Artist Glossary of Industry Terms: “Advance”

An “advance” is almost always defined as a pre-payment of royalties, whether the advance is paid by record company to an artist, a publisher to a writer or a merchandiser to an artist. An advance is also sometimes called a “minimum guarantee”.

Advances in the music industry do not earn interest and are not loans. It is a popular misconception that artists are “in debt” to their record companies or writers to their publishers. By any normal definition of “debt” this is not true for two big reasons and many smaller ones: The advance payment does not earn interest and it does not have to be repaid. The advance is only “recoupable”—meaning that the advance is applied against earned royalties.

For example, if Artist A was paid an advance of $100 in 1970 and did not earn $100 of royalties until 2010, no interest would apply and the $100 in 1970 dollars would be paid dollar for dollar in 2010 dollars ($100 in 1970 would be worth approximately $600 today). If Artist A earned $1 a year in royalties from 1970 until 2009, but earned $500 of royalties in 2010, Artist A’s royalty account would be “debited” with $100 when the advance was paid in 1970, credited with $1 a year for 39 years, and then credited with $500 in 2010. Artist A would receive none of the $1 per year for 39 years, but would receive $439 in 2010.

During the years 1970 to 2010, Artist A was “unrecouped”. Artist A did not owe the record company any money, and interest did not run on the unrecouped balance. Artist A also got to pay off the advance in inflated dollars over time, so the actual cost to Artist A of earning the $100 is lower the longer it takes to recoup the advance.

A word to the wise: One problem with the misinformation floating around the Internet that “artists are in debt to record companies” is that it creates an opportunity for an unscrupulous or unknowledgeable record company to try to convince a new artist that the advance really is an actual debt. Run, do not walk, from such an offer.

Copyright 2010 Christian L. Castle. All Rights Reserved.

See also: Bank Accounts/Tax Returns/Accountants
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