Recording Contracts-Recoupment

Before signing a recording contract my first and most important advice is to hire an entertainment lawyer. But for educational purposes I want to tell you about one of the most important concepts worked into your contract. Recoupment is the process in which the record label will keep the artist’s royalties until all recoupable costs are paid back to the label.

This isn’t as bad as it sounds as long as you are aware of what you are getting into. Recoupable costs will pretty much always include advances and recording costs. As far as other costs go such as touring, manufacturing, etc. it can be any complicated combination because after all every contract is different. So again, you should get an entertainment lawyer.

As far as advances are concerned you won’t have much luck trying to negotiate this one out of the recoupable list. Let’s say the label pays the artist $100,000 as an advance. This is a one-time lump sum. Since it is recoupable, you won’t be seeing any royalty payments until you’ve sold enough copies of your album to recoup the entire amount plus other recoupable costs. If you become an overnight hit it will happen very fast. But if your like most artists you probably won’t recoup that kind of money on your first album so don’t get a superstar ego and blow it all in a few short months.

The recording studio is probably where most artists really start racking up the recoup bill. If you’re using the studio’s guitars to record your songs it’s probably a good idea to know what they are charging the label for instrument rental. Yes, instrument rental might also be recoupable in your contract as well. So figure everything out ahead of time before you go blowing money without realizing it. Also, I know the studio is a fun place but it’s important to stay focused on finishing the album. Now that you understand recoupment a little better, you probably have put two and two together and realize that it’s actually your money that you’re spending per hour on that studio.

The final point I want to educate you on is that your recoupable costs are more than likely cross-collateralized. Let’s say your first album is still short $7,000 in sales from recouping by the time you finish recording your second album. If your second album recoups you start earning royalties right? Wrong. Your second album now has to make up the $7,000 you were short of recouping on the first album before you start seeing royalties from the second album. This is why an artist who hits it big on a 3^rd or 4^th album may not actually be rich after all. The good news is that once both albums have been recouped by the label, you earn royalties from the new sales of both.

So what's the moral of the story? Money is never free so be smart with it.