If the recording artist is an accomplished live performer or if the record company desires that a new group go on the road to establish an audience and sales base, the record company will many times provide a certain amount of money in tour support.
Occasionally, a lump sum may be guaranteed or a certain amount of money allocated to each live performance, with certain limitations on the maximum amount of money it will be obligated to pay (e.g., $______ per performance but not in excess of $_______ during the entire length of the tour).
In most cases, a record company executive must approve a written tour budget confirming the concert dates and itemizing how the money is to be used—a safeguard that record companies do not want to give up.
The monies expended in this area are normally treated as additional advances to the recording artist and are recoupable from any royalties due the artist under the recording contract.
In some cases, the record company may approve the tour because certain guaranteed major markets have been included and, because of the inclusion of such markets, will guarantee any losses suffered by the group up to a certain limit.
For example, if a tour includes 10 major record business markets, the record company might guarantee the group that it will reimburse them for the difference between the actual out-of-pocket costs of the tour and the revenue received.
Under this type of scenario, if the tour earned $100,000 in income but cost $150,000 to produce, the record company might reimburse the group the $50,000 shortfall.
Obviously, if the tour is successful and either covers its costs or generates a profit, the record company will not have to pay anything.
If the tour is not successful or is successful artistically but doesn't pay all the bills, the terms negotiated in this area can be vital for an artist's financial survival.
It is more than possible, therefore, that an artist can have three unsuccessful albums and a major hit on the fourth album and still receive no royalties because of the overall debit balance incurred from the unrecouped recording costs of the initial three albums.