As an artist, it’s easy to get swept up in the mushy feeling you get when someone showers you with compliments, let alone offers you a large sum of cash. We understand how good it feels to be truly believed in. We’ve seen first hand how hard it is to juggle financial instability and follow your dreams simultaneously. We get it. But at the end of the day, we want artists to know upfront what it means to accept advances. Because if something seems too good to be true, it probably is.
The Truth About AdvancesSay it with me... AN ADVANCE IS NOT FREE MONEY. 👏 Click To Tweet
What is an advance?
Contrary to popular belief, an advance is not free money.
These types of deals have a plethora of strings attached and can be detrimental to your professional career as a musician AND your long term financial stability if you don’t know what you’re signing up for. However, no need to worry just yet. We’re here to make sure you have all the information you need to make the right decision for your career.
How are advances calculated?
There are a couple of different things labels keep in mind when calculating how much of an advance to give an artist. Independent labels consider how much they can afford to pay while still having enough cash left to promote the album release. Major labels consider things like how much they plan to spend on promotion and how many copies they think they can sell of your release in order to recoup your advance and make as much extra money as possible from all of your sources of income (i.e. touring, merchandise, etc.).
Unless you find yourself in a massive bidding war, odds are labels are always going to stay on the safe side rather than take a huge gamble on you. And unfortunately, that’s just the way the cookie crumbles…
Here’s what you should know…
There are 2 basic types of royalties on which you may be offered advances:
- This type of advance is against your digital recorded music royalties, i.e. the money you make from Spotify, Apple Music, etc. when fans listen to your music. It can also include sales of physical product like vinyl and CDs if that applies.
- This type of advance is an advance against future publishing royalties. (Basically, the money you make from ASCAP, BMI or SESAC.) Until the advance has been recouped, the publisher will not pay any additional royalties.
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Keep in mind:
- Unlike independent labels, major labels tend to keep artists in un-recouped advances for 5-10 years or more by adding on travel costs, entertainment, etc. to make it harder and harder for you to recoup.
- You can’t get out of the deal until you’re fully recouped, so you might think you’re signing a 2 year deal, but if it takes 4 years to recoup it’s really a 4 year deal.
- With typical exclusive major deals, you can’t release anything anywhere else during the term.
What sort of documentation will be needed from you?
Typically, you’ll be asked for the last 1, 2, or 3 years of:
- Monthly statements of earnings from previous distributors
- Statements from publishing societies like ASCAP, BMI and SESAC. (if the label is including your publishing royalties in the deal)
- Documents showing the split of ownership of any masters or publishing rights. (if you didn’t create the masters or write the songs by yourself)
- If it’s a 360 deal, records showing ticket sales from shows, merch sales and vinyl sales.
Remember: You should always discuss any kind of advance deal or distribution agreement with your tax advisors and/or attorneys to ensure you understand the implications of any deal you may sign.
What is cross-collateralization?
Cross Collateralization is a clause in recording and publishing agreements that allows the record label to recoup outstanding advance balances from one album release from revenues and the next release(s).
They can also cross-collateralize to recoup from various other income sources such as music publishing royalties, ticket sales, merch sales, etc.
Tips for Using an Advance:
Now that you know what you’re getting yourself into, you may decide that an advance is the right choice for you. If so, it’s important that you use it with care. Whether an advance helps or hurts you is primarily up to you. So, what’s the true cost of taking an advance?
Ask yourself, “What am I giving up by taking this advance?” You might have to give up creative rights, ownership of your music, flexibility in your career (if you end up un-recouped for a long time), the ability to decide how to promote your music going forward or how you want to manage your image.
Are those things you’re willing to forgo?
You should always ask a professional to help guide you through these types of big decisions. Whether it’s your business savvy manager or your very clever lawyer, always get a second, or even third, set of eyes on anything that requires a signature and involves your finances.
Act too quickly and you may sign away your soul (and a lot of future royalties) without realizing it. 😳
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