Please note: This is an installment in a multi-part post. Each post has information relevant to prior posts, so until we get to the “Final” there will be more information to come. See also More Questions for Artists: Record Producer Agreements, Part 1, Part 2, Part 3, Part 4, Part 5. Part 6 , Part 7, Part 8 , Part 9, Part 10, Part 11 and Part 12. Watch this space for further installments, or subscribe to the RSS feed. A post with all the current parts in one post is available here, and see also “Artist Management Agreements” on the Semaphore Music blog.
18. Contingency Funds It is not uncommon to build a “pad” into your budget for unforeseen costs or if you need a little extra money to make the record better. This is not a way to hide money or to inflate costs, or it shouldn’t be. Even if your producer is working on a recording fund basis it is a good idea to have a contingency built into the recording budget to give you some flexibility. The typical contingency is 10% of the budget, but could be higher or lower depending on circumstances.
19. “Fan Funded” Projects: Producer Budgets If you decide to use fan-funding for your record and you also plan to use a producer, remember you are on your own as with any “DIY” effort. You will not have the structure of the record company to protect you on enforcing terms so it would probably be a very, very good idea to have at least a signed deal memo with your producer that grants you the rights in the recording—see the discussion of the joint authorship problem in this article.
Also remember that if you go overbudget with fan funding, there’s no record company to advance you more money. So what that means as a practical matter is that you are operating under the “advance plus budget scenario” for recording cost purposes discussed in this article, except that you have more reason than ever to hold back a portion of the producer’s advance until satisfactory completion of the recordings. This is because you have raised a specific amount of money from your fans to record your tracks and you will have to put up your own money or raise more money if you go over budget. If the producer causes you to go over budget on a fan funded record, you will want to be particularly careful about having a contingency to invade if necessary before you go after the producer’s delivery payment—which in theory you will only be able to invade if the producer actually caused the overbudget through no fault of yours. These are always awkward conversations to have, so take advantage of your contingency.
Before you ever ask your fans for a contribution, you should have been through your budget thoroughly so you eliminate the more predictable of these potential surprises. It’s one thing to fight with your record company about money—they sell your records. It’s another thing to fight about money with the precious few people who show you enough respect to buy your records.
20. “Fan Funded” Projects: Recoupment We spent a fair amount of time on recoupment issues in this article. With “fan funded” projects, there is no recoupment, at least not for the fan funded part of the costs. Those will not be the only costs, however, Another thing to remember is that if you produce a record on a fan funded basis and it is successful, you may find that a label wants to “buy it”, meaning pay you for the record in what will become a term recording artist agreement. And we know that the only money that record companies pay to artists are advances recoupable from payable royalties, right? Meaning royalties that are payable after recoupment of the advances under some determined formula. So if you have a fan funded record for $15,000 and you pay your producer $3,000, but because of your touring and other hard work you are able to have a major label “pick up” that record for $500,000, what happens? If the label advances you $500,000 can you put all of money in your pocket? Great payday, right?
But what about your producer agreement? For example–if your producer agreement for your fan funded record doesn’t take into account at least the potential for an advance at some point in the future, then are you going to owe the producer a royalty on those records it takes to recoup that $500,000? Probably. And where are you going to get that money from? Hopefully your producer agreement will tell you how to do that.