by C. Cirocco Jones

Taken from

“The Music Powers That Be… To Succeed In The Music Industry”

Most recently (Spring 2005), I've noticed different postings on various websites, and also in print media with articles about Producer's Record One Royalties.  And personally, I think these articles are great, me being a Producer.  But, after sending a few of my clients and friends to go and learn a little more, everyone still seemed to be a bit confused.  So I decided to write this segment of Music Powers, in hopes of it being a small bridge that might make clear, the fundamentals of artists "All-In" deals, as it relates and affects a producer's royalty payment(s), especially regarding the waiting, for the Producer's "Record One Royalties"

Once upon a time, back in the day, record companies on the whole handled most producer contracts.  But finally, somebody at the label decided that the record company was spending way too much money (and time) negotiating their producer contracts for their artists.  So currently, in this present day and time, the tendency at many of the labels, has been to make their artist deal with this accountability through what is commonly called an "all-in" deal. "All-in" is short for all-inclusive.  This means that the artist will have to pay the producer his royalties due, from his or her own artist's royalties. It works like this: The label will advance the producer money; pay the producer his royalties, but all by taking it out of the artist's royalties. And eventually, the producer will have to be paid whatever royalties is due, starting from "record one."

RECORD ONE?

"Record one" royalties are the way most producers get paid royalties. "Record one," means just what it sounds like; Producers get paid from the first record sold. And just so you know, there are different types of Record one royalties. The concern is not so much the idea of paying the producer from the first record sold, that's actually normal. The real issue to be concerned with is the "when, or at what point" do producers get paid their record one royalties. And the calculation to determine this when is many times based around the level of the producer that is hired.  The level of the producer will have an influence over the way many labels approach the repayment (recoupment) in the artist's "all-in" deal.

Most producers will start receiving royalties ONLY after the record company has recovered all artist expenses.  But for the average producer the calculation of the "when do Producers get royalties" or what I call the "GO" point for paying the producer his royalties, is based on the artist "all-in" royalty rate percentage (%), minus (-) the producer's royalty rate percentage (%) or the net rate.  In other words, as the record sells with new and average level producers, the record label will credit the recovery (recoupment) of expenses by using the net rate (Artist % minus Producer % = NET %).  The label will NOT use the gross percentage rate (the complete Artist royalty %). The "GO" point here is: Once all the expenses are out of the red for the artist, using the net percentage rate, the label will then go back and pay the producer his royalty percentage from the very first record that was sold, minus of course, whatever advances the producer got up front. But because the royalty rate is not based on the artist total (gross) royalty rate, it will take a longer period of time for the producer to receive any royalty money, if ever!

Let's look at a very imaginary gross all-in artist royalty rate of 8%.  And let's say the producer's royalty is 3%, leaving the artist with 5% as the net percentage rate. The record company will recoup (recover) the cost of the expenses on the project based on the 5% net rate, instead of the gross 8% rate.  This means it will take longer for the project to get out of debt. Why? Because the payback steps are smaller, so it simply takes a whole lot longer to actually get to the "GO" point (royalty payday), and getting the producer any royalty money he's due. And of course, the label is completely aware of this; it was their clever idea to begin with. Once the project is out of the red, the label will ultimately go back and pay the producer his 3% from the 1st record sold, minus whatever advance money the producer originally got paid up front.

We've all played the game Monopoly(r).  And we all love to pass "GO" and collect money.  Now lets say that the dice are "loaded," and they come up 5 + 3, or a total of 8 every time...(the artist gross rate). Lets also say that every roll of the dice will represent the artist paying back his expenses to the record label.  So, to get to the "GO" point, it would take 5 rolls of the dice (5x8), and then the "GO" point (payday) would be reached (getting around the board). Once the "GO" point is reached, the producer can start to get royalties, payday baby, YEAH!!!  BUT (uh-oh), since a level 1 producer is being used, and possibly on top of that, the artist is also a new or not a superstar, the label has only agreed to the recoupment (recovery) of the artist expenses to be paid back by using ONLY ONE DICE, fixed on the number 5 (the net rate).  Now, it will take 8 rolls of the dice to pay back expenses.  So it will take a longer period of time before the "GO" point (payday) is reached.  By the way, if you really want to visualize this, your imaginary game piece is The Snail. It's like this: Instead of the record company permitting the artist to roll both dice (5+3), the agreement is set up so that the label controls how many dice our artist The Snail can use to get around the Monopoly board.  In other words, the artist (in this scenario) only gets to use one dice, fixed on the number 5 (the net royalty rate). This means it will take longer to get to the "GO" point. This is because the record company has Mr. Snail's recoupment account paying the label back for expenditures at the smaller re-payment of one (1) dice or 5%, (the net rate), as opposed to the larger payment of TWO (2) Dice or 8%...(the gross rate).  So it not only becomes harder to repay expense money for the artist, but it also takes longer to collect royalties for Level 1 - New to Average Producer.

