There can be big money in music, but too often the recording artist is cut out from the profits.
The music market is dominated by three major labels. These corporations are conservatively valued at over $100B and control 68% of the global music market.
Streaming has transformed the industry and labels have been the main beneficiaries. In 2020, U.S. streaming revenue grew 13.4% to $10.1 billion. The labels enjoy substantial revenue growth with reduced expenses now that physical product sales (CDs and vinyl) only make up 9% of revenue.
These contracts skew heavily in the favor of the record labels. Unlike customary deals where the costs are recovered “off the top” from gross revenues, these contracts require that the artist actually pays back the vast majority of the monies from the artist’s small share of royalties, leaving the artist with a negative balance while the label reaps all the profits. The contracts also mandate that the label gets to continuously unilaterally extend the term of the agreement and retains ownership of the copyright in the artist’s music.
How is a record deal different from a standard sales or commissioned work agreement?
Record deals are not as simple as a recording artist promising to deliver a certain number of finished products. These are exclusive, long-term all-consuming commitments. Unlike a chair manufacturer who can go sell chairs to multiple customers, a recording artist is agreeing to deliver songs for only one company for what may end up being the entire length of their music career.
There is also no guarantee the label will pay for these albums. The label also controls the album release date and the options period, which can delay album production considerably. See Explaining Options
While the label makes no real commitments to the artist, the artist commits that the label owns every recording they make during the term. This means that while under contract:
The label can stop an artist from doing other creative projects that the fans love, including performing in a film, collaborating on a song with another artist, or performing at a festival that is recorded.
More often, emerging artists are signed to a 360 agreement wherein the label is entitled to money from the publishing, touring, brand opportunities, and merchandise sales.
The record labels can get out of record deals. It’s called built-in options.
The label is actually not committing to a certain number of albums. The label only commits to the initial album (and they can get out of that, too!) and then a series of options where the label alone can decide whether to end the deal. Options are irrevocable for the artist. See Explaining Options
The record deals are one-sided.
Record deals are not a partnership. The label holds all the cards, can be lackluster in releasing and promoting the album, can end the deal after each new product, will make most/all of the money, and it can sell the copyrights to the sound recordings without permission. Throughout the life of the record deal, the label may hire entirely new executives or staff and the company itself may be sold to a new entity.
The artist, however, cannot walk away.
