Keith Maynard continues his short series on coping with contractual problems of the American recording and publishing industry. This month he warns of the pitfalls of legalese and suggests ways of asserting control to ensure you get the best possible deal

A full contract analysis would probably anaesthetise you, since standard recording contracts are 30 pages long with 18 primary clauses and about 110 subparagraphs. These epics are accompanied by a sequel called exhibit A... which is, in reality, another contractual concoction comprising about 14 pages, four primary clauses and 42 sub-paragraphs. No party!

In the interests of brevity, I'll present most of this contract analysis as a type of critique a lawyer would send to a record company's legal adviser after receiving and studying the standard contract as offered.

I've presented just a couple of primary clauses and a few sub-paragraph sections in order to fully acclimatise you to the sort of language employed, but I'll deal with other facets in a more abstract and digestible manner.

Clause: company's exercise of an option or failure to suspend shall not constitute a waiver of any of the company's rights to undelivered masters unless such waiver is announced in writing. At company's election the next masters delivered shall be deemed to satisfy the most delinquent requirements first and shall be deemed delivered during contract period in which delivery should have been made.

According to this clause, the artist's failure to record and deliver product on time and within the given contract year, for any reason, including impediments caused by the company, grants the company the right to suspend and extend the current time period, or contract term, until commitment is fulfilled.

The company would have invoked the odious 120 days clause granting such extension rights.

First, there are two separate time/product parameters to be observed and negotiate in order to avoid such victimisation.

The minimum recording commitment refers to the minimum number of sides (or records) the company has agreed to finance. The maximum recording commitment signifies the number of sides the company could ask the artist to deliver.

Ideally, the artist should be promised a minimum recording commitment of two sides and one album during the first and second-year terms with escalation up to two sides and two albums during years three, four and five.

The Pay or Play clause should be rejected. Inevitably it is lurking close by, and it allows the company to pay the artist a small flat fee as inducement or in compensation for foregoing a scheduled recording.

Once achieved, the company has effectively side-stepped part of its minimum recording commitment obligation. The fee will, predictably, be far less costly than actual recording.

Conversely, one must not agree to a maximum recording commitment so voluminous that it could not be fulfilled, especially with tours, concerts, TV, and promo appearances with which to contend.

Great care must also be taken in defining what all contracted parties shall deem a single or side in terms of duration: seven-inch single at three-and-a-half minutes, or 12-inch single at five to six minutes.

Deciding an album configuration is even more crucial since six, eight, ten or 12 tracks might constitute an album and quite unsuspectingly one might assume the contract is calling for standard 45-minute discs. However, the compact discs comprise a longer duration of about 60 minutes.

Failure to define such terms might well result in an alarming degree of levity in the company's right to subpoena a substantial product.

A two-album, three-single maximum commitment might represent anywhere from 19 sides of three-and-a-half minutes duration to 27 sides of six minutes duration in a given contract year.

Before negotiating with a record company I research their sales figures, particularly with regard to fairly new acts who have been with the label for about two years and who are healthily increasing in stature.

Sales figures for the first and second year record releases are of particular interest. Having ascertained these approximate figures I then assert during negotiations that the company must attain sales equivalent to at least 80 per cent of those figures cited on each record released during the first two years.

I also announce that they may not exercise options to proceed into years two and three (first option and second option terms) unless they achieve such sales. This offers a sales and promotional incentive as well as an out for my clients if there is no growth.

By the way, despite recording cost discussion and other such finance-oriented language and assertions, nowhere in the standard contract is there ever a commitment to actually release product.

Shocked? The above stated strategy nudges them into a commitment! Since recording costs less than pressing, shipping and promoting records, companies who are failing one or more of their acts prefer to cut their losses by only financing sessions.

Several years ago, during the heyday of dance music, my partners and I insisted upon release of a 12-inch mix of one of our song-masters which we'd sold to a prestigious New York independent.

The mix had been done by Francois Kevorkian, a hot remix artist. We felt the recording had been imprudently held back, especially since it had been done for the summer with all the obligatory SFX, groove, BPM and suitable style.

The record was put out and climbed to 34 in Billboard's national disco-dance charts. We received nice reviews and a lot of airplay but no copies were available for sale, so ironically, we earned few dollars. A battle of wills we lost I'm afraid, but it was an experience which prompted me to re-think recording commitment release strategy.

Clause: artist shall be entitled to royalty earnings based on net sales of records embodying masters; computed and paid pursuant to terms and provisions, as agreed.

This clause (abbreviated here) will continue to list various proposed royalty reductions or refer the reader to yet another clause or accompanying tome which does so. Among these supposedly legitimate royalty reducing factors presented, will appear:

Breakage returns, ten per cent: traditionally cited as justification for an adjustment of your negotiated points (or percentage) to reflect only 90 per cent of sales. Example: ten-point deal (ten per cent) becomes ten per cent of 90 per cent of sales, or rather nine per cent of whole. A one per cent skim! Also, vinyl discs are almost unbreakable and substantial returns mean poor sales promotional forecasting: a fault of the company. Minimal returns will be melted and recycled — which the contract doesn't divulge. A big NO on this one.

Free goods/give-aways, ten per cent: reasonable and acceptable.

Packaging, ten-15 per cent: marginally acceptable if adjusted to five per cent, but might justifiably be rejected if leverage seems healthy.

Artwork, publicity photos, five per cent: unacceptable. Surely the company should be responsible for some efforts beyond pressing and shipping.

Foreign sales, 50 per cent: an exaggerated claim of lost revenue, especially as. most majors have affiliate divisions in the prime foreign territories who receive only a small handling fee for distribution.

