It is possible for a record company to see potential in an artist and yet still be reluctant to sign the artist to a full blown recording contract. When a situation such as this rears its head, the label might offer what is known as a demo or development deal ("demo deal"). Such a deal can eventually lead to a recording contract. However, the artist should try to include certain provisions in the demo deal.
In a demo deal, the label gives the artist a certain sum of money ranging from $500 to $5,000 to enter the studio and record demos. Based upon the sound of the demos, the record company will decide whether or not it wishes to sign the artist to a record deal. If it decides in the affirmative, great. Yet, often the label will pass on the artist. When the label passes, it still keeps some strings attached because it did pay for the demo and wants to be reimbursed. For this reason, the label will include a right of first refusal in the demo deal.
[part 2 next week]
Ben McLane Esq