How To Respond To A Record Company Offer

Welcome musician friends and friends of musicians!

This is Part II of the article; “How To Get A Record Deal.”

Find the first article after this one by just scrolling down.

To mount a full-scale campaign for your career in music, check out the e-book "Brilliant!" 

In Part II, we’ll look at what might happen when you generate the interest of a label, or they offer you a development deal or a record deal. And if things really heat-up, we’ll discuss ways to negotiate should several labels become interested. This is a scenario that you love and the labels hate, called a “bidding war.”

We’ll recommend some steps you could take to strengthen your bargaining position so that you can end up with a win for everyone involved.

And we’ll compare the strengths and limitations of a major label, compared with a qualified independent label. As always, with Moore Hits, we will show you how to leverage the power of the major music business for yourself, should you decide to build your own music recording and distribution organization.

But first a quick review of the first article.

You asked yourself

whether you really want a record deal with a major label and
whether it might be smarter to record through an independent label or build your own.

You learned to “Discover Yourself,” and build your own successful music entertainment company whether recording on your own, or through a label.

You already know that the historic music business model has changed from selling only “hard goods,” to selling those plus “digital goods,” and how to use digital goods to promote you and your music.

And you learned how to develop a following and how to present yourself to a label.

The big offer ...sort of

Now let’s suppose you have been contacting label A&R departments (through your lawyer or manager) and that one of them is expressing interest. You’ve sent them a 3-song demo, along with a cover-letter telling your strengths in a nutshell.

Or perhaps they discovered you through your “my space” location or your profile at Taxi.com.

They are impressed with what they’ve seen and heard so far and want to take it to the next level.
Often, what they’ll do with a completely un-tried act is to offer a “development deal,” aka a “demo deal.” They typically advance you a few thousand dollars to go in with a competent producer and cut several “demonstration recordings” to give them an idea of what you will eventually sound like on a professional recording.

This is a good thing, because they are expressing enough interest to lay down some real money (which they would eventually like to recoup). But it’s not the same as a full recording contract. And it puts you in a fairly weak bargaining position.

There are several important points to negotiate here, even though there’s no big money on the table. What you agree to at this stage will profoundly affect how you step up to a full recording contract either with this company or a different one. Therefore you MUST seek counsel from a qualified entertainment attorney at this point.

One common negotiating tactic that label lawyers (called “business affairs managers”) use to take advantage of you is to stall. They know that most artists are one car payment away from bankruptcy, so the longer they can make you wait for the agreement, the more foolish clauses they can get you to commit to. It’s kind of a legal version of “water-boarding.” In one case, with a major label group who I won’t name, it took us 5 months just to hammer out a simple demo deal! And in the end, what happens with the deal is not up to the lawyers anyway.

The fate of your deal and the demo’s you cut for that label are totally in the hands of the label heads who are grooming you! Fortunately, the president of the label in this current example was a benevolent gentleman who gave us what we needed.

Mind you, not all labels do this. Some actually try to create a financial comfort-zone for you in hopes that it will give you freedom to create. They figure that the better they support the artist, the greater the music that will result and this might attract superior-quality artists. It’s a matter of the label’s quality of leadership.

For an excellent layman’s explanation of the important deal-points in a demo negotiation, see Donald Passman’s book; “All You Need To Know About The Music Business.”

The “real” offer

Ideally, you’ll never have to worry about a development deal, if the label has enough confidence in you to offer you a full recording agreement.

Does this tell you something?

What it implies to me is that a label wants to feel confident that when they go into business with you, that you will have the professionalism, the talent, the backbone and the organization to go out and make your music a success!

You don’t need an MBA to do this. You just need to be a good person with music that the world wants to hear and the ability to surround yourself with other good people who have a passion for you and for their particular skill-set.

For example, don’t just hire a “bass player” who keeps time and plays sensible notes. Make sure your bassist is a passionate student of his instrument. An inventor of musical style! Someone who has mastered the basic skills, then takes it to a new level with their own artistic creativity!

