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  #1  
Old 05-13-2011, 02:10 AM
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Default UK Record Deal/comparisons

Hey,

I'm after a bit of advice, in particular from anyone who's been/is in a band with a record deal (preferably major), or any particular knowledge in this field. If anyone has an opinion but wants more specifics please PM me.

essentially, a band I'm in is about to enter into a private investment deal instead of a record deal - we've been offered an opportunity with a very well respected company that acts as agent/plugger/marketing/PR/everything else for major labels and private artists. Essentially instead of us trying to get a record deal, we're going to pay them to work with/for our management and break us to the mainstream over 1 year, releasing 3 singles and then an album. The idea is basically that they do exactly what they would do for a record company for us, but we finance it through an investor rather than a record company loan.

The idea is that in a years time we have a big enough profile and enough success to regotiate a much better record deal in a time when new artists are not getting good deals.

Anyway, our investor has just come back with their terms, and in return for a substantial that we couldn't raise on our own from anywhere that will secure the year with the marketing/etc company, they want a 20% share of everything except our publishing, for life. That's essentially like a 360 deal, except that there is no term on it.

Others in the band seem happy with this, and I can see their side - we have no other investment options at this stage, the marketing deal we've been offered is amazing, and it looks to have everything required to break us to the mainstream. Plus, just like a record deal, if we don;t have any success we don;t have to pay the loan back, it's the investors risk.

The negative for me is the lack of a term - if we do have any success then we've lost 20% of basically everything for life, regardless of what else we lose - i.e our management already have 20%, if we do negotiate a record deal they'll take a big chunk, and as far as I can see we're left splitting 40-50% between the 5 of us.

Anyway, my question is essentially, anyone with experience have a comparison for this, or any thoughts? It's a difficult call because without the investment we go nowhere fast, and with it we could be sitting pretty in a short time period - but is that worth a large, and indefinite slice of our income? And more to the important, how does that compare to record deal terms in the current industry?

Hope someone can help, I'm divided and I seem to be the only member of the band not happy to just take the investment at any cost.
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Old 05-13-2011, 02:20 AM
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Default Re: UK Record Deal/comparisons

No term or opportunity to renegotiate? Doesn't sound good to me, they're holding all the cards. If it was just royalties that's one thing because there's less to lose these days, but if it's 360 then you could be getting yourself in a very uncomfortable position...forever!
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Old 05-13-2011, 02:26 AM
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Default Re: UK Record Deal/comparisons

That's pretty mch my thought. The argument is (which I can understand) that they're taking amassive punt on us, and so if we do get anywhere it'll be largely down to the initial investment. I'm trying to get a renegotiation - I would have thought it would be fair for the percentage to drop to be even with any other member of the band after the initial loan is repaid, as otherwise there's potential in years to come for them to be earning 3 or 4 times as much as me or any other member, when all they actually did was bung some cash in a few years ago and have no other involvement.

But is it better to have lots of nothing or a bit of something?
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Old 05-13-2011, 02:34 AM
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Default Re: UK Record Deal/comparisons

The vast majority of money from record sales is publishing.

Even with a traditional record deal, selling a ton of albums doesn't add up to much profit, but the publishing can be a gold mine. The fact that the investor isn't taking a cent of publishing is a huge bonus for the band. As the bands drummer, the key for you to make sure you get a slice of the publishing.

Does this 20% of everything also cover merchandise?

Quote:
The idea is that in a years time we have a big enough profile and enough success to regotiate a much better record deal in a time when new artists are not getting good deals.
Eh, possibly, but record companies rarely give any artist great deals. And who knows if record traditional record companies will even exist in a few years in the form we tend to think of them. There is a reason established artists like Prince, Madonna and others get out of their record deals. Or take Metallica as an example. They do all their own business in house, and license their material to their record company. But it took them already being a house hold name to get that kind of clout.

Just saying, if you were in theory offered a record deal today, and one a year from now, don't count on the one a year from now to be that much better.

