Signing the Dotted Line

Contracts come in many shapes and forms, depending on the kind of label that offers them. But they're almost always written in a jargon that defies common English, and they can inflate to more than 40 pages in length. Artists shouldn't try to wade through the legal mire on their own.

Hiring an attorney to analyze and negotiate the contract is key to getting a good deal, said lawyer Bill Burton. Burton works with some of the biggest names in local music and others nationwide.

"Don't sign anything that a lawyer experienced in this type of contract hasn't looked at," Burton cautioned. A slight change here and there can have a huge financial impact for a performer.

He advised that hiring a lawyer doesn't have to be as expensive as many think it is. Desperate acts also avoid consulting a lawyer, Burton said, for fear of ruining their chances at the big time -- but that just sets them up for exploitation.

"They think, 'The lawyer is going to tell me not to do it, and I'll never get a record deal. This might be my only shot, and I'd rather sign it than never get one at all.' That's a big mistake," Burton said. "If you get the right lawyer, they're not going to blow your deal. They're going to tell you what's wrong with it and how to fix it."

Most labels start out by offering a standard-issue contract to new artists. That first draft of the contract is always heavily weighted in the record company's favor, Burton said -- "They expect that a certain number of people they give it to are just going to sign it and hand it back."

Many artists want to ensure their "artistic freedom" is protected in their contracts. "That's just a waste of time," Burton said. Record contracts aren't as concerned with taking your freedom as they are with taking your money.

"The dirty little secret is record companies hate paying money to artists," Burton said. "They'll think of anything they can spend that money on to avoid giving it to you. They hate writing that check; it just tears them up."

"Indentured servitude" is what artist Don Henley called the practices of the major labels when he testified to a California Senate committee in September.

"If this is indentured servitude, where do I sign up?" countered Cary Sherman, vice president of the Recording Industry Association of America.

But backing up Henley's claim are stars like the Dixie Chicks, who sued Sony for alleged "systematic thievery." Likewise, Courtney Love filed suit against Universal for "unfair, unlawful, fraudulent and oppressive business practices."

"The system's set up so almost nobody gets paid," she wrote on Salon.com in June 2000.

Record companies, for their part, say they take a tremendous financial risk when they sign a new artist. Miles Copeland, owner of independent label Ark 21, testified, "We invest millions of dollars in an artist, and if it doesn't work, they walk. As an industry, it's risk versus profit. You take away profit, you take away any willingness to risk."

The most basic points that contracts negotiate include the number of albums, the amount of the advance and the royalty rate. The devil, however, lurks in the details.

Seven albums is the industry standard for the term of a contract, although independent label contracts are usually shorter. But that doesn't mean a record label will record seven albums -- only that it has the right to if it chooses. If the first album bombs, the label usually drops the artist.

Record labels spend a lot of money to produce and market an album. But they consider that money a loan that the performer must pay back out of his royalties. This is "recoupment" -- it's just a fancy term for "paying back," but it's a major element of record contracts.

Royalties are the money that a performer receives from album sales. The royalty rate is a percentage of the retail sales price, usually 10 to 15 percent. But what record companies give with one hand they take away with the other -- there are deductions from royalties for packaging and for paying the producer, among countless others.

That's assuming that bands get any royalties at all -- 80 to 90 percent of albums never reach that point. Because before performers start receiving royalties, they have to recoup the label for the entire sum of their advance payment.

In theory, an advance helps support the artist between signing the contract and receiving the first royalty check. But an advance isn't just cash in your pocket -- it's a pre-payment of the royalties that CD sales eventually will earn.

"As the artist, you don't get any of that money," Burton said. "You can't buy groceries with it." Much of the advance is instead used to make the record. And the more money you get as an advance, the more you have to pay back.

"If you just spent $300 of your advance eating at La Res, now you have to sell 300 more records to pay for dinner," Burton said.

REM's newest contract guarantees a $10 million advance per album. But when an artist agrees to a large advance, "You're just saying, 'I'm putting myself in a position where the label has to sell 75,000 of these things before I get any money,'" Burton said. REM may be able to sell more than 10 million records; most bands can't.

Performers might think that signing a contract with an indie label will free them from the profiteering practices of the major labels. But that's not necessarily true, Burton explained.

"The idea that signing an indie contract is going to be fine because they're your friends and they won't screw you is a myth," he said.

Smaller companies have less contract experience, and "the people who put them together don't even know what they say," Burton said.

But even though royalty rates can be low, distribution nonexistent and support staff small, an indie label contract can still be "roughly fair instead of completely one-sided," Burton said.

With all the legal snares, it might seem impossible to earn any royalties at all. But artists can make money through other means, like publishing rights -- which require payment to the owner of a song's copyright every time the song is used.

That includes when record companies sell the song on a CD, and that's why artists should negotiate publishing and recording separately, Burton said. "Hardly anybody makes money on their recording contract. The money is all in the publishing," he said. "You shouldn't give up your publishing rights except for big bucks."

In spite of all the ways contracts can take rather than make money for artists, they still offer visibility that artists can't get on their own.

But the days of sending a homemade tape to a label and magically getting a record deal are long gone, if they ever existed. Often, major labels only sign artists presented to them by well-connected attorneys or managers.

But Burton advises bands against paying someone to "shop" their demos to labels. Instead, he suggests saving up and recording a record out of pocket for a couple thousand dollars. Then sell the CD at shows and send copies to labels that put out similar music. "If you make a good record, chances are people will notice," Burton said. "Gather attention, and an audience and the record companies will find you."

But once you sign on the dotted line, don't go buying that new car with your advance payment. You haven't "made it" yet -- contracts are merely a means to an end, and the devil is waiting along the way.

The Arts & Entertainment Editor can be reached at artsdesk@unc.edu.