Same with your manager. You need someone with a talent for leadership, a head for details. A visionary, who can help you imagine your future and define and help you execute the baby-steps to get there. This person must be a trained negotiator, who can win the respect of the label and your other business partners. It helps to know a lot of people (be wired, as they say) but if you can’t find someone who is connected, it’s more important to have an honest person who truly understands leadership and business management. One fantastic book on this subject is simply called “Leadership.” Written by Rudy Giuliani about his time as mayor of New York.

Giuliani credits his success, managing New York City’s recovery from the September 11th disaster to “relentless preparation” and “teambuilding.” Likewise, NBA Basketball coach Pat Riley wrote a definitive book on the subject of teambuilding called “The Winner Within.”

Choosing your manager will be one of the most important life-decisions you ever make, because often times you will confide things between each other that nobody else can know or appreciate.

Your manager must march into the business world truly prepared to represent your interests and desires and to maximize every aspect of your career. He/she must be willing and able to push other priorities aside to accomplish your goals.

Now having said that, here’s what the label wants in a manager for you.

Mostly, they want someone who knows the business and is well-connected.
That’s because they want you to have people who can help them to build you in the marketplace!
Someone who can “get people on the phone!”
Someone who wields “leverage,” maybe from having major artists on their roster.
They want someone who they can control and who doesn’t ask for too much.
They might try to convince you to get rid of your manager and replace him/her with one of their friends; someone they can control. The downside of this is usually that their “major manager” never has anything to do with you. Instead, they assign you a “day-to-day” person, basically, a glorified secretary, who runs your career. It is “on-the-job-training” at your expense. Very bad scene.

If you don’t have a competent manager, don’t worry, it is still possible to build your music, your following and your value in the market before you find one. And usually, a good manager is financially inaccessible to an unsigned act, because you have nothing to pay them and it is too much work to ask them to do it for free or on spec. If you have a mom, dad or someone else close, who has the skills, this is ideal, because they usually have your interests at heart.

So here’s what you can do right now to prepare for the day when you receive your label offer. Read Passman’s book. I don’t benefit in any way from it. Yet I recommend it strongly because it has exactly the information you need to understand the road ahead and plan accordingly.

A few things that might surprise you about a label deal are:
1.
Your “advance” is usually just a recording fund. Often you are required to use it to pay for your demo’s and master recordings and nothing else.
Though the label pays the up-front costs of marketing, many of those costs are charged-back to you before you ever see a royalty check (this is called “recoupment”).

2. If it costs $1 million to launch your first record and you sell say 300,000 copies, you probably won’t break even. And because of “cross-collateralization, you might actually owe the label money when you start recording the next album. It could be years before you start seeing income from the sale of music, so you must generate other revenue streams in the process, such as touring and merchandise.

3. What we refer to as “recording contracts” are actually just “options.” The label secures the first rights to record and release your next (typically 7) albums over the course of 10 to 14 years. However, this is a one-way deal. At any point, the label can decide not to pick up your next option and they don’t even need to tell you why. Although most of the time it is because of inadequate sales.

Controlled Compositions - If you’re a truly “creative artist,” and write what you sing, you actually get penalized for this. The label gives you a reduced rate for your mechanical royalties as songwriter (over a certain number of self-penned songs on an album), arguing that it is they who have made your songs valuable enough to buy. In english, that means they pay you less than they would an outside songwriter!

To further exacerbate the song problem, there are powerful political dynamics going on between the label and certain publishers, who need to have their “cuts” on your album!

After you’ve negotiated your base royalty rate that the label will pay you for the sale of your recordings, then comes a list of transactions that discount that rate or delay your payment even more, including;

free goods
promo’s
mid-priced recordings
record clubs
returns
reserves
packaging deductions
and the list goes on

It’s not that the labels are inherently evil. Most of what you hear about decadent rock stars and evil record labels is uninformed hype from jealous weasels who complain about anyone trying to earn a living. The truth is that business ...all business works on a risk/reward and supply/demand basis. The risk that labels take with a new artist is as great as any risk in any business imaginable. They just want to get paid for it.