Also, some or many of those prime foreign markets feature substantially higher record retail prices. A 25 per cent reduction is more sensible.

Free goods to record club members and premium records offered promotionally should all be condensed into the number two category which already accounts for ten per cent. Another No.

Premium offers to libraries, the military, the government and ships should not be discounted at 50 per cent as declared but instead might be more realistic at 25 per cent, which is closer to the actual discounts offered.

Budget or mid-priced records: 50 per cent when sold via TV ads or through discount outlets should be amended to 25 per cent, and such marketing methods should be prohibited during the first four months after release. The company should be encouraged to concentrate its whole effort on promoting the act/artist principally as a top-of-the-line act.

Once the prime-period focus has dissolved, such budget releases aren't likely to label the artist as a budget-record performer.

Tape discount bears no relation to reality, especially as the premise on which it is based is cost of production.

Tape duplication costs less than disc pressing. Shipping is easier and cost effective due to size, and inlay cards rarely equal the detail or pizazz of record jackets so are also a cost-reducing factor.

Tour support/video production costs should be considered acceptable recoupments only if the company's track record is exemplary in terms of launching acts successfully via such methods. Do introduce some sensible constraints on the budget. Propose a ceiling.

Mix/remix costs: costs incurred for such record mix configurations as are currently market practice (ie seven-inch plus 12-inch) as well as a reasonable margin for error and correction are acceptable. However, further mix costs beyond those as stated may only be expended with the artist's approval in the form of prior written consent.

The remix producer's fee should be commensurate with such an individual's stature and reflect the going rate. Also, royalty points awarded for such involvement should not be deducted from those of the artist.

Contract artist assignment: such transfer of the artist from one company to another is quite prevalent. Sometimes it occurs just before the collapse of a company which has filed Chapter 11 bankruptcy or it may be due to a reshuffle of a major label's subsidiaries.

It also happens when a small independent, which has developed an act, decides to sell them to a major having decided it can't achieve maximum potential given its financial limitations.

You should assert the right to refuse being reassigned if it's not for your benefit.

Auditing: procedures must be rewritten to allow the artist affordable alternatives to the Certifiable Public Accountant (CPA) stipulation.

Such an entity will amass a cost approaching $30,000 for one audit. Assert the right to choose between an attorney, any licensed accountant, an auditor with record business or tax department expertise or a CPA of your choice. The actual contract language is a veiled discouragement.

Recording time and locations ought to be arrived at by mutual agreement between artist/act and the record company rather than dictated by the latter. If the budget can be fully recouped from sales before you see any profit then it's your cash being used. You should have some choice, otherwise an album could cost a fortune and never reap profit if you are to record at an incredibly famous, but enormously expensive studio.

Cross collateralisation is a process by which losses from one area are appropriated from more successful ventures. The standard contract makes provision for such a practice on many levels. It's largely very unfair.

Try to request royalty computation and payment based upon each record and music video made and distributed for sale rather than as an aggregate. At least request that royalty calculations reflect profit after credit and debit balance computation for the semi-annual period represented by the current accounting statement.

Without such contractual modification the record company can quite legally take royalty profit surplus, technically due to you, from two successful records and plough them into a third which has failed. You end up feeling as though you were mugged.

Defining acceptability of masters is crucial since the company might otherwise be able to reject all your records by declaring such masters commercially unacceptable.

A thoroughly subjective and unchallengeable damnation of your work which, if used as a ploy, will enable a company which has lost interest in the signed act/artist to minimise expenditure to recording cost only. No record releases!

Language should be changed to read technically acceptable, since such a status is objectively defendable. Once the A & R director has approved your demo'd song arrangements for master recording and has advanced at least 50 per cent of the prior agreed cost for such a venture, then your responsibility is to transfer all the essential elements of that demo's characteristics to a master tape.

Such a master must feature optimised recording levels, calibration tones and all else necessary for making a master mix suitable for record making. The record company is responsible for marketing and therefore the A & R director has made an assessment of commercial acceptability and viability in choosing song arrangements from demos you display.

Before the actual signing of the contract, the record company may seek licensing rights for the whole world so they can print and distribute records in all other viable territories outside their principal area.

I like to say yes conditionally. Forty five days after each record has been released in the company's home territory (example: USA, Canada, Mexico) I/we reserve the independent right to make direct licensing agreements within territories not thus far responsive to the record company's efforts.

Forty-five days is more than half the usual shelf life of a successful commercial record, after which its downward spiral is unlikely to garner much real interest from foreign licensees.

This self-benefiting strategy also works as an added incentive to coerce the record company into maximising its licensing rights early when such efforts count.

It rules out inefficiency and/or at least provides us with satisfactory options.

I remind potential recording acts/artists that all recording advances are fully recoupable: all cash thus spent comes off the top of any artist royalties which accrues from healthy record sales!

On a 12-point artist deal (12 per cent of retail), well-defined and negotiated to reap 12 points on an averaged 90 per cent of sales, a $40,000 advance would call for 43,573 records to sell before we reach break-even point. Example:

$8.50 per record, retail price
- .85 agreed 10% discount aggregate
$7.65 remaining 90% net figure

$7.65 x 12% royalty base — 91.8 cents earned per record sold. 91.8 cents x 43,573 sales — about $40,000.

Overspending on recording costs frustrates many newly signed acts when they receive their first royalty statement and it shows either break-even or a negative balance. Quite a shock. But don't be discouraged. Instead, wade through the convoluted contract language (legalese) and start using these self-defence techniques.