However, keep in mind, even if the band were signed today, it takes a lot of promotional money to get the songs/album to the point where people want to buy it, and that money does not always come from the record label. So even if you were signed today, it might take an investor type deal to get the advertising needed to break the album. Lots of bands get signed, only to never sell any records.
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Old 05-13-2011, 02:46 AM
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Default Re: UK Record Deal/comparisons

Drumeatdrum, some excellent points and exactly why I posted this.

I do have a small slice of publishing, we agreed a deal on that when the band formed as we're aware of the potential of that. :)

The record deal idea is hyperthetical, as is all of the future planning really, and as the marketing deal is definitely worth a go and we can;t do that without the investment then it's a bit of a no brainer in that respect.

I just can't get those terms to sit easily within my mind, it feels like instead of high risk, high reward, they're going for high risk, stupidly high reward forever without any future work/investment, just creaming 20% off the top for the duration of the band - which can't sit that well with future investors such as record companies either I wouldn't have thought.
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Old 05-13-2011, 05:36 AM
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Default Re: UK Record Deal/comparisons

From the book "Bumping into Genius" by Danny Goldberg (who headed three different record lable, once managed Nirvana and Steve Nicks, and got his start doing PR for Led Zepplin).

Page 47-48
Quote:
"So in the mid-eighties, when CD's sold for $10, a new artist who got a 12 percent royatly would be credited with around $.60 per sale. Foreign sales in those days paid at a 50 percent of the US rate. By the late ninties, the international rate to US ratio was much higher.

So if a 12 percent artist got $50,000 to sign, and spent $275,000 to record, and sold one million copies in the US, and one million outside the US, they would have a gross royalty rate of $900,000. Record producers...typical got 3 percent, which in this example would be worth $225,000. After deduction of of the advance and recording costs, that would leave $350,000 in artists royalties paid to the band. Assuming a 4 member group, who paid a manager, lawyers, and a business manager a total of 25 percent, this would mean around $72,000 per member"
However, a few lines down states, the song writer(s) of the above album would make roughly one million in publishing fees from the sale of the album, and then what ever from radio, music books, etc.

So if it were just the investor taking 20% of the album, but I got the publishing, heck yeah, I'd take the deal in heart beat. The amount one gets paid for playing on the album is peanuts compared to the publishing. No biggie.

But I'm assuming the 20% the investor wants includes merchandise and touring income, and that's where it gets dicey.

I think my decision would be based on how much the investor is putting up.
If it's 10 or 20 thousand dollars, eh, sure that is a lot of money, that's not worth 20% of my life.

If they're putting up $1 million, I'd do it in a heart beat. That much of an advertising budget is bound to have good results.

I would want to to be covered in that for any reason the band breaks up, or you get hired away by a bigger act, that the investors have no claim against any other musical endeavors you may find yourself in the future.
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Old 05-13-2011, 10:53 AM
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Default Re: UK Record Deal/comparisons

Interesting figures, that's part of the issue for me at the moment, I don't have the comparison figures for a record company. That said, the issue with this investment is that for a one time investment you're looking at 20% for life, and we're still likely to need further investment down the line from a record company or whatever.

The amount is around 230,000 - which is about $375,000 at the moment I think. Worth having.

The investment conditions are only for this band, no personal liability or stake in any independant endeavours.

When put like that, it sounds like a better deal, it's just that without a term, or any option of a buy out in the future (because his stake is for life), is it a good idea to give away a blanket percentage? I believe his stake is for everything except publishing - so tour costs, merch, the lot. I'm finding out full terms over the weekend on that, but I can't imagine it's anything else given what's been said.
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Old 05-13-2011, 10:57 AM
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Default Re: UK Record Deal/comparisons

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Originally Posted by DrumEatDrum View Post
So if it were just the investor taking 20% of the album, but I got the publishing, heck yeah, I'd take the deal in heart beat. The amount one gets paid for playing on the album is peanuts compared to the publishing. No biggie.
Would that still be the case if it was 20% of every subsequent album as well though, and every other future penny earned except through publishing? For no further involvement or investment, and we'll have spent all his money by this time next year on the marketing deal, presumably with little to show for it financially at that stage.
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Old 05-13-2011, 11:30 AM
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Default Re: UK Record Deal/comparisons

Right.

