Music Sound

A recording contract (commonly called a record deal) is a legal agreement between a record label and a recording artist (or group), where the artist makes a record (or series of records) for the label to sell and promote. Artists under contract are normally only allowed to record for that label exclusively; guest appearances on other artists' records will carry a notice "By courtesy of (the name of the label)", and that label may receive a percentage of sales.

Labels typically own the copyright in the records their artists make, and also the master copies of those records. An exception is when a label makes a distribution deal with an artist; in this case, the artist, their manager, or another party may own the copyright (and masters), while the record is licensed exclusively to the label for a set period of time. Promotion is a key factor in the success of a record, and is largely the label's responsibility, as is proper distribution of records.

While initial recording deals usually yield a relatively small percentage of royalties to artists, subsequent (or renegotiated) deals can result in much greater profit, or profit potential. A few performers, such as Michael Jackson, have signed multimillion-dollar contracts. (As a rule, though, for the millions to become tangible, hit records meeting or exceeding their previous sales records must follow; Michael Jackson's proposed "billion-dollar deal" would have required all his records following Bad to have sold as well as his watermark album Thriller; none have come close.) Recording contracts may include opt-out clauses, in the event an artist's popularity dips or they release one or more non-hits under the deal; Mariah Carey was bought out of her Virgin Records contract after her one album release with the label sold poorly.

Unless worded otherwise, any advances or upfront money paid to a recording artist is owed back to the label, whether the recordings to follow sell well or not. Capitol Records suspended Linda Ronstadt's contract in the early 1970s, but she continued to tour partly to pay Capitol back for her 1960s deal, which cost Capitol more than it had yielded. (Her string of hits in the mid-1970s allowed her to finally clear the debt.) Labels expect to make a profit, and little concern themselves with a given performer's lack of business or financial savvy, as artists such as George Michael have discovered. "Walking out" on a deal is very difficult, as is attempting to strike a new deal without completing an old one; recordings released by Donna Summer and by members of Boston (calling themselves "Orion the Hunter") were pulled from distribution after their former labels took legal action. The Mamas and the Papas were forced into a reunion years after their 1968 breakup, by the letter of their Dunhill Records contract, which required one more album to be completed (1971's People Like Us).

When recordings go out of print, this typically happens because either the label has decided that continuing to sell (or distribute) the record will not be profitable, or the licensing agreement with the artist has expired. (Labels may also stop distribution as a punitive measure, if an artist fails to comply with their contract, or as a strategic measure if negotiations for a new one prove difficult.) Record labels can also become bankrupt like any business, and their masters and copyrights sold or traded as part of their assets. (Occasionally these are purchased by the artists themselves.)

Recording artists signed to a failed label can find themselves in limbo, unable to record for anyone but a company that is out of business (and thus cannot sell or distribute their records), and with their existing works unavailable for sale. When one label "buys out" another (or a label is purchased by an outside party), any existing copyrights and contracts held (and masters, if owned by the label) normally go with the sale. This often benefits recording artists, but not always.

Distribution deals are often renewed, but occasionally the label and whoever owns the copyright cannot come to terms for a renewal. The reason is usually that one party expects too much money, or too large a percentage of profits, to suit the other.