Indie Producer Contract Breakdown Part# 1

There are a ton of indie producers that have questions about how an indie contract looks like and what terms should be included.  I often have to deal with this when an artist or label purchases a beat off of sites like BeatStars because most of the contracts that producers on there use don’t satisfy alot of the requirements that a major label has for producer agreements.  Below is part 1 of the breakdown of an indie producer agreement

<<Company Name>>

<<Company Address>>

Dated as of ______________

<Producer Address>

Dear <<Producer Real Name>>:

This deal memorandum will constitute a binding agreement in connection with your services as the producer of “<<Number of Masters>> ” (<<Number of Masters>>) Master(s) recording (the “Master(s)”), tentatively entitled “<<Name of Master>>” for possible inclusion on, the forthcoming album (the “Album”) embodying the featured performances of the recording artist collectively p/k/a “<<Name of Artist>>” (“Artist”)

These first few paragraphs provide the contact information i.e. name and address of both of the parties. In this contract, it has the company’s information at the top of the agreement and the producer’s contact information below that to the right. After a greeting to the producer under contract it goes on to list the number of masters, the name of each master that falls under the agreement, and the name of the artist that performs on the master(s).

1. Royalties: With respect to net sales of the Album/Single through normal retail channels in the U.S., you will be paid pro-rated royalty at the basic rate of three (3%) percent which for the avoidance of doubt, include digital and ringtone sales, and any other exploitation of the master which royalty (i) will be payable retroactive to the first Album and or single sold (subject to the recoupment of the Advance and any Excess Costs from such royalty), but only after recoupment of all recording costs and other recoupable costs incurred in connection with the Album at the “net artist rate” (which for the purposes of this agreement shall be 14%) less the aggregate royalty rate payable to you and any other third-party rendering services in connection with the Album)

The royalties section of the agreement is important and must be read very carefully.

The first thing that you’ll see is that the royalty is only being paid for “Albums/Singles through normal retail channels in the U.S.” This should be changed to “any retail channels and any exploitations of the Master”

Next, you will also see that the producer royalty is three (3%) percent on all exploitations of the Master. Producer royalties usually range from one (1%) percent to four (4%) percent. Two (2%) percent and below is for unknown producers, but even unknown producers can usually get three (3%) percent. For any major placement I wouldn’t settle for less than three (3%) percent unless there are multiple producers, called co-producers, on the Master. Four (4%) percent or more is usually reserved for established producers and anything more than that is for so-called “super producers”. Sometimes independent labels will give a larger producer royalty when they can’t afford to pay the producer’s standard advance.

You’ll notice that the royalty is “pro-rated”. A “pro-rated” royalty means that it is prorated by the total number of tracks produced by the producer and the total number of tracks on the album. For example, if you produced three (3) masters on an album that has ten (10) tracks on it and you have a three (3) percent royalty ,you will be paid as if your royalty is 0.9 percent.

3 (masters produced by the producer) X 10 (total masters on the album) = 0.30%

So your three (3%) percent royalty will be reduced by 30%

0.3 X 3 (the pro-rated producer royalty) = 0.9

Subsection i mentions that the royalty “will be payable retroactive to the first Album and or single sold (subject to the recoupment of the Advance and any Excess Costs from such royalty), but only after recoupment of all recording costs and other recoupable costs incurred in connection with the Album at the “net artist rate”.

This sentence means that the producer will not receive a royalty payment until the advance and any “Excess Costs” have been recouped. Keep in mind that Recouping is NOT the same as “making your money back”. In the music business a label can make their money back even though the artist or producer has not recouped.

In the next section you’ll see that this producer is receiving a three-thousand ($3,000.00) dollar advance. That means that before the producer receives a royalty check the label will need to recoup the three-thousand ($3,000.00) dollar advance and any “Excess Costs” associated with the recording of the Master. You should either find out what the budget is and ensure that you are staying below the budget when recording the track or include language stating that “the label confirms that there are no excess costs associated with the recording of this Master”.