This actually looks like a reasonable deal to me. Leaving you with Publishing is a big compromise for them and is potentially the money spinner for you further down the line. The lack of any personal liability is a huge plus too - the deal looks legitimate and workable. The 20% 'for life' is definitely a downer, but without Publishing, I can see the logic in that.

The issue is making the money back. Record sales are a very difficult means to actually make any money out of at the moment - especially if the label is taking a lot. Gathering back around 50% between the band at the moment is very good indeed and if that's the case, then you should really think about it.

Is there any caveat with regard to money made from touring? I say this because an old tutor of mine was in a successful band (The Shortwave Set, if you know them) and recounted that gigging smaller venues (500 seats or fewer) made little sense financially given what they would be selling a ticket for, further, any money they did make ended up going straight back to the label to pay off the recording and promotional debt. Does the investment deal include tour funding and if so, do you see some of the income from that, or does it go straight back to the investor as 'debt repaid' like it would in a conventional deal?

If you get the money straight back without incurring the dreaded 'Record Deal Debt' then I'd go for it. It's actually a much, much better financial package than you'd get from a record company.

Also, make sure you have an accountant - or somebody in the band gets financial management training. It's vital that you know where EVERY penny of the money is going.

Last edited by mediocrefunkybeat; 05-13-2011 at 05:40 PM.
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Old 05-13-2011, 12:12 PM
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Default Re: UK Record Deal/comparisons

So will this investor take care of everything, including publishing and distribution?

As said, bands rely most heavily on income from live work and merchandise, record sales is likely to provide little - it could start to hurt if they're taking their 20 pc from your hard slog. Get a lawyer to have a good look before you put pen to paper.
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Old 05-13-2011, 03:30 PM
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Default Re: UK Record Deal/comparisons

I come from a Banking / Money Market Background in a previous life (I've since crawled out from underneath the rock :-) )

In essence there are 2 rules

1/. The person taking the risk is the same person (or company) that takes the highest precentage of the reward.

2/. The higher the risk the higher the return expectated.

Whilst granted you / the band are putting in their time the only one parting with hard earned money and therefore the only one with any real risk is the investor !!!!!

If you couple that with how incredibly risky investing in a band and the chances of actually getting that money back are they're going to want a reasonable return and they're not doing it "Just To Get Their Money Back" they're taking on a high risk investement and looking for a return appropriate to the amount of risk taken.

Quote:
we've been offered an opportunity with a very well respected company that acts as agent/plugger/marketing/PR/everything else for major labels and private artists. Essentially instead of us trying to get a record deal, we're going to pay them to work with/for our management and break us to the mainstream over 1 year, releasing 3 singles and then an album. The idea is basically that they do exactly what they would do for a record company for us, but we finance it through an investor rather than a record company loan.
These are the only guaranteed winners as they get paid whatever the outcome and this is the area that personally I'd be most wary of !!!!!!!!!!
I'd like to know how many other bands they've offered a springboard to stardom to that no body's ever heard of.
As you say they may be totally reputable but I'd be asking an awful lot of questions about success rate and who they're currently representing and if you can take up references for them, if any of those questions make them uncomfortable and or the information isn't forthcoming for any reason there's probably a reason.

Good luck with it !!!!!
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Old 05-13-2011, 05:38 PM
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Default Re: UK Record Deal/comparisons

Maybe you should propose a change to the contract that allows you to renegotiate after a certain number of years...ten, fifteen, something far enough in the future. You'd only need that if you were successful enough to worry about where your earnings were going.
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Old 05-13-2011, 06:20 PM
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Default Re: UK Record Deal/comparisons

Hi, thanks so much for all the replies, you're all really helping me with perspective, so I'll try and answer as many of those questions as possible (without too many specifics I'm afraid - I'll get in a lot of trouble!)

- the marketing etc company is not an issue, we are aware of their past clients and success stories, and their associations and there is no better company to be with, whilst I'm not saying we cannot fail (obviously), this is by far the best chance of success we could ask for, and we've done a lot of research.

