Taking a Hard Look at
Production Company Agreements:
What the Redcording Musician Should Know

by Walter F. McDonough

One of the most controversial topics in the record industry is that of the production company agreement. A production company agreement is an arrangement where a recording artist signs with a producer in much the same way as, or instead of, a record company. While some observers believe that a production company contract can give some performers the opportunity to work with an experienced advisor, many industry professionals point out that this type of deal can also, in some instances, lead to artist exploitation.

What is a production company? A production company is a company that provides the services of one of more producers in exchange for the artist signing exclusively with it. What is the producer’s motivation? As we all know, producers are one of the most important actors in the recording process. Most producers, however, toil in obscurity working on everything from demo recordings to advertisements and are paid hourly. Occasionally, they come across acts that they believe have the potential to become successful. A producer may believe that her efforts producing this particular individual or group may be the missing element in the act reaching success. They also may feel that no matter how much that they contribute to the success of a developing band, they could be cast to the sidelines when the band is signed to a major label and then decides to use another producer. By having an artist sign directly with the production company, the producer protects her interests.

Unlike record companies, production companies are not in the business of manufacturing and distributing CDs. They are in the business of preparing demo recordings that can be used to ‘shop’ recording artists to record labels. Because the artist has signed an exclusive agreement with the production company, any record company that wishes to sign the act must purchase the contract from the production company. The ability to develop and sell a potentially lucrative act to a record label is the profit motive behind the production company. In many cases, even after this purchase has taken place, the producer still may work with the recording artist under the terms of the new agreement with the record company.

Why would an aspiring recording artist sign a contract with a production company? The producer may have something that the musician finds desirable. For example, the producer may own his own studio and the recording artist may not have enough money to record a proper demo. Some producers act as ‘song doctors’ who help an artist rearrange existing musical compositions and may even provide the winning ‘hook.’ In hip-hop, a producer may have a number of dope ‘beats’ that may be the final ingredient that a talented MC needs to get the attention of the majors. A producer may even have such a reputation in the industry that working with him may bring substantial attention.

How do these agreements normally work? Normally, several provisions are common to all production agreements. The artist will grant the production company the exclusive right to obtain a record distribution and/or recording agreement with a major record company. Another set of provisions mandates what will happen in the event of the sale of the recording artist’s services to a record company. Usually, these clauses fall into two categories. The first covers the use of existing tracks that the label may be release and the second outlines the terms and conditions of any future tracks that the producer may supervise. (In fact, most production company agreements stipulate that even after the record company purchases the artist’s services, he would still have to use the producer exclusively or for a certain percentage of tracks on any new album. If the artist or the record company does not want to use the producer any longer, the cost of the purchase would become that much higher.) Among the terms that would be included in these sections of the production company agreement would be royalties, a percentage of any future advances paid to the recording artist, producer credit and sometimes even repayment of the producer’s studio costs.

This is the area where things start to become tricky. As you can see, a recording artist may sacrifice a lot when he enters into one of these deals. Because he has signed a production company agreement, the artist may have to share a large percentage of his advance and royalties with the producer. That is always the line that has to be drawn when negotiating these agreements because how much of a share is too much? When does the agreement become so economically disadvantageous to an artist that is not worth signing? An inexperienced musician can easily be taken advantage of if a qualified attorney or manager does not represent him.

Some production company agreements can be outright abusive. I have seen contracts that grant the production company one half of the recording artist’s music publishing (in situations where the act writes its own material and the producer has made no contribution) and some where the production owns complete and exclusive rights to the artist’s merchandising. This is not to say that some record companies do not also indulge in this practice, but record companies can at least claim that they manufacture, distribute and promote CDs, unlike production companies. (In point of fact, any agreement that also includes recording, publishing and merchandise rights is something that you may want to avoid at all costs.) If the production company is not rendering the services of a ‘song doctor’ or a hip-hop producer with beats, there is a strong argument that the production company may not deserve a share of the publishing at all.

On the other hand, there are many positive arguments in favor of production. For some musicians, a production company agreement may be the only game in town. In other instances, the production company may be offering the services of a producer that may be the difference between success and failure.

The most important thing to consider is this: always be fully informed, so that you can make the best decision for your career. Entering into a production company agreement will probably mean that you will be paid less when the record company has signed you. There have been several instances where acts that were originally signed to such agreements subsequently signed with a record company. Then they found out that they had a problem, and guess what it was? After millions of record sales, the acts found that they were not making any money, due to the high share of royalties and advances that the production company took.

This should never happen. Any reputable production company will encourage you to seek the counsel of an experienced entertainment attorney. Only after you have had the opportunity to make your own independent evaluation can you decide whether it is in your best interest to sign. Surprisingly enough, sometimes it is.

Walter F. McDonough is the general counsel of the Future of Music Coalition, an Adjunct Professor at Suffolk University Law School and an attorney in Boston. He can be reached at walter@futureofmusic.org.