By Jeffrey and Todd Brabec
Recoupment of Video Costs. Since the monies expended on an artist's video are virtually always treated as additional advances recoupable from the artist's royalties, there are a number of ways that recoupment is handled by the record company.
The preferable approach for the recording artist is for the expenses of videos to be recouped only from the income generated by the video. Since most videos are "promotion only" vehicles and do not generate any income in and of themselves for the record company, most record company contracts provide that the company can use monies received from other areas to recoup the costs expended on videos.
Initially, the production cost of each video (which usually includes payments to music publishers and unreimbursed duplication and delivery expenses in addition to all the costs related to the planning and making of the video, but usually excludes overhead costs and service costs of the employees of the respective record company) is charged to what is usually referred to as the recording artist's video account.
n most contracts, however, the record company can transfer from 100% to 50% of the video account to the recording artist's audio account so that the record company will be able to use monies due the artist for the sale of CDs and cassettes ("audio account royalties") for reimbursement of the monies expended for the production of videos.
Since the monies spent on videos can range from $50,000 to over $750,000, the negotiations relating to how the record company can get its money back can be very intense. Large recoupable items such as videos can easily wipe out a record company's profit margin or an artist's entire royalty account. Occasionally, recording artists are able to get the record company to agree that the audio account and the video account will not be cross-collateralized, but in most cases, at least a portion of the video account expenses will be recoupable from the recording artist's CD and audio tape royalties. Most writer/performers are able to exclude songwriter and publisher mechanical royalties from the recoupment equation, but some contracts provide that mechanical royalties can also be used by the record company to recoup all or a portion of the video costs.
Video Royalties. Since many recording artists' videos are released for sale to the general public (as opposed to serving as "promotion only" vehicles and sent to MTV, VH-1, etc.), it is important for every writer/artist to negotiate a royalty structure in the recording agreement that will cover videos sold on the commercial market. Most companies will negotiate and provide for a royalty (either on a to-be-negotiated good-faith basis or actual set royalty basis) in the recording artist agreement.
Depending on the policy of the record company involved, a number of different formulas can be used to determine how much a recording artist/writer gets paid for the sale of videos, whether they be single-composition, promotion-only videos or, more likely, multicomposition video projects.
Some record companies will pay the artist a percentage of the wholesale price of the videos; others will pay on the basis of net receipts received by the record company; some will pay on the basis of a percentage of the list price; and others will pay a set penny rate.
In addition, if a writer/artist is a superstar, the record company will more than likely provide in the agreement that if other artists signed to the label receive higher royalty rates than those negotiated in the current agreement, the superstar will automatically get the benefit of such higher royalty rates (i.e., a "most favored nations" clause).