So far in this course, we have mostly looked at royalties from the perspective of the record label paying the artist. There are a few more parties involved in the creation process, however. Before we have artists who record the music, we also have writers who write the compositions and lyrics: more on this in our upcoming chapter on mechanicals. And when the artists record the music, they are often assisted in this process by a producer. This chapter is fully dedicated to the producer.
The job role of a producer has vastly different definitions, especially when looking across different genres which demand vastly different project management and recording techniques. But in the traditional definition within the pop and rock genre, a producer will assist in the recording process. This encompasses handling the recording technology, but also organising the recording sessions, coordinating the progress of these sessions, supervising the performance of the artists and making sure the project meets its deadlines.
Artists will sometimes, perhaps without much consideration, independently take on the role of the producer of their project. But when an external producer is involved, this person will, in one way or another, participate in the earnings.
Producers can get paid a flat fee, or they get paid per completed recording, or they may get paid by the hour. Additionally, and this is why we dedicate a chapter to producers in our Royalties 101 guide, a producer may negotiate a share in the recording’s royalties.
One common way for producers to participate in the royalties is for the producer to have one consistent royalty share in all the recording’s royalties. Additional exceptions, such as deductions or differing royalty rates for different sales types are a rarity in this type of producer agreement. The producer’s royalty rate commonly ranges anywhere between 1% to 5% in the recording’s total earnings, but in practice the rate may differ and depends on what is agreed between the producer, artist and label.
Another common way for producers to participate in the royalties is for the producer to earn a consistent share of the main artist’s royalties. The producer’s royalty thus also depends on what was agreed between label and artist. This type of agreement commonly attributes anywhere between 15% to 25% of the artist’s royalties to the producer, but again in practice the agreed royalty rate fully depends on what was agreed between all parties.
In a traditional full label deal, the label will cover all upfront recording costs and so pay any upfront fees for the producer’s work. If the producer takes home a share in the recording’s earnings; the label calculates the producer’s royalty, reports the royalty statement and makes the payment. However, the label’s agreement with the main artist commonly states that a producer’s fees and royalty shares can be recouped from the artist’s royalty share. So whilst it’s the label who takes the administrational burden, in the end it will be the artist who takes the financial burden.
Let’s take a look at how such a royalty calculation may work in practice. Let’s say our producer has produced The Cricket Bats’ latest album. The Cricket Bats’ agreement is as follows.
Let’s say the label has made the below upfront costs.
And let’s say in its first half-year, the album has earned the following sales.
We will discuss two scenarios. One where the producer earns a 3% share of all album royalties, and a second scenario where the producer earns a 20% share of the artist’s royalties.
Now that we have sketched the context of our example, let’s take a look at how a 3% royalty share for the producer may impact our calculations. First, let’s calculate the producer’s royalties.
Our producer earns a 3% royalty in all sales types. The total earnings of the album are £115,000. It is a simple calculation to apply 3% to this and find that the producer’s royalties are £3,450, in addition to the £5,000 upfront fee he was paid to produce the album.
To calculate the artist’s royalty, we will need to apply the respective royalty rates to the different sales types. After we apply the artist’s royalty rates, the artist’s total share in the earnings equals £34,000. Additionally, the label made £16,000 in upfront costs which are fully recoupable from the artist’s share. The interim result is that the artist has a balance of £18,000. Now, also the producer’s royalty of £3,450 is deductible from the artist’s share, meaning our artist has a final balance of £14,550.
To further familiarise ourselves with the concept of producer royalties; let’s say that instead of a 3% royalty in all earnings, the producer has agreed a 20% share in the artist’s royalties.
Instead of applying the percentage on all original sales amounts, we need to apply the producer’s royalty rate on the artist’s share in the royalties. From our previous example, we know that in the £115,000 in sales the main artist has a royalty share of £34,000. This will be the calculation input for the producer’s royalty. 20% of this amount equals £6,800, which is our producer’s royalty on top of the £5,000 upfront fee he was paid to produce the album.
Now let’s have another look at our main artist’s balance. The artist’s share in the royalties and costs is still calculated as per our first example; the artist earns £34,000 in royalties and £16,000 in costs are subtracted from this balance. Meaning the artist has an interim balance of £18,000. After we subtract the producer’s £6,800 royalty, that means the artist has a final closing balance of £11,200.