Album Advance Formula
Today, I will get more into record company advances. A term that most record labels agree on is what is called a formula for advances. This is a mechanism that is designed to increase or decrease your deal if you are a success or a flop. So it works like this: Your bands advance for the second album is equal to a percentage that is usually 60% to 70% of all royalties earned by the first album under the contractual agreement. The advance for the third album is a percentage of of album number two's earnings, and so on. For an example, if album number one earns say $1,000,000 in royalties and you have a 60% formula, the advance for album number two is $600,000. Usually the formula percentage is based only on earnings in the United States and Canada. The earnings also have a time limit on what you can earn. After release of the album you have anywhere from six to eighteen months. Their are some variations including delaying the formula until the third album averaging earnings of the previous two albums as opposed to using the earnings only of the previous one.
Floor For The Formula
Say your first album is a dismal failure, and it earns only $20,000. How can you make an album for $12,000 to $14,000 (60% to 70% of the $20,000)? Well, you just can't, so this situation is handled by establishing a floor for the formula. The floor means no matter how terrible the earnings of the previous album, the fund will be no less than an agreed amount (floor). When artist receive an advance, the formula percentage is of course much less, about 15% to 20% range.
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