Net Profit Deals/Indie Labels


by Jeff and Todd Brabec
Many indie record companies structure their contracts so that the recording artist and record company each receive 50% of the profits from each album and other recordings controlled by the agreement.

In most of these agreements, the recording artist does not receive a separate non-cross-collateralized accounting of mechanical royalties for the sale of albums or singles since profits include mechanical income as part of the net monies jointly shared by the artist and the record company.

This is unlike most major record company or traditional artist agreements (other than "360 deals"), which guarantee that the artist-writer will receive his or her songwriter/publisher mechanical income for album and single sales regardless of whether or not the record company has recouped all recording costs, artist advances, and other recoupable costs.

There may be controlled-composition clauses in these major record company agreements that reduce the mechanical income due the artist-writer, but the record company does not share in this source of income.

Profits in these contracts are usually defined as gross receipts less expenses.

As to how gross receipts is defined, in most cases, the term includes all income received (or credited to) the record company from the sale of the master recordings as well as all licensing income (e.g., the use of a recording in a television series, video game, or motion picture).

Expenses may be defined as all monies payable to third parties in connection with the masters including, but not limited to, recording costs, manufacturing and packaging, jackets, booklets, shipping, storage, distribution, advertising, marketing, and promotion directly attributable to the recordings.

One should be careful not to include costs associated with the general overhead of the record company (salaries and benefits, rent, etc.) as these are not expense items to be considered.

© 2008 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 Business" written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales).

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