Recoupment, without which many musicians have little chance of getting started in the music business, is common in the music industry. The controversy that surrounds recoupment results from record labels having made great deals of money from some artists that they have backed by “loaning” them hundreds of thousands of dollars to get started. Even when successful, artists sometimes come out on the very short end of the stick while labels prosper. Labels argue that the risks they take in financing new albums and bands are enormous and that few new bands are ever able to recoup costs that labels provide. This means that successful artists actually subsidize the less successful.

Recoupment agreements are included in recording contracts. Record labels advance finances to artists to fund the production and marketing costs of producing an album and of performance tours. Record labels may forward hundreds of thousands of dollars to a band in exchange for royalties, until the label has recovered its advance. Artists sometimes receive royalties only after the label has recovered its full investment, which can be crippling. Less successful artists may receive no royalties at all, due to recoupment agreements, and can remain ever indebted to the record label company.

Many record labels practice recoupment. The difficulty for new artists is that they have little capacity to negotiate and feel forced into accepting recoupment agreements in order to see possibilities of their careers getting off the ground. An advance of $300,000 to produce an album and fund a tour in return for a large percentage, perhaps 90 percent, of album sales may get an artist off the ground, but the recoupment agreement may net the record company much more than they have invested. Disadvantageous recoupment agreements can leave the artist very little to show for their work and their art.

Terms and conditions of recoupment contracts are determined by the capabilities of each party during the course of striking an agreement. New titles are estimated to fail to produce profits at a rate of 80 to 90 percent, while the remaining successes generate millions of dollars for labels and publishers. As labels and publishers gain profits, inequitable recoupment agreements net some best-selling artists little compensation. When recoupment agreements shortchange artists, it is obvious that more value is placed on finances than that of art.

Remedial recoupment agreements would set a profit-sharing breakeven point on the part of the label, and a fraction of sales thereafter. This would allow artists to remain financially viable throughout the process of getting established. With such agreements, labels would necessarily reduce the number of investments they make on new titles, which could negatively affect diversity in artistic expression.

This article provides an overview of recoupment. If you would like to submit an article about recoupment or any other music-related subject, please feel free to do so here at Media Positive Radio.