THE RECORD PRODUCER’S COMPENSATION STRUCTURE
In a label scenario, artists are signed by a record label and are responsible for hiring (and negotiating a deal with) a seasoned record producer. The producer receives an advance, a record royalty, master license fees and even a share of the copyright in the songs. Read on…
Producer Advances
As previously stated, record label contracts are typically structured as recording funds. To clarify, this means that out of the advances that you negotiate as an artist in your recording agreement, all recording costs (including a producer’s advance) must be considered in the producer’s agreement and paid at the start of the project.
To illustrate, if you’re a rock band signed to a major label recording deal with a very healthy fund of $200,000, $150,000 may be budgeted toward the recording cost budget, and the other $50,000 may be used as your advance.
Of that $150,000, a rock producer (at the top-level) can require an advance of as much as $50,000 for recording a full-length album. (Thus you’re left with $100,000 to record your album).
Producer Royalties
Record producers also receive a record royalty in a record label deal scenario. Most royalty provisions in recording contracts are structured as an all-in royalty. This means that out of the artist royalty rate you negotiate with your record company, the producer’s royalty must also be considered.
To illustrate, if the record company offers you an artist royalty rate of 16 percent, and the desired producer for a project requires a producer royalty of 4 percent (a typical amount for a mid-level producer), you’re now left with a net royalty rate of 12 percent (16 – 4 = 12).
So how much is the net rate worth? To simplify things for our discussion below, let’s say it’s one dollar ($1.00).
Read More: Exec Profile: Dina LaPolt
When the Record Producer Gets His/Her Royalty
Record producers get paid their royalty typically after the recoupment of all recording costs at the artist’s net rate. So, for the sake of simplicity, if the recording budget for an album is a high $150,000, and 150,000 one-dollar bills get thrown into a pot, the producer will start getting paid.
In contrast, an artist might not get paid until as much as 400,000 one-dollar bills get thrown into the pot. Why? Because artists must recoup so much more than the record producer has to, including the entire recording fund and all other monies deemed as an advance—touring monies, video monies and radio promotion monies.
Yup! Producers get a better deal. And no, you can’t produce your own records and get paid in the same way that producers do. But nice try.
How the Producer Gets Paid: Record-One Royalties
Also significant to our discussion about producer’s deals and royalties is “how” the record producer gets paid his/her royalty. Using our above example, after 150,000 records are sold and 150,000 one-dollar bills are thrown into a big pot to “recoup” (pay back) the costs of recording your album, the producer starts getting paid a royalty back to the very first record sold, a system called “record-one royalties.”
This means that the producer gets a 4 percent royalty on sales for all 150,000 units (less the advance monies that he or she already received) and then continues to get paid for every unit that’s sold after that.
Regardless of how the producer gets paid, once again it is a far better system than it is for the artist: you only get paid for sales from the point after recoupment. In other words, if it takes up to 400,000 units sold for you to recoup the advances paid by the record company, you would get paid a royalty only after the 400,000th record sold (i.e., 400,001, 400,002, 400,003, etc.).
Who Pays the Producer? The Artist Does!
You already know that once the recording costs are recouped, the producer is entitled to getting paid a royalty back to the very first record sold. And now comes the good part. Guess who is responsible for paying the producer? That’s right, you are. But don’t panic just yet!
What typically happens, with the help of an attorney (you’ve definitely hired at this stage of the game), is that the record company will agree to pay the producer’s royalties on your behalf. How nice of them!
But note that every penny paid to the producer by the record company is charged back to the amount of money you must recoup before you ever get paid a royalty. If you haven’t figured it out yet, this means that the more records you sell and the more the producer collects, the deeper in debt you can become.
The good news, though, is that if the gods of rock (or pop, rap or whatever) are on your side and you go on to sell shitloads of recordings (vinyl, downloads, streams and so on), eventually everything will mathematically balance out and you’ll start getting paid.
I’d show you how this works in a diagram below, but I figured I’d spare you the headache. (You can learn more about this stuff in my book Business Basic For Musicians.)