THE HOT - EXPERIENCED PRODUCER

"TWO DICE ARE BETTER THAN ONE"

OK, now that you know what "record one" means, and how Level 1 Producer royalties are calculated, let's look at Level 2 - Hot - Experienced Producers. Level 2 - HOT Producers are the guys that have proven themselves, not only from great work in the past, but these guys are usually having current success too.  With all of this said, now the artist gets to use both dice (5 + 3) to roll around the Monopoly board.  For the artist, this means "Hot Producers" will no doubt want a bigger ($) advance, but, still may not get the artist and/or label to agree to any higher points or percentage (%) towards the producers royalties (3%). The one thing that does normally change with Hot Producers is a different way "record one" royalties and recoupment issues are negotiated. The label is usually willing to change the way expense payback or recoupment is calculated for the artist "all-in" deal.  In this scenario, recoupment is at a "combined rate" of 5% + 3%, or the gross royalty rate of 8%.  This means that the producer will get to the "Go" point much sooner than when recoupment was only at 5% (the net rate) because the combined royalty rate is being used. The artist game piece would now transform into Mr. Turtle. Still slow, but faster than The Snail. IMPORTANT: I guess now I should clarify that I know of NO artist that actually gets to actually collect the FULL unaffected gross royalty. Most majors labels will apply a deduction for packaging, which is about 25%, and a "CD reduction cost" (?) of about 10%.  I am only using the terms net and gross, to make it easier for you to recognize the different calculating factors used in determining the producer's "Record-One" royalties."  Plus, if the artist is only getting 8% (or points) as their  "all-in" artist's royalty rate, Oh well.

Ok crew, there's really not a whole lot to say here, except that these are the Super-Producers of today's Hip Hop, Rap and R&B/Pop music scene. These are the "hit-makers" of modern-day urban music, and maybe beyond.  As far as the dice illustration in the previous section...well, the dice may or may not apply to the deals these producers are sometimes able to get.  There have been times when a producer of this status has been able to get their "Record-One" royalties without the repayment of anything other than their original advance, which I might add, might be as large as some new artist's complete recording budget.  I'll never kiss and tell, but let's just say that "Kirk" and "Spock" are livin' very large and in charge! Here's the deal:  When an artist has his or her "all-in" budget, and then has decided to use a producer of this stature, the producer may not beat-down the artist's budget with a "wounding" up-front dollar advance (I think the first African Slaves heard this too), but the artist should know, if the producer is not charging "crazy-big" up-front, then in most cases, a Super-Producer will seek to get paid from the very 1st record sold, without recoupment concerns for anything other than the original advance (if he took one) that he got up front. And the producer may challenge that the front money he got was for production fees (labor and time making the production), as opposed to "advances" against future royalties.  And yes, this kind of deal is extremely hard to come by, but it does exist for Producers who have consistently sold millions and millions of records, along with staying at the top of the Billboard charts, and also the way the producer has marketed "himself" to the public. So the Super-Producer and his popularity and image also become great selling points to market a release. (For reference: Jermaine Dupri, Lil Jon, and P. Diddy, among others).

For the most part, I believe an artist would have in his own best interest to actually pay a bigger advance, and deal with the recoupment issues like the Level 1 or 2 calculations.  This way, the artist might avoid having to pay a Super-Producer his record-one royalty due, from outside sources of income like performance and touring money.  This can happen if the Level 3 (Super-Producer) is getting an extremely high percentage or points. In high-percentage cases, the producer might get paid royalties before the artist has actually recovered all the expenses from the project. And the artist would be accountable. And not to sound repetitive, but you can bet that the Level 3; Super-Producer, will want, and normally get more than a 2 or 3% royalty rate; more like 4 or 5%, and with bigger escalations; like 1 point (%) or higher at Gold (500,000 units sold), and then an additional 1/2 to 1% at Platinum (1,000,000 units sold).  So is it worth it?  Well, sometimes yes, and then sometimes absolutely not. There are some very good arguments out there that make sense, both good and bad, especially when it concerns a new artist's budget and his recoupment.  But, if the artist is prepared to tour and perform, many cases, the "new" or established artist might not see too much money from record royalties, but the artist might make many millions of dollars from touring off of a few "mega-hits" that one of these Level 3, Super-Producers has made for them.  And let's not forget about the songwriting & publishing royalties that an artist will many times make from collaborating with the Super-Producer.   So I guess it really depends on the particular artist, and of course the ability & willingness of the record label to exploit and promote the given situation of using the Level 3 - "Six-figure Super-Producer" on their album project.

Note: All of these examples of paying the Producer are basically based around an artist "all-in" budget.  There will be many cases in which the Producer himself has his own "all-in" budget, to produce one or multiple "cuts" for the artist that still fall under the umbrella of the Artist all-budget.  If that is the case (which is actually normal these days), All producer "all-in" budgets will have to deal with recoupment issues on some level or another, whether as an advance or as a production fee, or both.  Oh, and by the way, there are some Super-Producers getting well over $125,000 per song for an "all-in" production payment to produce artists. And recently, I was told that one of the more popular, Level 3 Super-Producer teams are getting an impressive $300,000 per song as their "all-in" production fee. Whoa, now that's a production team definitely on the right "trek":)!
                                                                                                         

GOOD LUCK

Taken from
“The Music Powers That Be To Succeed In The Music Industry”

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© 2005 - C. Cirocco Jones – Music Powers – I-Media – All rights reserved

* For more research on Producer's "Record One" royalties and Artist "All-In" Deals, I highly suggest the books: All You Need To Know About The Music Business and This Business Of Music.