Advances, Recouping and Cross-Collateralization: Part 2

An advance is precisely that; an advance payment for future royalties. But the bigger advance that an artist, producer, or musician takes the longer it will likely take to recoup that advance.

Take note that recouped does not mean paying back the equivalent of the advance. In reality, there are plenty of artists that have paid back the equivalent of their advance, and have been very profitable for the record label, but are still in an unrecouped status due to taking too much of an advance.

In the simplest of terms, “recouping” means paying back the money that a label has advanced to you from your share of royalties.

For example, if an artist has a 50/50 deal with a label and the label advances the artist $100k then $0.50 from every dollar, or 50% of every dollar, goes toward paying back the $100k advance.

By doing some basic math you can figure out at what point the artist would recoup the $100k advance and then start being paid the royalty of $0.50 for each dollar generated.

$100k divided by $0.50 equals $200k.

The artist would have to generate $200k in revenue before RECOUPING thereby starting to get paid $0.50 for each dollar collected by the label. The label profits $100k (the difference between the $100k advance and the $200k needed to recoup) before paying out the royalty to the artist.

Let’s take the $100k advance with a royalty of $0.50 and assume that the label has only collected $150k in revenue. The artist is still $50k away from recouping the 100k advance, BUT in this case, the label has profited $50k. This is how an artist can be profitable, but still be in the “RED” as far as recouping.

Let’s assume the artist was given a $200k advance in a 50/50 deal this time. The math would look like this:
$200k divided by $0.50 equals $400k.

In this example, the artist received an additional $100k advance, but now the label gets to profit $200k instead of $100k before paying out any royalties.

This time, let’s assume the artist takes the $100k advance, but instead of a 50/50 deal, the artist gets 20% which is more realistic for an artist.

$100k divided by $0.20 equals $500k so the label would need to collect $500k in revenue before paying out.

There are ways to reduce the percentage of the advance that is recoupable (maybe you only recoup certain recording or promotional costs and the label is responsible for paying back the rest) or receive a portion of your royalty before fully recouping.

AND there are ways that the label can reduce your royalty by making the artist responsible for paying the producers, A&Rs, etc. from the total royalty which is often the case.