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Wednesday, June 8, 2011

Making Your Own Music-Royalties And Recoupment Part Two

A Method Called Cross-Collateralization

Today's post is what is something called cross-collateralization. You are thinking to yourself, what is this? Sounds a bit confusing. This term is built into every and any record deal out there today. Let's say that you get $200,000 for your first album. plus another $200,000 for the second album. Now let's say that you make
$20,000 in royalties on album number one, and album number two earns $220,000 in royalties. If the two albums are not cross-collateralized, you would get nothing for album number one earned only earned back $20,000 of the $200,000 advance, so it's $180,000 unrecouped. This would be a deficit and carries over to the next album.

Cross-Collateralization Of Deals

This can also refer to different types of agreements in your contract with the label. These can be simultaneous agreements. Let's say an artist signs a recording contract and publishing agreement with the same company. This means that advances under either agreement can be recouped from royalties under both. This is very bad for the artist or band. Major labels don't usually try to do this in the contract combining
record deal and publishing deal. Small label or indie's will try this method. An untrained eye can miss this. Make sure your lawyer catches this condition. It says that advances can be recouped form royalties payable, and royalties can be used to recoup advances paid under this or any other agreement. A record contract is very complex and the average Joe will have no clue what 99% of the contract means. Take your time and don't just sign a contract unless you understand everything. Have you lawyer explain everything clearly.

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