Major Labels
When seeking record deals with major labels, the question that artists and their managers must be able to answer is this: Why should record companies risk the money, time and effort to sign this new artist?

Although talent plays a part in that answer, other factors are equally compelling:

• The music's appropriateness for commercial radio and television programming needs.

• The effectiveness of the teams that work with artists (attorneys, talent agents, managers) and their contacts within the record companies.

• The willingness of artists to tour.

• Artists' effectiveness in increasing fan bases with performances and recordings and their willingness to participate in media campaigns designed by their record companies.

• Artists' potentials for commitment, longevity, stability and sustained creativity.

Independent Labels
Independent labels look for artists that fit the genre of music they specialize in. Because they are devoted to their genres and committed to helping their artists achieve success, talent is a major component of their decisions.

The second major component is artists' willingness to perform live and tour. Because exposure on major media radio, television and print is sparse, many consumers first hear independent label artists at live performances. Performances help create the excitement (buzz) that is needed for alternative and college radio stations to play recordings and for reviewers to write about them.

Contracts Between Record Companies and Artists
Recording contracts between record companies and artists are complex. Managers and artists must find attorneys that are well-versed in negotiating these contracts. The greater the artists' proven value in the marketplace during negotiations, the better the negotiation will go.

Most major recording labels combine advances and recording costs in an all-inclusive recording fund (all-in). The fund provides incentives for artists to minimize recording costs to maximize the amount of available cash for band members.

Payments to producers are part of this all-in fund and, depending on the artists contracts with producers, producers may additionally receive a percentage of artists' royalties. If artists negotiate a 12% record royalty and contract to pay producers a 2% record royalty, the artists net a 10% royalty. Royalties for sales in new technology mediums (such as limited digital downloads) are evolving.

No label guarantees the amount of money it will put into promotion, even though the expenditures of many promotional costs, such as the production of videos and radio promotion, is recouped from artists' royalties. This issue is particularly controversial in the area of video production, where artists are asked to repay 50% to 100% of costs that can exceed entire recording budgets.

Who gets what promotional support depends on many factors, among them the stature of the artists; previous sales histories; whether new recordings contain what the key executives consider will be hit songs; the clout of the attorney/management team; and the allies artists and their managers have within the record companies.

Here are some of the most contested points of record contract negotiation.

• Terms and recording commitment:
  How many recordings must artists deliver to the label and what are the expected delivery dates? Major labels generally ask for five to seven recordings, deliverable within seven years; independent labels ask from one to three recordings.

• Creative Control:
  Who has final say in the selection of producer and control over creative content? Major labels want to ensure that producers have the experience and stature to deliver albums that can be commercially exploited and that the recordings will contains songs that can garner airplay. Artists pay producers' costs and want creative control.

• Promotional Expenses:
  What promotional expenses will be recouped from the artists' royalties?

• Rights to masters and artwork:
  Who owns the masters and for how long? If artists pay for recording costs, why would they not own the masters and artwork once their advances have been repaid?

• Ownership of Web sites:
  Who owns the name of the Web site and controls creative content? Can artists develop their own Web sites to sell other merchandise?

• Packaging Costs:
  Costs have dropped substantially in the past decade. Many contracts deduct $3 to $4 in packaging costs, even though real costs seldom exceed $1.

• Publishing:
  Many recording companies ask for a percentage of artists' publishing or ask that mechanical licenses be issued at controlled mechanical rates.

• And finally, the issue of labels canceling contracts:
  Why should companies hold on to artists that are not profitable?

This excerpt is from Diane Rapaport's new book, A Music Business Primer, published by Prentice Hall. Copyright 2003 by Diane Rapaport. The book is available on Amazon.com and at major book stores.