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by Donald S. Passman
Cost Reimbursement
If the demo company doesn't want you after you do the demos,
or if it passes on your deal when you come back under a first
refusal, you are free to go elsewhere. When you do sign with
another company, however, the Demo company will want its demo
money back. Since you're not likely to be in a position to
write a check, the Demo company will want it from your new
record deal.
Most
record companies "second in line" (meaning the ones that follow
the Demo company) are willing to put up money to reimburse
the cost of demos. (After all, sometimes they're the Demo
company and they want their money back, too). This cost, of
course, will be recoupable from your royalties, and thus it's
ultimately your money. However, it still beats smashing your
piggy bank.
Here
are a couple of things to negotiate in anticipation of this
possibility:
- The Demo Company should only get its money back if you
make a new record deal. Period.
- There should be a time limit. otherwise, five years later,
you might get a deal based on totally different music and
find you owe money to the Demo Company. Try a year or so.
Non-Record Company Demos
Record companies aren't the only places that may be willing
to fund your demos. I've seen deals where demos are funded by
recording studios, producers, engineers, rich people who want
to be in rock & roll, poor people who want to be in rock & roll,
etc. Indeed, one of the more bizarre stories I came across was
a guy who funded an entire album, but would never tell any of
us where his money came from. He lived in a walled estate and
always paid in cash. Ultimately, after the album was about to
be finished, this guy literally disappeared, and we haven't
heard from him in the last several years. It would really round
out the story to tell you that this was a hugely successful
album, but to date they still don't have a record deal. (Sorry.)
Since
non-record company sources can't actually make you a record
deal, their contracts don't look anything like the demo deals
offered by majors or independents. Also, because they are not
mainstream deals, there are basically no rules, and I've seen
them run all over the map. Here are some of the more common
arrangements:
- If and when you get a record deal, you reimburse them
the cost of the demos, and the demo funder (let's call them
the Funder) gets a 1% or 2% of retail royalty on your records.
This royalty is known as an override, because it
rides on top of your deal. However, the record company will
take it out of your royalties, under the age-old theory
that, "It's your problem, not mine."
- You want to limit the override to as few records as humanly
possible. The minimum is where the Funder gets an override
only on the specific demo recordings that are finished into
masters on your record. Your argument is that the other
demos didn't interest the record company. I've also seen
deals where there is a smaller override if a song in a demo
is re-recorded, as opposed to the demo being turned into
a master. For example, the Funder might get a 2% royalty
if you fix up and use their actual recordings, versus a
1% royalty if the same song is re-recorded.
- At the other extreme, the Funder may ask for an override
on every record under your deal, which I think is overreaching.
If you agree to this, you'll be married to this yutzo forever,
in exchange for their relatively small investment I n your
career. Ideally, the override should only apply to the first
album, but perhaps you can throw in a couple more if it's
necessary to make the deal. Another compromise is not to
limit the number of albums on which the funder gets an override,
but to say they only get the override until they get back
twice (or three times) their investment. So if the Funder
puts up $10,000, they only get an override until they receive
$20,000 (or $30,000).
- If the Funder only gets a royalty based on the use of
specific recordings or songs, be sure to specify their royalty
is pro-rata (the royalty is in proportion to the number
of cuts on the album).
- The Funder's royalty should only be payable after recoupment
of the amounts charged to you in connection with the records
on which they have a royalty, such as tour support, videos,
etc. It's not fair to charge the Funder for recording costs
of records on which they don't get an override, nor should
they be charged for advances they don't share in.
Donald Passman is a Los Angeles-based
music attorney with the firm of Gang, Tyre, Ramer & Brown.
Specializing in music business law for over 20 years, his
clients include major publishers, record companies, film companies,
managers, producers, songwriters, and artists such as REM,
Janet Jackson, Quincy Jones, Tina Turner and Green Day. On
a regular basis, we will be excerpting from Mr. Passman's
best-selling book, "All You Need To Know About The Music
Business."
From "All You Need To Know About The
Music Business" by Donald S. Passman. ©1991, 1994, 1997
by Donald S. Passman. Reprinted by permission of Simon & Schuster,
Inc.
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