If there are no Excess Costs, then the label will recoup the three-thousand ($3,000.00) dollars at the “net artist rate” which is fourteen (14%) percent. The net artist rate is the “all-in artist rate” minus the producer royalty.

If the “net artist rate” is fourteen (14%) percent and the producer royalty is three (3%) percent then the “all in royalty” is seventeen (17%) percent . You should negotiate to get the “all in royalty” and if possible find out what rate the production company is recouping at and try to get that rate of recoupment.

Furthermore, the last part of the last sentence statest that the “net-artist rate” will be reduced by any royalty payable to you, which is three (3%) percent, but it goes on to state that the royalty will be further reduced if there are any “third-party” producers involved. This language should be removed or ideally the agreement should explicitly state that the rate the you recoup shall NOT be reduced by the producer royalty (since it’s already being reduced if you’re not recouping at the “all-in rate”) and should NOT be reduced by any third-parties since you’re not in control of whether the label decides to have another producer work on the Master or Album

If you’re recouping at three thousand ($3,000.00) dollars at eleven (11%) percent from singles sales costing one ($1.00) dollar then rather than just making back the three-thousand ($3,000.00) dollars the label will actually make back close to twenty-one thousand ($21,000.00) dollars. Here is how it works.

For every dollar that comes in, eighty-six (86%) percent goes to the label and fourteen (14%) percent goes to you to pay back the advance.

The contract takes it a step further than just paying back the advance. It states that the royalty will only be paid “only after recoupment of all recording costs and other recoupable costs incurred in connection with the Album at the “net artist rate”.

This means that not only will the advance be recouped, the recording costs associated with the Album and any other recoupable costs associated with the Album will be recouped at the “net artist rate”. This should be negotiated down to at most recording costs associated with the Masters. A producer should not be responsible for recouping the marketing, tour budget and any other costs associated with the Album not directly related to the production of the Master.

Check out How Producers Can Receive Their Royalties Sooner Part 1 to learn more

In the royalty section, the SoundExchange Letter of Direction (LOD) should also be mentioned substantially in the language used below.

“In the event Company or Artist receives or is credited with any so-called “Direct Monies” from third-parties other than Distributor (i.e. monies from SoundExchange, AARC or any other third parties making payments in connection either with performer’s share of digital performing rights in the Master or blank recording media levies) to the extent solely attributable to the Master, Company or Artist will pay you your pro-rata share of such Direct Monies determined by multiplying such Direct Monies received by Company or Artist by a fraction, the numerator of which is Producer’s Basic Royalty Rate and the denominator of which is equal to Artist’s basic unescalated royalty rate for USNRC net sales of Albums through normal retail channels in the United States. In connection with the foregoing, Company and Artist’s obligation to pay you your share of so-called “SoundExchange” Direct Monies shall be satisfied solely by providing to you the letter of direction attached hereto as Exhibit “D”, executed by Artist authorizing SoundExchange to render payment to you directly for your appropriate share. Notwithstanding the foregoing, in the event that any so-called “featured artists” are added to the Master, Company shall direct and use reasonable efforts to cause such featured artists to execute and submit additional executed SoundExchange letters of direction to ensure that Producer is paid the Fraction of such featured artists’ share of the “featured artist share” of SoundExchange monies for the Master, provided that a failure by such featured artist to execute such letter of direction shall not be deemed a breach by Company and/or Artist of this agreement.”

2. Advances: Three-thousand ($3,000.00) dollars, (the “Advance”); payable once the song is released for sale (digital or physical).

As stated in the previous section, the advance is for three-thousand ($3,000.00) dollars. The Advance, Producer Royatly and rate of recoupment should all strike some kind of balance because the bigger the advance you take usually the longer it will take for you to recoup and receive a royalty check. You can use the rate of recoupment to reduce the time it takes to recoup and then further reduce how long it takes to recoup by reducing the scope of what the producer is responsible for recouping.

In this contract, the Advance is due once the song is reduced. Usually, a producer job will be done well before the Master is released so you should receive your advance upon execution of the agreement if the track has already been released and try to get half of the advance paid if you enter into contract negotiations before the track is done, but usually only established producers can lock in these terms