3.0 Territory

3.1 Worldwide Deals

When a major signs a new artist the company’s right to manufacture and sell records will invariably extend worldwide. In special circumstances, particular territories may be excluded. For example, a non-UK artist launching his or her worldwide career from the UK may already have recording arrangements in place in his or her home territory. An artist moving to a major from an indie may have granted rights in future recordings to overseas licensees. The territories in question are simply not available to the major.

3.2 Restricted Territory Deals

Majors do not like to give up any territory. This is not only because they will lose profits from sales in the excluded territory, but also because the company will be at risk, throughout its territory, from imports of records coming from the excluded territory. In practice, the excluded territory will often be the USA and Canada. This territory accounts for more than one third of worldwide record sales. For that reason alone, most artists aspire to success there and record companies do not want to give up their rights there. An artist may wish to exclude North America because he or she thinks that the company’s US affiliate is either inept or is likely to dismiss the artist’s talents, and that the UK company has little or no influence over its US affiliate. If so, the artist may prefer to achieve success elsewhere before concluding a deal direct with a US-based company which likes his or her work. Split territory deals of this kind will give rise to separate income streams. If the artist recoups in one territory he or she will enjoy royalty income from that territory. If the deal were for the world, the accrued royalties from the recouped territory would be used to recoup generally. We deal with this in more detail in Part III.

3.3 Interaction

Split territory deals are complex. Release dates have to be coordinated to reduce the problem of imports. Usually, all distributors want to use the same artwork. There would be little point in each company making its own videos. So, if the world is divided into two (or more) separate territories then, in addition to negotiating the two recording agreements, a separate agreement is needed between the artist and both the record companies regulating dealings between them. Another disadvantage is the high level of legal fees involved in setting up these arrangements.

A less attractive alternative for the artist is for him merely to have a right of approval over the identity of the record company’s US licensee. Most majors would only give such an approval right as between the various US labels owned by that major. An artist has to be in an exceptional negotiating position to secure a split territory deal, and usually has to be in a strong position even to secure a right of approval over the US licensee.