in these deals and whatever suits best to both the parties is final and executed.
Extras are the other expenses that are made during the album release. The parties can mutually consent and decide that these kinds of expenses will not be included in the expenses of the album release and the one who spent on such things will be liable to pay for it separately. These may include traveling charges, hotel charges, fooding charges, etc. which shall be paid by either party separately and shall not be included in the expenses of the album.
- Copyright clause
Under most exclusive recording contracts, the artist will assign copyright in the music recordings to the record label company. The issue arises whether the company will remain to have the right if the albums are unreleased or remain unreleased due to any reasons, or if the artists pay all the costs then too, whether it’s the label who will have the right or the artist? To avoid these confusions this is important to include all these in the agreement. Other rights the label wishes to acquire include rights in the album artwork and the right to use the artist’s name and likeness in connection with the sale and promotion of the records.
This is important to include each and every clause in an agreement with utter focus and clarity. The clauses should be comprehensive, and no vague clause should be included in the contracts. When it comes to independent record label contracts, apart from the profit and losses the name and fame of both the parties is also attached to an album. So, to avoid any sort of harm whether monetary or non-monetary, it’s important to be clear in both drafting of an agreement and the understanding of the same by both the parties. These clauses mentioned here are a few of the important clauses of this agreement but the agreement is not limited to these clauses.
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