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This one year term is generally followed by several option periods, where the record label is free to renew your contract for additional time periods if they like the work you're producing. By limiting the length of your contract to one year, not including option periods, you prevent a record label from effectively controlling your life and creative work for an unreasonable amount of time. You never know where your career will take you, and it's important to keep your options open.
I've seen unscrupulous record labels use five- and even year terms, locking their artists into long-term contracts that destroy their artists' creative lives and financial futures. Before signing that contract, make sure the record label isn't locking you into a lengthy contract with no escape. Without a release commitment from the record label, you'll have no guarantees that the label will actually do the work to get your album produced, packaged, and distributed to the public for sale. A typical release commitment is a promise from the record label that it will release at least one album during your initial contract term.
If you record the necessary tracks for a record and the label fails to release the record, you should then be allowed to walk away from the contract. In addition, you should think about negotiating a minimum marketing spend as a part of your release commitment. This gives the record label some "skin in the game" when producing your album, forcing them to actually spend money to market your creativity, making your hard work pay off.
Although royalty rates differ wildly based upon an artist's notoriety and past success, there's a general ballpark number for royalty rates that every artist should know. For new artists with little-to-no notoriety, a royalty rate of five to 10 percent is typical. Up-and-coming artists generally see between 10 and 14 percent royalty rates, while seasoned professionals can bring in as much as 18 percent in royalties.
Don't let a record label convince you that a one or two percent royalty rate is the industry standard. Some record labels prey upon unsuspecting artists by offering relatively large upfront signing bonuses, giving their artists an initial feeling of success.
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But in return, the contract gives the artist a paltry royalty rate, ensuring that the label — not the artist — will reap all the long-term rewards of artistic success. Even if your royalty rate is reasonable, keep your eyes peeled for hidden royalty deductions.
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Before paying you even one cent in royalties, the record label is typically allowed to recoup much of its expenses through so-called "deductions. But some record labels sneak in abhorrent and enormous royalty deductions that all but guarantee you'll never receive a royalty check. Watch out for deductions based upon the record label's general costs of doing business, like the deduction of record label owners' salaries and benefits.