The complexity of recording deals is based on about 100 years of labels, artists and lawyers working-through issues that come up which cause problems between the labels and artists.

Stripping-away all the wrong information in the marketplace about recording for a major label, it is still a good thing. But like any other business, you must go into it with your eyes open, having studied the facts.

How to negotiate your deal

First of all, don’t even think about responding to it yourself.  To quote Mary-Chapin Carpenter, they're the windshield, you’re the bug!

But still, you want to understand your offer, so you can help your lawyer or manager work it out. That’s why you read Passman now. The more of the deal basics you know, the less your lawyer will have to charge you in billable time to teach you.

The second way you can prepare is to build a strong bargaining position.

How can an unknown, local artist build bargaining clout?

1. Develop a large and rabid fan base before you seek a record deal.
   
2. Sell thousands of cd’s or 10’s of thousands of downloads.
   
3. Learn how and when to say no.
   
4. Contact and develop interest from several labels at the same time.
   
5. Hire a competent entertainment attorney to negotiate.
   

Those first 2 items were discussed in part 1 of this Moore Hits a-log and in the e-book “Brilliant!” I show exactly how to do them.

Item 3 is a very important negotiating tactic. In fact, the phrase “no thank you,” dropped at the right time and in the right tone in the process can raise your value dramatically. For example, if the label is offering you a $150,000 advance and if you’ve done your homework and know that this label has signed many complete unknowns with a $225,000 advance, you could contrast your results if you have sold, say 15,000 downloads and another 5000 cd’s at live shows and 10,000 people on your opt-in list. Here, you might ask $300,000. And in the scenario described in #4 on the list, you could ask for even more!

But “no thank you” is just one of many negotiating gambits you can use to sway terms in your favor. This is why I recommend item 5 (competent lawyer). A good lawyer is a world-class horse-trader. One secret to strong negotiating is to know the current value of comparable artist deals.

You must be careful with the advance though, because what you settle on there will affect the many other deal-points in the contract. So part of your preparation is to find out exactly what you’re worth, what you want from the label.

If you get, say, $275,000 in the scenario above, the label could come right back and stick you with a higher percentage of the cost of your videos (ouch). This is why you need a lawyer to help you see the big picture and help you define exactly what you want, and need!

You think I’m a lawyer groupie? Trust me, as soon as you see a label contract offer,
you’re going to want to seek wise counsel.

You sign the deal!

This is a very sweet moment in your career. You might send the contract back and forth 15 or 20, even 30 times, but finally, you have an agreement you can live with. It may have been a little nasty during the negotiation and frankly, some of what they ask for may seem a little mean-spirited. But you just need to understand that’s business! Now you must quickly shift gears and forgive any hard-feelings you may harbor from the negotiation process.

You’ve won! You have your record deal. It’s time to take a breather, celebrate with your team and sit down with your manager and your new label to do some dream-building and update the game plan.

Next, you must offer your A&R person your full attention and cooperation. If they want to try a few things creatively, just do it. If they work, great. If they don’t, you want to steer back to the kind of music that they signed you for in the first place.

If you’re having serious creative differences with the producer they assigned you, be clear and direct with him/her. Meet with your A&R person frequently to go over demo’s and pre-production. Make sure you’re on the same page. Your a&r manager walks a difficult line between supporting your creative vision and making a record that is going to sell ...remember, they need to hit their quarter! They are on your team. But be careful that they don’t strip you of who you are, creatively. This is a tug-of-war and your creative vision must prevail, otherwise you end up with someone else’s album. Then, since marketing is an outgrowth of the product, you’ll find that they are marketing something that doesn’t exist. This will come off as artificial to your fans and your launch will be a misfire.

This is why it is important to know who you are as an artist and let your personality, your values, beliefs and style drive the music you ultimately create.

In the next Moore Hits A-Log, we’ll visit the yang to this yin; building your musical career your own way through independent recording and distribution.

If you're ready to crank your career up to 11, download "Brilliant!" now. 

God bless you!

Michael Moore
Moore Hits Productions
Nashville, Tn.

615-400-4656
rawtalent@moorehits.com
www.moorehits.com