Record deal: how it works, from the advance to your first royalty

The short answer

A record label contract, or recording contract, is an agreement between a label and an artist, and the label typically owns the masters. You get an advance and a royalty: UK major labels told MPs most artists get 20% to 25%, according to a report for the UK Intellectual Property Office (IPO). The label first recoups the advance and most costs from that royalty. If you would rather keep your masters and pay once to promote a release, our music promotion runs a YouTube campaign plus an editorial feature.

What a record deal pays you

The advance. In its 2014 Investing in Music report, the labels' trade body IFPI estimated that a major label paid a new pop act in a significant market an advance of $50,000 to $350,000, more in competitive situations of a total $500,000 to $2,000,000 including recording, video, touring and marketing. Smaller deals pay far less: a 1996 independent contract in the IPO study offered £5,000, then £8,000 and £12,000 if the label took up later options.

The royalty. In 39 royalty contracts from Musicians' Union members, mostly with independent labels, the IPO study found most centred on 15% to 20%, with a median of 25% from 2015 on (only nine contracts). It puts the average streaming royalty at about 25%. Producers often take around 4%, and some contracts pay only 75% of the rate on "new media".

How do record deals work? Recoupment

The IPO report calls the advance recoupable but non-returnable: the label keeps your royalties until its costs are covered, but does not chase you if the release fails. On a standard exclusive deal it recoups recording costs, tour support and half of video costs, while marketing is generally not recoupable. Of the costs on that ledger, one accountant told UK MPs, the label takes "20% of the income and 100% of the costs".

Across the industry, the IPO report finds recoupable costs run higher than average royalty rates, and expects many artists to fail to recoup.

What to check before you sign

General information, not legal advice. Take these questions to a music lawyer:

• Who owns the masters, and for how long? Where the IPO sample showed the term, 61% of record deals kept the recordings for the full term of copyright, though shorter terms grew from 17% of contracts to 40% from 2015 on (10 of 25).
• How many options? Most deals give the label, not you, the choice to continue for another album.
• What is recoupable? Ask for a list.
• Which rates are reduced? Look for lower rates on new media, overseas sales or other formats.
• Re-recording limits. Many contracts stop you re-recording the songs for another company, often for five years.
• Other income. If the label wants a cut of touring or merchandise, it is a 360 deal.

These figures come from UK contracts; US terms vary. In the UK, Musicians' Union members get up to an hour of a specialist solicitor's time on UK contract law at no extra cost.

How the options compare

How a record deal, a paid campaign and a label distribution deal compare:

Figures for the two deal types come from the IPO report and vary by contract; see also label services vs distribution. Whatever you decide, send us your release date and video link for a plan.