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October/November 2016

by David McLaughlin

The Lawful Truth: Producer Agreements – Part 2

by David McLaughlin

The Lawful Truth: Producer Agreements – Part 2

In the last Lawful Truth column we started a discussion of Producer Agreements by considering some of the vital secondary issues that need to be addressed such as defining the actual services being provided, the related timelines these services will be provided on, and also any copyright rights in the resulting songs and recordings. In this edition of NZ Musician we’re going to take a look at some of the common payment rates and terms that you often see in Producer Agreements.

How much a producer will be paid can vary greatly depending on the producer and also the type of music involved. For example in the US hip hop producers have often received greater remuneration given the more significant role they often play in the creation of an album than say a rock or country producer may do.

It’s also important to distinguish at this point between the different ways you may pay a producer. Producers traditionally are paid a cash fee as well as a certain percentage of future record sales and associated income (typically referred to as ‘points’). A producer may also in any situation be paid a greater cash fee and lesser points, or vice versa – depending on the artist they are working with, the artist’s ability to fund an initial cash payment and the anticipated success of the album in question.

It is also not uncommon in some situations for a producer to take just a cash fee or just points. So it really depends on a lot of practical issues relating to the situation. When it comes to a producer’s points you would normally expect to see somewhere between 1% and 3% of royalties. To put this in perspective, when an artist is receiving a 20% royalty under their label recording agreement, then the producer’s 1%-3% would be deducted from this leaving the artist with an actual royalty of somewhere between 17% and 19%.

When it comes to points a producer will also ideally want the record label to pay them on their points directly, rather than having to chase up the artist for payment. In the interests of fairness any points a producer is to receive should also be subject to the same allowances and reductions that an artist’s royalties are. So if under their recording agreement the artist does not receive royalties on certain records, such as those given away free for promotional purposes, then the artist shouldn’t be expected to pay a producer points in respect of those copies either.

Artists should also make sure that the timing of their payment obligations to the producer take into account when the artist is accounted to by their record label or distributor. For example from an artist’s perspective, if you are only receiving royalties on a six-monthly basis you don’t want to be obligated to pay a producer every three months.

If a producer is receiving a cash fee as well as points then it’s important the terms of the cash fee are clearly defined. For example, is it a one off payment independent of any points obligations to the producer, or is the cash fee actually an advance against any future points payable to the producer? This will make a big difference to the total amount payable by the artist and the overall amounts the producer will receive. If the cash fee is regarded as an advance against the producer’s points then the artist will not have to pay the producer any further amount until sufficient records have been sold and associated income generated to recoup the cash fee/advance already paid to the producer. If the cash fee is not regarded as an advance against future points then the artist will be liable to actually pay the producer their points from the first copy sold.

Another important consideration similar to the above if an artist has a record label, is the point from which the points due to the producer must begin to be paid. An artist will usually have certain recoupable costs (like recording and video costs for example) that will be deducted from any royalties they earn under their recording agreement before they start to receive any actual payments in the hand. It needs to be remembered that unless a suitable agreement is reached with the producer in respect of how this recoupment issue will be approached, the artist would in theory be required to pay the producer their points from the first record sold, despite the fact that the artist themselves may not yet be receiving cash in the hand royalties from the label.

Producer Agreements like any agreement in the music industry can vary greatly depending on the standing of the parties involved and the particular situation in question. The important thing however is that at least some consideration is given to the types of issues outlined above and in our previous Lawful Truth column so that both parties obtain what they need and what they expected from the arrangement.

David McLaughlin is a specialist music lawyer with Auckland law firm McLaughlin Law. He can be contacted by email at david@mclaughlinlaw.co.nz or on 09 282 4599.

Disclaimer: This article is intended to provide a general outline of the law on the subject matter. Further professional advice should be sought before any action is taken in relation to the matters described in the article.