- MFB (great to hear from you btw, we last had a discussion on here about 4 years ago when I last posted, about cheap wood if I remember correctly!)...I agree with your percentage comments, I think the issue is that once the investment money is spent, we only have 80% of our band to play with, and as you said it's hard to get 50% nowadays in a record deal, so my issue is that we'll actually be dealing with 20% less than whatever we get - i.e if the record company/agent etc take 30% that leaves us with 50%, then our management takes 20%, so we have 30% left between 5 of us. That's the trouble, the 20% is off the top, so any future cuts for other individuals only harm our share further.

- jonescrusher, not sure what you mean about taking care of everything, the investment money is basically to hand over to the marketing etc company, who launch us. the investors involvement is purely financial. The initial investment should cover everything we need for the next 12 months for first album launch.

- Witterings, I agree with your points entirely and am not trying to give our investors a bad deal. My issue really is that if we have no success, they lose, if we have moderate success they get their money (or most of it) back within a couple of years and it's evens, and if we achieve good success, they earn anywhere between 2 and 5 times as much as any of us who are in the band do every year for the rest of the bands life, with no future involvement, or buy out options, having already recouped they're original investment in full, and we are stuck with that lost percentage which may harm future record deals etc as no one in this industry likes sharing.

- the recoupment split is 50/50 income between band and investor until their investment is recouped, which is considerably better than record company's usual 80/20 split on advances.

- PQleyR there is no incentive for them to renegotiate that I can see - there's nothing left to negotiate with for either of us, if they've made their money back (i.e we've done alright) then what have we got to offer them to take their percentage down? we can't buy them out because the more money we have to buy them out, the more their share is worth to them.

Essentially, I don't begrudge the investor a good return, and you're all right that it's massively high risk - we think realistically that with the quality of our company involvement we've brought the chance of moderate success up to about 10-20%, so that's atleast an 80% chance they'll lose. With a normal investment, if you buy 20% of a company, they don;t give you that money back, you just own 20% and get dividends until you sell your share. With this deal, he's effectively giving us a directors loan, but then keeping a residual 20% ownership as well. I'm trying to get that down, so that if we repay his loan in full (or maybe with 100% interest) then his share drops to be an even share as any member of the band, that strikes me as fair - he gets his money back (maybe with substantial interest) and then keeps pay as if he were a 6th band member which could add up to a lot. That strikes me as a fairer deal for everyone, but I'm having trouble convincing the rest of the band, who seem happy with the deal as it stands for some reason.
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Old 05-13-2011, 06:41 PM
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Default Re: UK Record Deal/comparisons

Lots of things bother me about this- just off the top of my head:
- The agency's offer is going to sound amazing even if it utterly stinks and is going to lead to the band's bankruptcy and annihilation.
- Does the investor want 20% of profits or 20% of gross receipts? Both are bad, the latter would likely drive the band out of business. What is the reach of that part of the agreement?
- What happens if the agency's rosiest predictions don't come true, but you keep the band going and eventually want to do something else requiring a large investment? Where are you going to get the money now that you've tapped out your one investor? Who is going to want to invest in a band someone else already has a 20% piece of?
- Does the agency have any stake at all in your success? What is their motivation to do anything but take your money, phone in the publicity campaign, and move on to the next band?
- The investor is not the only one carrying the risk- the band is risking the failure of their business. If you truly have the potential to make a lot of money with this project, or even just an reasonable living, you lose all of those potential earnings if either of these deals is bad.

Both of these agreements are very serious commitments- you need to get them in writing, and then pay a good music attorney to look them over. Make sure this lifetime 20% thing isn't going to make it impossible for the band to do business in the future- whether you're a big success or not- and make sure the agency thing is truly a worthy investment. If you can't locate an attorney who specializes in music, you can contact Bart Day in Portland for a referral- if he doesn't know anyone in the UK, he can refer you to someone who does.
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Old 05-13-2011, 06:52 PM
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Default Re: UK Record Deal/comparisons

Hi, thanks so much for all the replies, you're all really helping me with perspective, so I'll try and answer as many of those questions as possible (without too many specifics I'm afraid - I'll get in a lot of trouble!)

