The Record Contract: A Cautionary Tale

The Record Contract: A Cautionary Tale (Reprint of a 1998 Metroland Article)

It’s been three years since you formed Cobain Headstain — and things couldn’t be better for the band. Your self-released single, “Neatly Trimmed Triangle,” has been getting heavy spins on WEQX. Cobain Headstain are regularly headlining shows at QE2, pulling sellout crowds each and every time. You also just played a slamming opening set for the Black Flag reunion show at Valentine’s, catching the attention of the Mammon Records’ A&R rep who happened to be Rollins-watching at the bar.

Your bandmates put you in charge of negotiations when Mammon comes a-courtin’ in earnest a few weeks later, since you’ve always been the one who handled Cobain Headstain’s affairs — booking shows, renting the truck for that gig in Poughkeepsie, buying pizzas for rehearsal, all that business stuff. And their trust was well placed, as after a few weeks of amiable back-and-forth with Mammon, you and the guys are sitting at the signing table, contract and pens in hand. Yeah, there’s a bunch of gobbledygook in the contract, but you know it’s just the usual meaningless verbiage that shows up on apartment leases or on those purchase slips they make you sign at Radio Shack. The important points are that Mammon will be releasing the Cobain Headstain debut album — while the band will be walking out of the label’s offices with a $100,000 check in hand and a promise of 15% royalties on the forthcoming album’s sales.

After the signing, you immediately head for the studio to lay down tracks for your debut disc, Die Through This. Mammon Records are generous to a fault throughout the recording sessions and, amazingly, even accommodate your request to have Brian Eno flown in from England to produce. Wow! Ten weeks later, you and the guys head home, cash that big fat Mammon paycheck and decide to live it up for a while because, well, you’ve earned it. And what’s a little drug-addled excess between friends?

When you all regain consciousness three months later, some $100,000 poorer for your hearty partying efforts, you discover that Die Through This has shipped 200,000 copies and the re-released “Neatly Trimmed Triangle” is in heavy rotation on over 100 radio stations nationwide. You run down to Music Shack and see that they’re selling Die Through This on CD for 15 bucks a pop — so you do some quick math (15% of 200,000 albums at $15 each) and figure that your band is entitled to about $450,000 in royalties already. Ch’ching! Filled with cash lust, you return home, call up the other guys and give ’em the good news. Boy, are they stoked!

Next you ring Mammon to ask when the money trucks will be making a drop at your house. When the label’s accountant finishes laughing, he answers, “Sorry man, but that $100,000 advance you got wasn’t a gift: you have to pay that back before you see another penny. How? Through your royalties, of course, which we’ll be keeping until we’ve recouped the full advance, plus any other recoupable costs that you incur.”

Being a smart boy, you point out that there should still another $350,000 coming your way on sales to date after the advance is recouped. “Nope, sorry, it doesn’t work that way,” the chuckling Mammon bean counter replies. “First off, your royalties are calculated on a suggested retail list price (SRLP) that we assign each record we release; if the stores want to sell records for more, that’s their business. And I’m sure you recall that we’re calculating your royalty payments on a cassette SRLP of $10, although since you only get paid royalties for the portion of the product that you actually created, we also discount that SLRP by 20% for cardboard, plastic and packaging costs. So the base on which your royalties are calculated is actually $8 per unit, not the $15 you may see on a CD in a record store.

“You may also recall that your 15% royalty rate was anall-in royalty rate, which means that the producer gets a cut,” Mr. Mammon continues. “And since Eno commanded a 5% royalty, your net per unit actually ends up being 10% of the $8 I just explained. So in order to figure your royalties, you need to multiply the number of royalty bearing units by an 80 cent unit rate.”

Okay, 200,000 records at 80 cents a pop, that’s still $160,000 — which means you’ve paid off the advance and have $60,000 coming your way, right? “Wrong again,” your phone chum answers. “Since 20% of the units we ship are freebies to radio stations, you can’t collect royalties on those. And don’t forget that we also deduct a 15% breakage factor on sellable units to account for things getting destroyed in the mail. So removing 20% worth of free goods from the original 200,000 units shipped leaves 160,000 sellable units, 85% of which generate royalties for you. So that’s 136,000 royalty bearing units at 80 cents a pop, or about $108,800 in gross royalties.”

