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Artist Glossary of Industry Terms–Unrecouped, Recoupable Costs, and Recoupment Rate"

February 13, 2010

Unrecouped

To be “unrecouped” under a recording agreement means that an artist has received an advance but has not yet earned monies equal to that advance.

Advances are a prepayment of (or in jargon, “paid against”) revenue streams that are defined in the contract under which the advance is paid—meaning that if a record company pays Artist A an advance of $100, Artist A must also ask what sources of revenue are going to be applied against that $100 in order to recoup it.

For example, the writer’s share of public performance royalties for songs (i.e., royalties paid by ASCAP, BMI or SESAC) or the featured artist’s share of public performance royalties for recordings (i.e., royalties paid by SoundExchange) are not to be applied against unrecouped balances. Those royalties are paid on a “nonrecoupment basis” meaning that they are not taken by the record company or publisher to recoup an unrecouped balance. Likewise, performance fees for live shows are not typically applied against unrecouped balances (except under certain circumstances in “360” deals).

Recoupable Costs

Not every cost for creating, marketing, or promoting an artists record is an “Advance”, i.e., a recoupable cost. Typically, recording costs, video production costs, artist advances and tour support have been recoupable from record royalties in traditional record deals, and writer advances and a handful of other costs have been recoupable from revenues other than the writer’s share of performance royalties in publishing deals (such as copyright registrations and song demos).

Artists who are signed to a recording agreement (or a master license agreement) with a record company have royalty accounts administered by the record company. Recoupable costs are “debited” to an artist’s royalty account, and revenues are “credited” to the artist’s royalty account. Royalty accounts usually come in two flavors: artist royalties and mechanical royalties. Artist royalties are paid for sales of records (whether digital or physical) or license fees for the sound recordings (such as TV licenses), and mechanical royalties are paid to the artist as a songwriter on songs that the artist writes all or part of that are “embodied in” the sound recordings.

Never the twain shall meet in a traditional record deal–except in unusual circumstances we call the “Four Horsemen of the Apocolypse”, meaning charges for (1) indemnity claims (more about this later); (2) overpayments of artist or mechanical royalties (meaning the label paid you more than you were entitled to); (3) union penalties that are your fault; and (4) unexcused overbudget on recording costs (or tours).

Record companies sometimes want to “cross” mechanical royalties with record royalties for recoupment purposes in certain kinds of deals, but traditionally this has not been the case. (It also makes it very difficult to get a meaningful co-publishing deal if your mechanical royalties are not available for recoupment to the publisher because the record company has used the payments to recoup advances under the artist recording agreement.)

Recoupment Rate

Once an artist knows the amount of recoupable costs to be debited to their royalty account, the next question is what is the recoupment rate, meaning how will revenue be credited to the artist royalty account. This is usually at the “all in” rate, meaning the gross artist royalty rate payable under the recording agreement.

If you know what your recoupment rate is in pennies, you can calculate your breakeven, at least roughly. For example, if your total advance is $100 and your gross artist royalty equals $1 in pennies, you know you need to sell 100 units in order to “break even”–meaning although you are earning royalties, those royalties are being credited against a $100 negative balance at a rate of $1 per unit so you are not payable until the negative balance in your royalty account becomes positive.

In this example, you would be paid $1 after you sold 101 units, because the first $100 goes to recoup your negative $100 balance.

It is more accurate to say that you will be “payable” because you get paid every 6 months or so, and advances are debited on a “rolling” basis. This means that if you get other advances during the accounting period, those will be debited, too. More about this later, at this point, it is enough for now to understand how balances are calculated and recoupment is implemented.

Copyright 2010 Christian L. Castle. All Rights Reserved.

See also Publishing Company/Marital Status/Instruments and Inventory/Passport and Work Permits

See also: Insurance/Legal Names/DOB and Nationality

See also: ISRCs/Unions/Side Projects

See Also: Pre-Existing Contracts and Aggregators

See Also: Band Administrator/Split Sheets

See Also: Social Networks and Domain Names/Trademarking the Band Name

See Also: Performing Rights Society Affiliations

See Also: Bank Accounts/Tax Returns/Accountants

See Also: Have you Registered with SoundExchange?

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