by Jeffrey and Todd Brabec
It is common in the recording industry for the artist to be signed to a production company, which in turn signs with the record company as the provider of the performing services of the artist.

This arrangement is extremely prevalent in the case of superstars and established artists, especially when these performers not only produce or coproduce their own recordings but also take on the responsibility of many of the creative and business aspects surrounding the conception, creation, recording, and delivery of their albums.

The production company will always warrant that it has a binding agreement with the performer that guarantees that the artist not only is required to perform exclusively for the production company but also will comply with all the terms of the record company-production company agreement.

The record contract will further provide that if the production company does not fulfill its obligations or enforce its rights with respect to the recording artist, then the record company will have the right either to fulfill an obligation or to remedy a default on the part of the production company.

For example, if the production company defaults on a royalty payment to the artist, the record company may step in to assure proper payment to the artist.

The record label will demand to see a copy of the contract between the artist and the service or production company, and will secure guarantees that no revisions or modifications will be made in the production company-artist agreement without the approval of the label.

Flow-Through Clauses

Because of the enormous investment on the part of the record company in the recording, distribution, manufacturing, promotion, and marketing of albums (to say nothing of the monies expended to sign the artist and secure the rights), the record label will always demand that the artist sign a "flow-through clause" that will guarantee that, if the production company furnishing the services of the artist defaults on its obligations, the artist will fulfill his or her obligations directly to the record company.

Under this type of arrangement, the record company effectively protects its investment and rights to the artist's services, since the artist is in reality agreeing to be obligated directly to the record company.

The record company will use its flow-through rights to the artist in a number of situations, the most common of which are the liquidation or dissolution of the production company, a bankruptcy or insolvency filing, an assignment of rights for the benefit of creditors, a failure by the production company to fulfill its obligations under the recording contract, and a breach by the production company of a term of its contract with the recording artist that jeopardizes the record company's rights.

© 2006 Jeff Brabec, Todd Brabec

This article is based on information contained in the new, revised paperback edition of the book "Music, Money, And Success: The Insider's Guide To Making Money In The Music Industry" written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales).

See How TAXI Works

"Thanks for creating and maintaining this great organization!"
— Angie Peckham,
TAXI Member

"I had the drive, and the passion. I just needed help, and you keep supplying it."
— Justin K.,
TAXI Member