Chapter 8 Advance and Recoupment

What does "in the red" mean?

mean unrecouped expenses/ comes from accounting use of red ink for business loss

What is cross-collateralizing sequentially?

means advances under current deal are recoupable from royalties earned under past or future deal *look for contract language "royalties can be used to recoup advance paid under this or any other agreement.

Recoupment

process of keeping royalty money otherwise payable to the artist in order to cover costs of advances and expenses.

Example of Advance/Recoupment

record companies keeps first $100,000 of artists royalties to pay itself back.

Cross-Collateralization

refers to the pooling of royalties earned for different albums recorded under the same record contract for purpose of recording expenses.

What are sequential deals?

*Another example of cross-collateralization deals

Cross-Collateralization Examples:

*Artist gets $100,000 advance for album one, plus another $100,000 advance for album two. *Album one earns $10,000 in royalties while album two earns $120,000 Album one is $90,000 unrecouped or "in the red." Album two is $20,000 "in the black." *Two albums are cross-collateralized; meaning the entire $200,000 deficit (100,000 for each album) is recouped from the entire $130,000 in earnings ($10,000 from album one and $120,000 from album two). *Meaning artist is still $70,000 in the red and the deficit carries forward to any future albums

What advances are non-returnable?

*means advances are totally at record companies risk *if artist does not sell enough to recoup, label does not recover their advance *artist means advances are taxable when you get them, not when ever they recouped.

Cross-Collateralization of Deals

*means that the cross-collateralization is between separate agreements *means advances made under one agreement can be recouped from the royalties of both NOT A GOOD SITUATION FOR ARTIST!!!!

Advance

*money paid to the artist out of future royalties

What are non-recoupable expenses?

*not industry custom to recoup some costs paid in connection with artist's agreement *manufacturing costs, advertising, marketing, shipping costs *contracts should include language excludes amounts that are "customarily non-recoupable in industry.

What are other recoupable expenses?

*recording costs (studio time, equipment, travel, food, instrument and equipment transportation) *video costs *independent promotional costs *tour support

Example of Cross-Collateralization Deals:

Artist signing a recording deal and a publishing deal with the same company. Artist has radio hit with song they wrote, but doesn't sell enough records to recoup their record advance. Advances from label would be recouped from publishing royalties.

What does unrecouped mean?

advance and expenses that are not yet paid back

What does "in the black" mean?

after artist recoups their expenses