5.0 Production Agreements

5.1 What is a production deal?

A production agreement is the name usually given to a recording contract between an artist and a company which is neither a major record company nor an independent record company but which is merely in the business of making recordings which it then licenses or assigns to a record company.

5.2 Why sign one?

An artist would invariably prefer to sign a record contract with a record company rather than a production company for the obvious reason that the production company is a “middle man” with the inevitable consequence that the artist’s earnings are reduced. In Chapter I, we considered the practice of “de facto” managers seeking to improve upon the strength of their position by requiring the artist to sign a production agreement rather than a management agreement. This practice is frowned upon but this is not to say that there is no place for production agreements. In fact, in recent years there has been a proliferation of “genuine” production agreements. The reason for this is that the financial crisis with which the major record companies have been grappling for some years has led to substantial cost saving measures including numerous redundancies. There has been a reduction in both the quality and quantity of A&R staff so that there has been a trend for the record companies to look more and more to outside teams of producers and writers. At the same time, recording technology is cheaper and better which has encouraged a proliferation of privately owned small scale recording studio facilities. As a result, the number of direct signings to record companies is reducing. The number of production deals has increased dramatically. Artists must realise, however, that a production deal is merely a step towards a more meaningful record deal and that only a fraction of production deals result in the production company securing a worthwhile record deal for the artist in question.

5.3 Pitfalls

The difficulty with a production deal is that typically, the intention on the part of both the artist and the production company is that ultimately they should secure the involvement of a properly funded record company. For this reason, the production company will usually insist upon acquiring all of those rights which it will need in the event that it is able to secure an appropriate record deal. Hence, the production company will typically seek options for up to four or five albums so that the artist is required to enter into what is potentially a long term commitment with a production company which cannot guarantee the involvement of a record company, has no ability by itself to release any records, and probably cannot or will not pay any advances to the artist (beyond the payment of recording costs which often is limited to the use of the production company’s own limited studio facilities). The production contract will usually provide for any net profits to be divided between the production company and the artist (in much the same way as profits are commonly shared between an independent record company and the artist). Typically, there might be a 50:50 split of profits in relation to any first album but so that the artist receives a greater share in relation to subsequent albums. The production company “produces” the recordings so that often there will be no third party producer royalties. Accordingly, an artist signing direct to a major record company for a royalty of 20% of the dealer price might have a net entitlement of, say, 16% (because the 20% royalty would be inclusive of any third party producer royalties and a producer might typically receive a 4% royalty). If the record deal were entered into through a production company and the production company receives the same 20% royalty then this might be split equally (so that the artist receives only 10% rather than 16%).

The best practical protection for the artist is to have a right of approval over any record deal with a third party and the right to terminate the production deal if a suitable record deal is not found within a reasonable period.

5.4 Television talent shows

A further example of how the major record companies rely upon outside parties is the fashion for the creation of instant high profile recording artists through televised talent contests such as X Factor and American Idol. In these cases, the agenda is dictated by the television production companies. It will be a requirement of entry into the contest that if the contestant reaches a certain stage then he or she must sign a number of contracts. The artist will be required to take legal advice on the agreements and will be entitled to withdraw if he or she wishes but for practical purposes will have no real bargaining power. The television production company will require the artist to enter into a long term recording agreement either with the television production company itself or with a specified record company (on the understanding that there will be a participation on the part of the television production company in the record company’s profits). The artist will also be required to enter into merchandising and sponsorship agreements, probably a live concert performance agreement, and possibly a songwriting agreement (and sometimes also a management agreement).