2.0 Royalties

2.1 Royalty Rates

Most producers command 3% or 4% of the dealer price. When negotiating his royalty rate the producer should check that the royalties will be payable by reference to 100% of sales (and if not then the rate should be adjusted in order to take account of this). He should try to ensure that the agreed rate applies on all sales worldwide although he may have to suffer territorial reductions. If he is offered say 4% for UK sales and 3% elsewhere he should reject this but perhaps be prepared to compromise on the basis that he will suffer the same pro rata reduction as the artist. If, for example, the artist’s UK gross rate of royalty is 16% but elsewhere is 13% then the producer might accept 4% for UK sales and 13/16ths of 4% in relation to foreign sales. The producer might also try for royalty escalations based upon sales targets of some kind (so that perhaps the 4% rate increases to 4.5% for sales in a particular territory in excess of the number of sales required in that territory to achieve perhaps gold or platinum status). As an alternative, the producer might benefit from a pro rata share of any royalty escalation enjoyed by the artist (although the record company and the artist will usually resist this).

2.2 Method of Calculation

Most producers will accept that their royalty should be calculated at the agreed rate or rates in accordance with the same royalty calculation and payment provisions as apply between the record company and the artist concerned. Some producers refuse to accept this and insist upon the negotiations extending to a full scale review of the detailed royalty calculation provisions. There is some merit in this in the case of a sought after producer engaged to produce a recent signing. The artist may not have been in a particularly strong negotiating position in relation to his recording contract. If the principle is accepted then the person driving the deal for the producer should insist that he is given relevant extracts from the recording contract as quickly as possible so that these may be reviewed. If they contain provisions which are unfair or unusual then of course the producer should object to them.

2.3 “A” Side Protection

Most producers insist upon what is known as “A” side protection so that in the case of a single record if a track by the producer is featured as the “A” side the producer suffers no pro rata reduction in his royalty even though he may not have produced the “B” side. Sometimes the record company will only accept this on the basis that no royalty is payable to the producer if he has produced the “B” side and not the “A” side. A producer is normally reluctant to accept this but may do so if this is limited to those instances where the producer of the “A” side also has “B” side protection.

2.4 Secondary Exploitation

Some record companies are careful to word their producer agreements so that the producer is only entitled to a royalty in relation to record sales (and so that nothing is payable in relation to any other form of exploitation). The producer should insist that he is also paid for any other exploitation. Usually, the producer will accept a pro rata share of whatever is payable to the artist. For example, in the case of income from synchronisation licences the record company is usually obliged to account to the artist for 50% of its receipts. Using our example of the 16% gross artist royalty and a 4% producer royalty the producer should receive a one quarter share of the 50% payable to the artist (i.e. 12.5% of the gross). The producer should ensure that his royalty entitlement extends not only to records in the usual sense but also to any DVDs or other audio-visual devices and to interactive formats. Often, the producer will accept a pro rata share of whatever is payable to the artist in relation to the exploitation of audiovisual rights. It may be argued that this is inappropriate because the producer has only been involved in the audio element and not the visual element. On this basis the producer’s entitlement may be halved so that using our example, the producer would be entitled to 12.5% of whatever is payable to the artist.