Record label contracts and what to review before your band signs

Somewhere between the excitement of the offer and the reality of a hundred-page document, most bands realise they are not entirely sure what they are about to sign. The label has asked you to join its artist roster, and the agreement sitting in your inbox will decide who owns your recordings, what you get paid and how long the deal runs. It is worth treating the signing the same way you treat a headline show: prepare for it properly, because the version of the contract the label sends you is drafted to protect the label's interests, not yours.

A recording agreement, in its various forms, is the document that binds your band to record for the label and grants the label rights in the recordings you make. It replaces the default position under the Copyright Act 1968 (Cth), where the people who create the music and the person who owns the masters own the copyright, with the deal's own allocation of ownership. Once you sign, that default position no longer protects you, so the clauses below are the ones to work through before anyone signs.

The clauses to work through before you sign

What kind of deal is it really?

Contracts with record labels come in different shapes, and the first thing to identify is which structure the document actually creates rather than what the covering email calls it:

Recording contract: the label pays for the recordings and owns the masters, usually because the band assigns the copyright in them to the label. The band is paid through advances and royalties.
Licensing deal: the band keeps the copyright in the masters and grants the label an exclusive licence to exploit them for a set period.
Distribution deal: the label only distributes the music. The band keeps the copyright, and the label takes a distribution fee or a share of the income.

The practical difference between these structures is huge. Under an assignment the label owns the recordings outright. Under a licence the band remains the owner and the label's rights end when the licence ends. A distribution deal leaves ownership untouched. The type of deal also shapes everything else in the contract, so pin this down first.

Who owns the masters

The masters are the final recorded versions of your songs, and the copyright in them is a separate asset from the copyright in the songs themselves. Australian law starts from a default position:

The songwriter owns the copyright in each song under s 35(2) of the Copyright Act 1968 (Cth), unless the song was written in the course of employment, in which case the employer owns it under s 35(6).
The maker of a sound recording owns the copyright in the recording under s 97(2), and the maker is the person who owned the record at the time the first record embodying the recording was produced under s 22(3). In practice that is usually whoever paid for the studio time and owns the master files.

The contract then rearranges this default by one of two mechanisms. An assignment transfers ownership of the copyright. A licence grants permission to use it. An assignment only takes effect if it is in writing and signed by or on behalf of the assignor under s 196(3), and it can be limited to particular acts, territories or periods under s 196(2). A licence, by contrast, leaves the band as owner.

Watch for three traps in the grant clause:

Perpetual, universe-wide grants: Language such as "all rights throughout the universe in perpetuity, in all media now known or hereafter developed" assigns far more than the label needs and removes any ability to licence the music elsewhere.
A licence that operates like an assignment: An exclusive licence for the full copyright term with no ability to end it can leave the band in the same position as an assignment, even though the document calls itself a licence.
Sweeping in the songwriting rights: A grant that covers both the recordings and the underlying songs takes the publishing side of the band's income as well. The statutory default can be modified by agreement under s 35(3), so whatever the clause says is decisive.

The advance and how it is recouped

The advance is the money the label pays the band up front, and it is the number that looks most attractive in the term sheet. The catch is that in the standard industry model the advance is recoupable: the label recovers it, along with recording costs, video costs and marketing spend, out of the band's royalties before the band is paid anything further.

The clause that matters is the definition of what counts as a recoupable cost and which income streams it is recovered from. Check the following:

What is recoupable: If the label can recoup studio time, producer fees, videos, touring support and marketing from the band's share, the unrecouped balance can grow faster than royalties accumulate.
The royalty base: If royalties are calculated on "net receipts" after the label's own deductions, there can be very little left to recoup against.
Cross-collateralisation: This is the term that lets the label recover an unrecouped balance on one album from royalties earned on another album, another territory or another income stream. A band that sells well in one market can find those earnings absorbed by losses elsewhere.

The advance is not a gift, and the contract will say exactly how it is clawed back. If the definition of recoupable costs is broad, the headline number in the offer letter is not what the band will actually see.

