Recoupment Process In Record Labels
Recoupment Process In Record Labels: A recoupment is a practice, common in the music industry, of claiming an advance provided to an artist back from that artist rather than from related sources.
In ordinary parlance, this system is when the record label gives an advance to an artist for the production of the artist’s music; the record label funds the whole process, then proceeds to collect the advance back from the artist, (repayment/reimbursement of the advance by the artist to the label). This repayment is done when the music of the artist gets enough sales. Many record labels practice this system and also incorporate it as a contractual clause when signing artists.
To be more illustrative, I’d give two examples in this regard, one scenario with recoupment and the other without, just to get a clearer view of the concept.
Suppose that a music label gives a band a $250,000 advance to record an album. The label agrees to do so in return for 90% of the sales. In addition, the label will specify certain standards for the production of the album, for example, which studios the band will engage. The label may even hold the advance and make all disbursements on the band’s behalf, ensuring the funds are used exactly as agreed. In other words, the $250,000 advance is not simply pocketed by the band.
it is to be spent on album production and the band’s reasonable expenses during production. The album is recorded, and sells 200,000* copies at $10 each, yielding $2m. The record company takes 90% of this as agreed, leaving the band with $200,000 of their own. This is the situation without recoupment.
With recoupment, the label advances the band $250,000 as before. As before, the band (or the label, on the band’s behalf) spends substantially all of the advance to produce an album meeting the label’s specifications. The album again sells 200,000 copies at $10 each, yielding $2m. The record company takes 100% of the first $250,000 in sales (recouping the $250,000 advance to the band), and 90% of all further sales, as agreed. The band’s net is effectively reduced to 0% of the first $250,000 in sales and 10% of the further $1.75m, leaving them with a total of $175,000. This process is common among top-tier foreign labels such as — Universal Music Group, Sony Music Entertainment, Warner Music Group (which of course has some sort of affiliation with Chocolate City), EMI (Electric and Musical Industries), and a plethora of others.
It may also be pertinent to note that recoupment deals primarily involve new artists or those without a proven sales history, so selling 200,000 copies would be fairly unusual. More typically, 10,000 or fewer copies are sold by a new artist.
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In a typical case, the label recoups only $100,000 of the $250,000 advance, along with other non-recoupable expenses incurred in getting the album out into the world.
Most Nigerian record labels — Mavin Records, DMW, Starboy, EME, G-Worldwide, Chocolate City, still apply this same process in their recording contracts, ordinarily, a label like Mavins would pay the monetary value of the recordings done for the label by the artist, let’s say, Rema, this is subject to the specific limitations stipulated in the contract. Although Mavins would give an advance for the costs, it will also have the right to reimburse itself out from the artiste’s royalties, in the long run, simply put, the debt must be paid. Although, Rema would still get a reasonable cut from the proceeds.
Conclusively, I can confidently deduce that the recoupment process has been in recording contracts for quite a long while now, it is a basic element in every recording contract and it is the same conceptual process that spans across all record labels, there have been some debates for and against the process but one thing is certain, it is incorporated in the majority, if not all modern recording contracts between labels and recording artists. I believe the process would still live on for an extremely long time prospectively, I doubt it would be scrapped off, mitigated, and adjusted to be more favorable [to artists in particular]? maybe, but definitely, it can not be outrightly discarded, speaking in the contractual context.
References — for further reading/research
• Donald Passman, All You Need To Know About The Music Business ISBN 978-0- 670-91886-7.
• To Deal Or Not To Deal: Legal Issues Arising From Recording Label Signings In Nigeria’s Entertainment Industry posted on January 11, 2019, an article written by Onye Rumuna and Simeon Okoduwa, two high profile lawyers from Alliance Law
piece by Gabriel Iloh