Thursday, August 18, 2011

Music Business/Law Tip - "Reserves" (Part 2)

Generally, the label does not state any percentage limit on reserves in the contract. Instead, it is common to see that "reasonable" reserves will be held back. If a percentage is stated, it will be lower for established artists and higher for new artists. Additionally, different configurations have different reserves percentages because of the return history for that type of recording. For example, usually more singles and EPs are returned than CDs and cassettes. (Note there are no returns on digital, so reserves should not apply to that configuration.)

An artist needs to be mindful of the reserves percentage because it can substantially reduce the initial royalty payments and it postpones the date that the artist will be paid. An artist can negotiate protections into the contract. First, the artist should have a specific reserves percentage in the contract (25% is common for an album). Second, the artist should limit the amount of time that a label can withhold royalties (i.e., "liquidation period"). Instead of just accepting that reserves will be liquidated within a "reasonable" amount of time, the artist should ask for a specific liquidation period (12 to 24 months is common).

Ben McLane Esq

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