1.0 Independent Record Companies

1.1 Royalty or Profit Share?

A producer may have to accept that he will be paid on a rather different basis if he undertakes work for an independent record company or for a production company. The first difficulty is that the independent companies generally do not have the same level of funding as the majors so that the producer may be squeezed harder so far as his advance is concerned. Many independent record companies have turned away from the traditional royalty system and instead pay their artists perhaps 50% of any net profits. Although there is some logic in the artist and record company taking this joint venture approach it is less logical for the producer to be tied into this. The producer will have no involvement once his work in the studio is finished and he will certainly have no control over what expenses are incurred. Usually, therefore, the producer will insist that his royalty is calculated in the normal way. In fact, if he has had to accept a reduction in his advance because of budgetary constraints he may wish his royalty to be enhanced in some way to compensate for this.

1.2 What Percentage of Profit?

If the producer is nevertheless persuaded to accept a share of net profits then what percentage should apply? Our example of the 16% royalty under the traditional system inclusive of a 4% producer royalty gives a ratio of 3:1, i.e. the artist’s earnings are three times greater than the producer’s earnings, (although this does not take into account the fact that the artist suffers recoupment of recording costs from his share). If the gross royalty under the traditional system were at the higher end of the scale at, say, 21%, then in the case of a producer who would normally command a royalty of, say, 3%, the ratio increases to 6:1 in favour of the artist.

If the artist is to receive 50% of net profits then logically, the producer might ask for between 1/6th and 1/3rd of the artist’s 50% share. Although this does not affect the producer, the question then arises of whether the producer’s share comes “off the top” leaving the balance to be split equally between the record company and the artist (which is the more usual arrangement) or whether the artist’s 50% share should be inclusive of the producer’s share.