Recording artists and composers create the foundations of the music industry: compositions and recordings. An understanding of their fundamental positions in the music world is necessary before diving into the detailed inner workings of the industry. We wrote this guide in order to provide readers with a detailed description of what a recording artist is, what they do, and how they make money.
In the music business, a recording artist is a person that performs songs in a studio-like setting for the purpose of recording songs and releasing them to the public. A recording artist can be a singular individual, a band, or even a massive symphony. A recording artist can also be a songwriter. However, recording artists often perform and record songs that they did not write themselves.
The concept of the recording artist developed alongside early recording technologies, which are described in more detail in our guide: “What is a Sound Recording?.” The earliest recording mechanisms made it difficult to record full bands.
By the 1940s, technology had advanced enough to allow electrical recording, stereophonic sound recording, and multi-tracking. As technology advanced, more recording artists were signed to labels and more variety could be heard in recordings. For the majority of the record industry’s lifetime, record labels were the only way for artists to get their music recorded, manufactured and sold. Nowadays, however, virtually anyone can begin a career as an amateur recording artist.
When an artist records and distributes a song they did not write, they must first obtain a license to do so from the owner of the composition. By doing so, they are allowed to make their recording of the song in exchange for mechanical royalties paid to the publisher and composer. As recording artists do not receive these mechanical royalties, they typically collect portions of the royalties collected by the record label for sales of the recording. Artists do, however, receive payments from other types of licenses such as sync and sound recording performances from SoundExchange. In synch deals, a one-time fee is usually negotiated, and the artist receive a cut of this money. SoundExchange, on the other hand, is effectively a PRO for sound recordings. The organization collects and distributes performance royalties from non-interactive* digital streaming services like Sirius XM and Pandora.
*Non-interactive means that the listener doesn’t choose which songs they want to listen to, as in the case of Apple Music Spotify or YouTube. Check out our guide on the subject here.
A recording contract is a legal agreement that is most often made between a recording artist and a record label. Typically, the label is agreeing to promote and work with the artist and the artist is agreeing to create recordings for the label. There is no real standard for what details and agreements are written in a recording contract. In order to best understand recording contracts, one should seek to understand the various components that can be found within them.
See our guide to music industry contracts here.
Range of Rights
This topic is one of the most crucial covered in standard recording contracts. Essentially, it outlines what rights are being transferred from the recording artist to the record label. Depending on the clout of the artist, they may be able to negotiate more favorable items in their contracts. Established artists with track records of large sales numbers and widespread popularity have much more bargaining power in their contract negotiations with record labels.
The term in a recording contract refers to the length of the agreement being made. Typically, terms are outlined in one of three ways.
Artist royalties are pulled from the wholesale price that retailers purchase records for, also called the published price to dealers, or PPD. The percentage of the PPD that the artist gains in royalty points (1 point=1%) depends on the level of success the artist has reached. According to Donald S. Passman’s “All You Need To Know About The Music Business,” new artists range from 13% to 16% whereas well established artists can earn as much as 20%.
The wholesale price of a new recording artist’s first album is six dollars. They have signed a contract that allots them 14 points.
$6.00 x $00.14 = $00.84
Exclusivity means that the recording artist(s) agree to create recordings exclusively with the record label in question during the given term. By including this clause in the recording contract, record labels prevent their artists from licensing their works to other companies or music users directly. The exclusivity requirement is a protective measure for the company and is akin to a non-compete agreement. The company wants to fully protect their copyrights in order to fully reap the benefits of licensing them now and in the future. The artist agrees to allow the record company to be the sole marketer and distributor of their sound recordings in exchange for all the perceived benefits that the label will provide.
In some cases, agreements will extend exclusivity to more (or all) aspects of an artist’s career. For example, some artists will also sign exclusivity in regard to merchandise. When the agreement includes exclusivity in all aspects, this is referred to as a “360 Deal*.”
Advances & Recoupment
Often times, artists receive an advance from the record label with whom they are signing. An advance is a type of loan that serves as income for the artist as they record and wait for royalties to generate revenue. These advances are essentially investments. The label is investing in the artist by paying upfront so the artist can record and tour and still pay their bills. It is important to note, however, that these advances must be paid back to the label. This process is called recoupment. Typically, recoupment comes from artist royalties. The artist will not receive any royalties until enough have been generated to pay back the advance. Advances can also include the costs incurred by the artist before royalties begin rolling in. For example, recording costs, tour support, and marketing budgets could all be pulled from beginning royalties during recoupment if that is agreed upon in the contract. Once an artist is recouped, they have more power at the time of renegotiation or even at termination.
Contracts generally include agreements regarding what would occur in the case of the deal being terminated. Although this is rare, termination clauses sometimes include the artist agreeing to pay back any advances in order to get out of the contract. What is more common is that the label will retain ownership of the sound recordings and require the artist to turn over all of the sound recordings they create until the advance is recouped.
This section of a contract denotes the country(s) in which the recording company has the right to license and sell the sound recordings. This sometimes includes allowing the label to work with other international companies to hold rights in some territories.
Controlled Composition Clause
A controlled composition affects the mechanical royalties paid on a composition that is co-written by the recording artist. The controlled composition clause in a recording contract places a limit on how much the label is required to pay the the songwriters for their controlled compositions.
While it may go without saying, one does not need to be signed to a record label in order to be a successful artist. Due in large part to the proliferation of digital technology, the music industry is witnessing a surge in independent or “indie” releases. Recording artists and bands are finding success outside traditional record labels on platforms such as Bandcamp, Soundcloud, MySpace, etc. Companies in the music business recognize this trend and continue to evolve to support these independent artists. To many artists, independence has evolved to become less a technical means of doing business outside a record label and more a mindset or lifestyle associated with creative autonomy. Fans of independent artists may likewise admire these qualities and actively seek out independent releases. However, it is important to emphasize that there is no “wrong” way to be artist in the music industry. Learn more about the industry distinctions between the terms “Indie” and “Major” in our guide, found here.
“All You Need To Know About The Music Business (9th Edition)” by Donald S. Passman
Mamie Davis, Jacob Wunderlich, Luke Evans, Rene Merideth, & Aaron Davis