Canada: Record Deals And Contract Tips: Part 1

Should you sign a recording contract? The short answer is, 'it depends'.

I wanted to connect the themes of the record business (more generally) with contract tips, so have separated the discussion into two articles. This issue, Part 1, provides some background/context around record deals and recorded music generally, and Part 2 discusses specific contract deal points within record contracts that artists should be mindful of.

When determining whether to sign a recording agreement, artists should have a basic understanding of both the current state of the recorded music business and the record contract itself. You could have a great record contract/deal, but if paired with little understanding of the record business, where the business is going, and how you fit (or see yourself fitting) within that business, the result could be disappointing.

What follows are some thoughts on the business of recorded music in 2022, which I think is helpful context before reviewing specific contract deal points in Part 2.

The music business continues to change, so get used to it

It's no secret that the music business has undergone and continues to undergo massive amounts of change (like all industries). For example, more and more musicians are dabbling in the NFT (non-fungible token) space to grow revenue and find unique ways to connect with fans (the NFT market surpassed $40 billion in 2021). As the metaverse takes shape, more and more music and live performances will be consumed in digital worlds. Music continues to be used to drive other non-music revenue sources, such as branding and influencer deals. In addition, billions was spent in 2021 on catalogue acquisitions, showing that even Wall Street wants a piece of the music market. Then consider the global pandemic which shattered the live performance space for a long period of time. Having said all that, what has remained consistent over the years is people love to listen to music and those who create music want to distribute their music to as many people as possible. How people/artists consume and distribute music, on the other hand, has dramatically changed over the last decade and will continue to change.

There is still a place for traditional label functions

Artists certainly have more tools at their disposal in 2022 to economically produce recordings, distribute their music to the masses, and market and promote their records on platforms such as Facebook, Instagram, TikTok, Twitter, YouTube, etc.. But doing all of those things well, while at the same time developing as an artist and worrying about making great music, is a difficult task. In addition, consumers have access to more music than ever before given the world of digital streaming, so cutting through all the digital noise is challenging for any artist. For example about 60,000 + tracks are uploaded to Spotify every day. Therefore, securing a deal with a record label to perform some or all of the traditional label functions (such as recording, manufacturing, distribution, artist development, promotion, marketing, connecting artists with the right partners, etc.) might still make perfect sense depending on the deal, the label, and the artist's unique circumstances.

Of course, in exchange for the label's services, artists will be asked to give the label a share of all record revenues from one or more records, and will be asked to assign or exclusively license copyright in the record(s) to the label for the life of copyright or a set/fixed period of time (more on this in Part 2). The question then becomes – is giving up a portion of a significant revenue stream (or potentially multiple revenue streams) plus some degree of control, worth the value added by the label? This is a commercial decision and needs to be considered very carefully.

The record business is now seeing consistent growth

Although the business of recorded music was on the decline for a number of years, the global recorded music market grew by 7.4% in 2020, the sixth consecutive year of growth, as outlined in the IFPI Global Music Report. Total revenues for 2020 were US $21.6 billion. The US & Canada region also grew 7.4% in 2020. As has been the case for the last several years, growth was driven by streaming, "...especially by paid subscription streaming revenues, which increased by 18.5%. There were 443 million users of paid subscription accounts at the end of 2020.Total streaming (including both paid subscription and advertising-supported) grew 19.9% and reached $13.4 billion, or 62.1% of total global recorded music revenues." As shown in the IFPI Global Music Report, it isn't just the US & Canada region seeing recorded music growth. Latin America continues to maintain its position as the fastest growing region, and Asian, African, and Middle Eastern regions all saw growth in 2020 as well.

But there is still reason to be somewhat discouraged

Physical record sales are a mere fraction of what they used to be, and digital downloads continue to decline rapidly. As Frances Moore stated, Chief Executive of IFPI, "[f]or music to thrive in a rapidly evolving digital world, there must be a fair digital marketplace. To achieve this, we must fix the value gap." If you are an artist who made $76 last year from on-demand streaming, you know that there is a long way to go before streaming equitably replaces your prior income from physical record sales (and it may never fully replace it). However, as digital service provider revenues grow (particularly subscription-based), artists should, in theory, reap the benefits of higher payouts from on-demand streaming services. This also depends on the deal between the label and the online service provider, and the deal between the artist and the label. Regulatory process changes and legislative amendments regarding tariffs applicable to online service providers would also benefit artists, but that discussion is for another day.

In short, artists need to understand that the record business is tough and think about their plan of attack in navigating the complex terrain. However, with all of this change comes the opportunity for creativity and innovation. If you decide that this business is for you, you might as well embrace the challenge, work hard, and do everything you can to set yourself up for success in the future (whatever that means to you).

Final thought

Before figuring out whether you want to shop around for a record deal, or whether you should sign a record deal that has been presented to you, consider your goals, needs and your plan for thriving in the everchanging business of recorded music. You'll also want to consider how the label you are corresponding with will help you achieve those goals, needs, and execute on those plans. Speak openly and candidly with the label before a contract is even presented.

With that context in mind, my next article, "Record Deals and Contract Tips: Part 2" will provide an overview of some key contract deal points to consider if you are presented with a recording contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.