Six Key Aspects to Reading your Recording Contract

There are many reasons to make music. Whether it be for fun, to spread a message, or share your creative vision, music is no easy task to make, market and put out. Which is why it is important to make sure you know how to read the contracts that determine how those efforts will be valued and more importantly, generate income for you and other musicians involved. While contracts can feel daunting and are often pages and pages long, below are the 6 most important sections of a recording contract and how to read and understand their core ideas.  

1. Masters: Simply put- what are the songs the contract is referring to? When reading your contract, make sure that the masters referred to in the contract are the songs you are looking to have the rights and royalties on. 

2. Advance/Payment: How are you making money? One of the most important things to understand is how you will generate income from your songs. In your contract, there will be a paragraph (term) laying out how much you will be paid and whether payment will be given upon complete signing of the document (advance) or if it will be paid upon an artist submitting the work and the other party accepting the work (payment).  

Another piece of language one should understand is what recoupable means within a payment clause. If something is considered a recoupable advance, it means the publishing company is allowed to keep any royalty income until the advance has been paid back via the income. It is important to note this so that one may understand how their payment schedule will function and what to keep track of in terms of paying back the recoupable numbers. 

3. Royalties: While the idea that you can own a piece of music can get highly confusing and technical, I’ll keep it short. When you are looking at the royalty provision in your contract, there will be a portion that lays out the percentage of royalties you are entitled to. The most important reason to know your royalty rate is to know how much of a musical work  is yours to collect rights and monies on. Any income the song generates will be paid accordingly based on the amount of royalties a song procures. 

As detailed in the advance section, the royalties one makes on a song will be used if you have a recoupment clause.. The way royalty payments are allocated is a whole different topic, but at a base level,it’s critical to know what percentage of the generated income you are entitled to. For instance, Spotify will pay out the royalties earned to the rights holders once a month but does not allocate payment to each person directly, and will not know if an artist has a recoupable advance or not. By knowing what percentage you are entitled to, you can contact the rights holder and know what percentage to ask for. That is of course accounting for the fact that if you have a recoupable advance, you will need to make back your set amount of recoupable cost before you can generate income for royalties. 

4. Publishing Splits: Once a song is out in the world, the hope is that it will be played in public spaces, and not just streamed on personal accounts. Similar to royalties, publishing splits are the portion of total earnings made on a song you are entitled to for public usage of a song.This public usage is where publishing comes in. 

In your contract, there will be a publishing percentage you are entitled to: the percentage of the overall income gathered from public use that you will gain. This will be tracked by Publishing Rights Organizations (PROs) like ASCAP or BMI, who track the public usage of a song. Examples of this would be a song being played in a bar or restaurant. These public venues pay a blanket fee to use songs, which the PRO will then pay out to the publisher, who will split among the artists according to the percentages each person is entitled to, as laid out in their contract. 

5. Credit: You worked hard on your music and you should get recognition for it! That is what your credit clause will line out. In this clause, there will be a verbatim line of how the credit will be written in the dissemination of the song–think of what you would see when looking at the credits on a vinyl or CD sleeve. When signing your contract, you should see if and how your name is being credited in writing on the album. 

6. Neighboring Rights:  In short, neighboring rights are the royalties accrued with the public use of a song. When a song is played on the radio, that would be considered a public use of a song. If the song is being played on platforms outside of the consumers’ direct selection  of songs– such as  FM Radio, Pandora, and Spotify DJ–a neighboring rights organization will track the dollar amount each rights owner is  owed. Only live performances and radio playing will account for neighboring rights in the US. 

Clearly, you get into confusing territory in neighboring rights, but don’t fear. In a contract,there will be a letter of direction that lays out which organization will be monitoring your neighboring rights and hence who will be making sure you will get paid for them . This letter will tell you what percentage of the royalties acquired from the public use of the song (which is different from your royalty rate) will be paid to you. These payments will be administered by an organization lined out in the contract. Some of the top organizations that may be listed would be Sound Exchange for the US or PPL for the UK. Both of these organizations will administer global rights so any income you generate from neighboring rights will account for global usage. If your contract lists a different organization, you should confirm that they track global usage to ensure that none of your potential earnings slip through the cracks. 

Never fear, while a contract often looks daunting, once you begin to break down its parts, you can begin to understand what you are entitled to and what rights you are owed. Once you begin to understand these key aspects you can begin to advocate for your music and creative rights, a skill that is invaluable. You work hard on your musical pursuits, and you should be paid appropriately!