How royalties are calculated and paid

Royalty clauses set out the percentage of income the label pays the band and the deductions that come off it. Royalties are usually expressed as a percentage of a defined base, such as the retail price or wholesale receipts, with deductions for packaging, free goods and reserves against returns. The drafting choices here decide how much of the income actually reaches the band.

It also helps to understand that two separate copyrights sit behind every song, and they generate separate income streams:

The song: The public performance and communication of musical works is licensed and the royalties collected by APRA AMCOS, which pays songwriters and publishers.
The recording: The broadcast, communication and public playing of the recordings themselves is licensed by PPCA, which distributes the licence fees to record labels and registered Australian recording artists.

A record deal normally concerns the recording side. The songwriting income is usually dealt with separately under a publishing arrangement. Check that the label contract does not quietly take a share of publishing income or make signing a publishing deal with an affiliated publisher a condition of the recording contract.

Accounting statements and audit rights

However the royalty rate is set, the band can only enforce it if the label accounts properly. Look for clauses covering:

Statements: How often the label must provide royalty statements, and how much detail they must contain.
Audit rights: Whether the band can inspect the label's books and records, and on what terms.
Audit costs: Who pays for an audit. It is common for the band to pay, but for the label to bear the cost if the audit finds an underpayment above a set margin, such as five per cent.
Limitation periods: How far back the band can look. A clause that limits claims to the last twelve months of statements can protect accounting errors from ever being discovered.

An audit right that the band cannot practically afford to exercise is of limited value, but an audit right that does not exist at all means the label's accounting is, in effect, unverifiable.

The options that extend the deal

Recording agreements are usually structured as an initial term followed by a series of options. The label has the right to extend the deal for additional albums or additional periods, and in the standard form those options sit unilaterally with the label. The band usually has no corresponding right to extend or to leave.

The traps sit in what the options are conditioned on. If the label can exercise an option simply by giving notice, it can keep the band locked in while doing very little with the music. Consider what should be attached to each option:

A minimum commitment to release each album.
A minimum marketing or promotion spend per release.
A deadline for exercising the option, after which the deal ends.

Options also extend the term of any grant of rights, so the length of the deal and the length of the copyright grant move together.

How long the deal runs, and what you get back at the end

Duration in recording agreements is usually expressed as a number of albums within a period, such as five albums in five years. The termination clauses then set out:

Breach: When either party can terminate for breach, and what cure periods apply.
Insolvency: Whether the band can terminate if the label goes into administration or liquidation.
What happens to the masters: Whether the rights in delivered recordings revert to the band on termination, whether the band can buy the masters back, and whether the label keeps the right to keep exploiting recordings it has already released.

The insolvency scenario is worth taking seriously. If the label collapses, the masters and the contract are assets of the company, and a receiver or liquidator can deal with them. A licence granted by the copyright owner binds every successor in title to the copyright under s 196(4) of the Copyright Act 1968 (Cth), so a buyer of the label's assets takes the recordings subject to existing licences. If the band assigned the copyright rather than licensing it, the new owner owns the masters outright, and the band has no say in where they end up. A clause that lets the band terminate on insolvency, or that returns or buys back the masters, is one of the most valuable protections a band can negotiate.

The label's performance outs (and yours)

Most contracts give the label the right to end the deal or reduce its commitments if the band's albums underperform commercially or if the band's conduct damages the label's reputation. Those clauses are common, but check how they are drafted:

Vague standards: A right to terminate for "underwhelming sales" or "conduct detrimental to the label" gives the label a wide discretion. Try to tie the clause to objective thresholds, such as sales below a defined number within a defined period.
One-sided commitments: The mirror image is a minimum commitment from the label: a promise to actually release each album and support it within a set period. If the label has a performance out but the band has no corresponding release commitment, the label can walk away while the band remains bound.

In practice, a new band has limited leverage over a label that wants to sign it, but the release commitment is the protection most worth pushing for.

