I wanted to take a minute today to talk more about record contracts – this time in particular recoupment. Recoupment is a fancy way of saying “You are screwed forever” but not necessarily, only if you’re dumb and don’t properly take advantage of what your label has to offer. Recoupment is one of the most important things in the music industry and the artists who don’t understand it only come off as entitled. Instead you need to have a solid understanding of this side of things and realize that this is the crux by which the entire record label system works. Whether or not that’s a good system is a talk for a different day, though I believe it is. The point being – this is the system we have and there’s not much any individual can do to change it now. So let’s dive in together and try to better understand recoupment and the significance that it should have for you and your band – at literally any phase of your career.

So what is recoupment? Essentially when a label invests in you, they need to see that money back. The label doesn’t start paying you until they get that money back. They are basically providing an interest free loan and providing you with things like an advance to pay for the studio, PR, marketing and all that other good stuff. After that point you get a percentage of the royalties and the label keeps the vast majority, after all that’s how they make their money. Depending on the label the amount you need to recoup could be anything from a few hundred dollars to a few hundred thousand. If you’re looking to work with a mid level label that is making real and tangible progress then you’re probably going to be looking at recouping somewhere between five to ten thousand dollars. Labels need to make money and they are investing a whole hell of a lot. It’s a harsh world out there and one we all need to take some time to evaluate.

The amount you need to recoup isn’t fixed by the way. It can grow through various means. One might be if you need to get CD’s reprinted on the labels dime. Another easy way to incur costs is through needing tour support. Any time a label does a service for you, they are going to want to see some cash back, because those services are just scratching the surface of what they do. The huge percentage they take of your royalties is crucial because that’s how they pay folks like those all important A&R guys and manage to keep their accountants, PR people, radio guys and various other staff paid and care for – various staff that you would need to hire out on your own if you didn’t have a label. A huge part of what you are paying for with a record label is convenience, the convenience of not having to put together your entire team and maybe even have a label who take care of you and help you to make sure that your career is at least somewhat on the right path.

Now think about how crazy the whole concept of recoupment is, and how cool it is that the labels are doing this. In most cases it’s essentially an interest free loan that you can take out more money on if you need it. Think about how weird and silly that is. That’s not a good business model for the labels, but it’s what they do because they love the music. This is also why you need to be so leery eyed of major labels because they are going to try to screw you over because they need the money and have no qualms with bands being in debt. That means there is a whole lot of madness that you need to pick apart if you want to properly survive doing this. It means that record labels are in a weird position, and when you consider that position, sitting on interest free loans and hoping that the percentage they gets back in the end pays off then you start to realize why record labels have gotten such a bad reputation over the past few years – simply put, they are just as desperate as you.

We are at a point where most bands owe money to their label for some reason or another and labels are getting frustrated having to keep lend money out. That’s why they are stingier than ever when it comes to things like tour support because they need that income coming in. Instead they find themselves in a world where bands make less money than ever and their main product, CD’s barely sell. This is also why 360 deals, where the label gets a cut of merchandise (And sometimes even booking) in addition to album sales) are more and more popular. While the margins on shirts may be smaller than that of CD’s, (Usually a 300% markup as opposed to a 1000% one) they sell a lot more, so it makes sense to want to get a piece of that action. I think that the growing trend of labels getting exclusivity on a couple of shirt designs is very rapidly going to devolve into 360 deals across the board. I honestly don’t know if that’s a good thing or a bad thing yet!

Suffice to say – I hope this makes coherent sense and gives you a look into what record labels are doing when it comes to recoupment and why so much of this can seem so fucked. Recoupment is the crux of this whole thing and if you’re not willing to play by that rule then can pretty confidently say that you’re not going to find the success you want or deserve. In fact, if you don’t believe in recoupment good luck finding any label that will sign you. That’s just how things are these days and expecting to get that loan without any help from the label side is a weird pipe dream. Ground yourself in reality and things just might end up working out.