Johnny "Slick" Jones, the hot local record producer, has taken an interest in your band, "Junkyard Dogma," and wants to do a "Demo Deal" with you.
That is, Slick wants to get you down to the studio (which he co-owns, of course) to record some demonstration recordings ("Demo Tapes") which he says will be used to obtain a record contract with Big Time Record Company.
Slick will finance all the production and recording costs. When Slick wants you to sign his "standard" recording contract assigning the copyright to Slick and giving him the right to produce your next four albums, you wonder if you should consult some music attorney.
Slick says, "Hey, if you wanna pay some shyster $1000, go right ahead, it's your money."
Since you're broke, you and the band decide to trust Slick - how else are you gonna get to cut a record? Besides, after you get that big fat record contract, you know you'll work it out with Slick so that everyone will be happy.
Well, Slick is right: it will cost you some money to have the contract competently reviewed; anywhere from, say, $150 - $1000 and up, depending upon the value and complexity of the deal. (The actual fee will be negotiated between yourself and your attorney.)
However, the old adage again proves true: "Don't sign it unless you know what you're agreeing to." Unless you decide you want to spend your whole musical career making Slick rich, you should at least engage in an hour consultation with a person knowledgeable about music contracts to inform you of what you're getting into.
First I should say that demo deals happen all the time, and they can be a wonderful boost to both the careers of the band and the funder, if done fairly and professionally.
Believe me, though, I've seen plenty of arrangements that make Little Eva's original record deal seem like Madonna's in comparison. This article will briefly discuss the provisions that should be contained in a Demo Deal.
Who Can Pay for A Demo Deal?
Almost anyone can fund a demo recording session:
- a record company,
- a studio owner,
- a producer,
- even ol' Uncle Bob who has always wanted to be in the record business and has more money than sense.
The value that the funder should receive in return should be in direct proportion to the contribution he gives. Here's some considerations:
- How much money is being spent on the productions?
- Does the funder bring any additional skills to the deal, such as engineering prowess or contacts in the music industry?
- Does the funder want the entire copyright, or just a royalty on the exploitation of these recordings?
- What does he want in connection with future recordings?
What is Fair?
There are thousands of ways to invest in a band, and I've seen some creative deals made (and unfortunately, not often are they favorable to the artist).
As an admittedly overbroad, general guideline (and again, subject to negotiation between the parties), the following is a "fair" arrangement for structuring a demo deal:
The band receives the full copyright (or at least a portion of the copyright and the full administration rights) in the Demo Masters, and after they secure a record deal, the band must pay the funder:
- the production costs incurred by the funder, and
- an "override" royalty for records released containing the original Demo Masters or re-recordings thereof (and perhaps for additional records as well).
The amount of the recording budget and the amount of the override royalty are subject to negotiation between the parties (with the assistance of their representatives).
Overrides are discussed in more detail below.
Rights in the Demo Tapes
The agreement should expressly state the respective rights in the Demo Tapes.
Obviously, Slick is not able to distribute any records himself. Therefore, any significant income that is derived from the exploitation of the Demo Tapes will come via a third party, such as Big Time.
Note that, other than paying for the recording costs, Slick has not promised to pay Junkyard Dogma anything at all in connection with the exploitation of these Demo Tapes. Therefore, it is necessary that the band retain the copyright in the Demo Tapes in order that they might capture the revenue from any exploitation thereof.
Additionally, the contract should specifically state the conditions, if any, under which Slick may "shop" the Demo Tapes (i.e., may Slick solicit record company offers for the band's services based upon the Demo Tapes)?
Slick should have the right to be paid for the recording and production services he provided. It is wise, however, to have this amount expressly quantified. I've seen plenty of deals where the cost of one reel of tape and twenty hours of studio time suddenly has become worth $25,000 after the band lands a recording contract.
Right to Produce
Unless you have justifiable and absolute faith in Slick, you should not agree to give Slick the right to produce any albums resulting from the Demo Tapes. Inevitably, after you finally get that deal with Big Time Record Company, they will not want Slick to produce.
Having an unknown producer on a major label record release is kind of like attaching an unknown director to a Hollywood movie deal: it usually results in buying the unwanted person out of his contact (which is costly) or the whole deal is killed.
An override royalty is essentially the buy-out of the producer/funder's interests. From a producer's standpoint, it is a safety net to prevent a situation where a the producer invests lots of time and money in developing an artist only to have the new label insist on using a different producer.
Typically you end up paying the override royalty straight to the Slick. Even if you can get the Record Company to pay the royalty directly to Slick, it will undoubtedly end up coming out of your pocket because after all, Slick is the band's obligation, not the Record Company's.
Thus, you should be very careful in how the override royalty is defined in your agreement with Slick - it is not at all uncommon for an unwary band to suddenly find out that they owe their old funder a huge sum in royalties when their record becomes successful......even though the only money they've "received" from the Record Company so far has been applied to the recoupment of recording costs, music video production costs, touring costs, etc.
Limit the Amount of the Override
The amount of the override is subject to negotiation. However, an experienced practitioner can help you to ascertain whether or not the amount if fair.
For instance, if the Demo Tapes are of such high quality that they themselves are going to be released by Big Time Record Company, it would be fair to pay Slick an override royalty of, say, 3% of the (pro-rated) retail price of any album containing the Demo recordings; whereas, if it were necessary for the band to re-record the same songs, then Slick may only be entitled to 1% or less.
Limit the Number of Override Albums
When Big Time Record Company signs Junkyard Dogma to a record deal, it will not be for just one album, but will contain options for three, four, five (six, seven, eight...) additional albums as well.
Thus: should Slick be entitled to an override royalty on these additional albums too? In an ideal world, Slick would not be paid for albums which do not contain the Demo Tapes (or re-recordings thereof).
However, it is likely that Junkyard Dogma will have to agree to pay the override on a couple of additional albums. You should try to limit the number to as few additional albums as possible (or put a cap on the total amount of money that the band is
obligated to pay to Slick under their agreement). Another option if you have to tack on a few extra override albums is to have the override royalty decrease for each album, say by a 1/2% per album or so.
Obtaining a Demo Deal can be a significant entree for a band into the music industry - at the very least it shows that someone has enough faith in your material to pay to have it recorded. Be careful, however, that your agreement contains provisions that are fair to all concerned.
by Jonathan Earp, Esq.
edited by Howie Cockrill, Esq.