Moral rights consents

Separate from copyright, the members of the band hold moral rights as the authors and performers of the music: the right to be attributed as the writer or performer, the right not to have the work subjected to derogatory treatment under s 195AI of the Copyright Act 1968 (Cth), and the right not to have authorship falsely attributed. Moral rights cannot be assigned, but the Act allows authors to consent in writing to acts that would otherwise infringe them under s 195AW.

Label contracts routinely include such a consent, and the drafting choice that matters is scope. A consent limited to the label's normal exploitation of the delivered recordings is unremarkable. A blanket consent covering all present and future works, given in advance, removes the band's ability to object if the label later uses the music in ways the band dislikes, such as in advertising. Read the consent clause to see exactly which uses the band is giving up the right to object to.

Optional clauses worth asking for

Beyond the core clauses, several provisions are situational but worth raising:

Reversion clause: ask for the masters to revert to the band once the advance is recouped, or after a defined period, so the grant does not run for the full copyright term.
Change of control clause: if the label is sold or its key staff leave, the band gets a right to exit rather than being bound to new owners it never dealt with.
Side-project carve-out: a carve-out for pre-existing work and outside projects, so a blanket exclusivity clause does not lock up every member's solo and collaborative output.
Publishing carve-out: an express statement that the deal does not touch songwriting and publishing income, which keeps the publishing side available for a separate deal.
Buy-out clause: a defined price at which the band can buy the masters back, so ending the deal does not require negotiating from nothing.

How an Artificer Legal lawyer would review your record deal

A lawyer reviewing a recording agreement on the band's behalf works through the document in a deliberate order. The grant clause comes first, because whether the band assigns or licences its copyright decides everything that follows. We map exactly what is being given away: which rights, which territories, which media, for how long, and whether the band can ever get it back.

The money clauses come next. We would test the definition of recoupable costs, the royalty base, the deductions, cross-collateralisation and the audit rights against what the band actually needs to earn a living from the music. Then we work through the term: the options, the termination rights, the release commitments and what happens to the masters if the label collapses.

There are also clauses we would push back on as drafted. Perpetual, all-rights grants, blanket moral rights waivers wider than the label needs, unilateral options with no commitments attached and cross-collateralisation across albums are the usual candidates. Variants we would insist on include a written assignment or licence that matches the commercial intent, a reversion or buy-back mechanism, audit rights and termination rights on the label's insolvency.

One further angle is worth knowing. If the band employs fewer than 100 people or turns over less than $10 million, a label's standard form contract is a small business contract for the purposes of the Australian Consumer Law (Cth). An unfair term in a standard form contract is void under s 23 of the Australian Consumer Law, and a term is unfair if it causes a significant imbalance, is not reasonably necessary to protect the label's legitimate interests and would cause detriment, with the term presumed not reasonably necessary unless the label proves otherwise under s 24. Perpetual grants and one-sided termination rights are the kind of terms that can be challenged on this basis. That is a remedy after the fact, though, not a substitute for negotiating the contract properly in the first place.

The grant clause is the deal

If there is one drafting choice that decides whether a recording agreement works for a band, it is the grant clause: what the band assigns or licences, how broadly it is defined, and what happens to those rights when the deal ends. Every other number in the contract, from the advance to the royalty rate, is negotiable detail layered on top of that decision. A band that keeps ownership, or that has a clear path back to it, can survive a bad royalty rate. A band that has assigned everything in perpetuity has nothing left to negotiate with later.

The key points from this article are worth holding onto. Identify what kind of deal you are actually signing, and check who owns the masters and whether the grant is an assignment or a licence. Understand that the advance is recouped against defined costs, and check what counts as a recoupable cost and whether royalties are cross-collateralised. Look at how royalties are calculated and whether the contract reaches into publishing income. Check the accounting and audit rights, the options, the termination and insolvency clauses, the label's performance outs and the scope of any moral rights consent. A lawyer experienced in music contracts can work through all of this with you, and the review is far cheaper than the mistake it prevents.