Ummm . . . so that means you get only $8,800 after selling 200,000 records!? “No, ‘fraid not, because you also incurred some additional recoupable costs over the last few months,” explains Mammon’s cash demon. “There’s $150,000 for studio costs plus $50,000 for independent radio promotion of ‘Neatly Trimmed Triangle,’ meaning that in total you’re actually now about $191,200 in the hole. So in order for us to recoup that amount, we’ll need to ship . . . oh, say another 350,000 copies or so of Die Through This. And honestly, that’s not likely to happen.

“So you guys better hurry up and invest your advance in merchandise to sell on that tour you’re supposed to be setting up,” the Mammonite concludes. “Because that’s where you’re gonna make your money. Oh, and I also want to thank you, while I’ve got you, for giving us your publishing rights — because we’re just making a killing on all the airplay that ‘Triangle’ has been getting. You guys have been real good for the company!”

You hang up. You call a band meeting. You announce that you’re quitting to pursue other opportunities. You take out an ad in the Metroland classifieds reading: “Established bassist seeking to form new band. Need drummer, guitarist and lawyer. Serious inquiries only.”


The Local Perspective

Okay, so why sign a contract with a record label at all, if it’s that much of a hassle?

“Well, as a general rule, musicians don’t have any money,” answers Clay People vocalist Dan Neet. “And the only way they’re going to get any is by signing a contract with somebody who has some.”

Neet and his bandmates signed such a contract with Slipdisc Records (a Mercury affiliate) late last year, but the deal was a long time in the making. “We spent about eight years building the Clay People name before we signed with Slipdisc,” Neet explains. “We had already issued several independent records, which helped us build credibility in the music business. And I really think it’s a good idea to incubate a band like that it if you want to last, because a lot of the bands who come straight out on a major label are just not ready for what gets thrown at them.”

“I used to really look up to those bands that were signed to major labels,” adds Neet’s guitar-playing bandmate Mike Guzzardi. “I was so hungry for that and I just focused everything I had on getting to where they were . . . but once I got there, there were just all of these new monsters to deal with. One of the Figgs had told me that was the case a few years ago and I laughed at him then, but now I know exactly what he was talking about, ’cause when the shit hits the fan, everything comes to down to business once you’ve signed on that line. And ultimately a label is only interested in you as long as you’re able to make money for them, since that’s what their business is all about.”

Neet and Guzzardi are both quick to stress the important roles that their business advisors played in the negotiations leading up to their contract and in their approach to managing their affairs since the signing. “Every band needs a team: a lawyer, manager, publicist, tour manager, sound person, whatever,” summarizes Neet. “And we’ve developed a great team over the years who can do all the business things that I don’t feel are part of my job description as a member of the band. But it’s also important that you work with the people on your team for a while to learn their capabilities before signing on the line — because once you sign, everybody gets a cut.”

So with all of those cuts heading into other people’s pockets, how can a band make any money on a record deal? “There’s a perception that a lot of bands have about how they’re gonna make money selling lots of records once they sign a contract, but that’s really a myth,” explains Clay People drummer Dan Dinsmore. “Most bands are gonna make their money on advances, on touring, on merchandise and on their publishing rights, particularly if you can get a song on a soundtrack or whatever, ’cause you’re getting a cut every time that song is played. So when you sign a contract, you want to make sure you get your publishing rights and tour support into the deal, then you also want to get as big an advance as possible to invest in the band and in merchandise to sell while you’re on the road.”

Super 400 took a different approach when they signed a deal with Island Records to release the group’s eponymous debut album after it had already been recorded for the local Cacophone label. “We really didn’t try to get a lot of money from Island up front,” notes singer-guitarist Kenny Hohman. “Although, at out manager’s suggestion, we did get a truck out of the deal so we’d have something to tour in. We figured it was better to be an inexpensive purchase for Island, since then we might get to hang around longer — which is important to me, ’cause I really don’t want this to be our only album. And Island’s looking at it that way, too, which is nice: they’re kinda treating us like a young fighter, bringing us along slowly instead of burning us out with a media blitz.”

Hohman also emphatically echoes the Clay People’s sentiments when it comes to having a sound business team. “I just really hate the business side of it because it’s so far removed from the music part,” he notes. “So I just play the best I can, write the best songs possible, look presentable on stage — and have a great lawyer and a great manager to handle the rest of the stuff, because it’s just too terrifying for me to deal with.”

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