How do record deals work? Advances, royalties and masters

How do record deals work? The royalty rate, the record label advance, recoupment, options and who owns your masters, explained with real cases.

How do record deals work? The label pays for your recording and marketing, often gives you an advance, then keeps most of the money from your records and pays you a royalty once its costs are covered. Run any offer through the record deal calculator before you get excited about the headline number.

That “once its costs are covered” part is where most of the surprises are. Here are the parts of a deal that matter.

The royalty rate

Your royalty is your percentage of what your records earn. In the UK, the average royalty in new major-label deals rose from 19.7% in 2012 to 23.3% in 2021, according to the competition regulator, the CMA. So on a typical deal, the label keeps around three quarters.

Producer royalties often come out of your share too, so check whether the rate is before or after them.

The record label advance

The advance is money paid to you up front. It isn’t a fee and it isn’t free money: it’s an early payment of your own future royalties. You’re usually living on it while you make the record.

Recoupment

The label takes the advance, and usually recording, video and some marketing costs, back out of your royalties before you see anything more. Until then you’re “unrecouped”, and your royalty statements show nothing to pay. A big advance can mean years of statements with nothing on them.

The catch is that it comes out of your share, not the label’s. At a 23.3% royalty, for every pound your records earn the label keeps about 77p, and the other 23p goes towards your balance.

A worked example

Say you get a $20,000 advance on a 23.3% royalty, and your songs are streamed on Spotify.

  • A million Spotify streams earns the recording about $3,000.
  • Your 23.3% of that is $699, and it all goes towards the $20,000.
  • Even 10 million streams only clears $6,990 of it.

Meanwhile the label has been taking its larger share from the first stream, so it can be well in profit long before you’ve recouped.

What counts against you

It depends on the contract, but recoupable costs often include:

  • the advance itself
  • recording costs and producer fees
  • music videos, in full or in part
  • tour support
  • some marketing and promotion

If you sign for several albums, the deal may also be cross-collateralised: an unrecouped balance on your first album comes out of royalties on the second.

If you never recoup

Usually you don’t have to pay the advance back out of your own pocket. The balance just sits there, and you get no royalties from those records. Kreayshawn said in 2020 that she earns $0 from her hit “Gucci Gucci” and is $800,000 in debt to Sony.

TLC are the classic warning. CBS News reports they filed for bankruptcy in 1995 owing about $3.5 million, despite huge hits, because of poorly structured contracts.

In 2021, a committee of UK MPs called for a “complete reset” of streaming. It urged labels to look again at old unrecouped balances.

Term and options

Most deals aren’t for one album. The label signs you for one, with options to call for more. The options are the label’s choice, not yours, so you can be tied up for years.

JoJo signed to Blackground Records at 12. Her complete third album was never released, she fought the label in court until she was released from her contract in 2014, and earned nothing from her music while that went on. In 2018 she re-recorded her first two albums because the originals weren’t on streaming services.

Who owns the masters

The masters are the recordings themselves. In most traditional deals, the label owns them, often for good. That means it decides how they’re used and can sell them.

Taylor Swift said in 2019 that she asked to own her work and was offered only a chance to “earn” back one old album for each new one she made. She walked away. Big Machine, which owned her first six albums, was then bought by Scooter Braun’s company.

If you can, negotiate for the masters to come back to you after a set number of years.

Extra cuts: 360 clauses

Some deals also take a share of your gigs, merch and publishing. That’s a 360 deal, and it needs extra care.

Label services and distribution deals

You don’t have to choose between a full record deal and doing everything alone.

  • Distribution: you pay a distributor or give it a small cut, keep your masters and keep the rest of the money. Usually no advance.
  • Label services: a company handles some marketing and release work for a bigger share, but you usually keep ownership. Advances are smaller or don’t exist.
  • Record deal: the most money up front and the most help, but the label usually owns the recordings and takes the biggest share.

To see what releasing yourself would cost, compare distributors in the music distribution calculator.

What to check in a deal

  • Which costs are recoupable, and is there a cap?
  • Is it cross-collateralised across albums, or with publishing or a 360 clause?
  • Do you get statements showing the balance?

Next step

Put the advance, royalty rate and costs into the record deal calculator to see when you’d start earning. For the wider picture, browse our music royalties and pay guides.

Where these figures come from

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