- the marketing etc company is not an issue, we are aware of their past clients and success stories, and their associations and there is no better company to be with, whilst I'm not saying we cannot fail (obviously), this is by far the best chance of success we could ask for, and we've done a lot of research.

- MFB (great to hear from you btw, we last had a discussion on here about 4 years ago when I last posted, about cheap wood if I remember correctly!)...I agree with your percentage comments, I think the issue is that once the investment money is spent, we only have 80% of our band to play with, and as you said it's hard to get 50% nowadays in a record deal, so my issue is that we'll actually be dealing with 20% less than whatever we get - i.e if the record company/agent etc take 30% that leaves us with 50%, then our management takes 20%, so we have 30% left between 5 of us. That's the trouble, the 20% is off the top, so any future cuts for other individuals only harm our share further.

- jonescrusher, not sure what you mean about taking care of everything, the investment money is basically to hand over to the marketing etc company, who launch us. the investors involvement is purely financial. The initial investment should cover everything we need for the next 12 months for first album launch.

- Witterings, I agree with your points entirely and am not trying to give our investors a bad deal. My issue really is that if we have no success, they lose, if we have moderate success they get their money (or most of it) back within a couple of years and it's evens, and if we achieve good success, they earn anywhere between 2 and 5 times as much as any of us who are in the band do every year for the rest of the bands life, with no future involvement, or buy out options, having already recouped they're original investment in full, and we are stuck with that lost percentage which may harm future record deals etc as no one in this industry likes sharing.

- the recoupment split is 50/50 income between band and investor until their investment is recouped, which is considerably better than record company's usual 80/20 split on advances.

- PQleyR there is no incentive for them to renegotiate that I can see - there's nothing left to negotiate with for either of us, if they've made his money back (i.e we've done alright) then what have we got to offer them to take his percentage down? we can;t buy them out because the more money we have to buy them out, the more their share is worth to hthem.

Essentially, I don't begrudge the investor a good return, and you're all right that it's massively high risk - we think realistically that with the quality of our company involvement we've brought the chance of moderate success up to about 10-20%, so that's atleast an 80% chance they'll lose. With a normal investment, if you buy 20% of a company, they don;t give you that money back, you just own 20% and get dividends until you sell your share. With this deal, he's effectively giving us a directors loan, but then keeping a residual 20% ownership as well. I'm trying to get that down, so that if we repay his loan in full (or maybe with 100% interest) then his share drops to be an even share as any member of the band, that strikes me as fair - he gets his money back (maybe with substantial interest) and then keeps pay as if he were a 6th band member which could add up to a lot. That strikes me as a fairer deal for everyone, but I'm having trouble convincing the rest of the band, who seem happy with the deal as it stands for some reason.
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Old 05-13-2011, 07:32 PM
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Default Re: UK Record Deal/comparisons

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- jonescrusher, not sure what you mean about taking care of everything, the investment money is basically to hand over to the marketing etc company, who launch us. the investors involvement is purely financial. The initial investment should cover everything we need for the next 12 months for first album launch.
I see, so it will be down to you to sort out distribution etc.? Do you have a plan for getting the record out to market?
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Old 05-13-2011, 07:48 PM
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Default Re: UK Record Deal/comparisons

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- PQleyR there is no incentive for them to renegotiate that I can see - there's nothing left to negotiate with for either of us, if they've made their money back (i.e we've done alright) then what have we got to offer them to take their percentage down? we can't buy them out because the more money we have to buy them out, the more their share is worth to them.
This is why I don't think this is a good deal whatever they're offering you.
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Old 05-14-2011, 02:50 AM
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I see, so it will be down to you to sort out distribution etc.? Do you have a plan for getting the record out to market?
I believe (and certainly hope) that that's part of the marketing, etc companies responsibility through their network. I don't actually know that for a fact though, and will ask now you've brought it up - the meetings about their plans/responsibility haven't involed me as of yet, I think we're all in for a briefing in the next couple of weeks

PQleyR - exactly my issue. I think I need to see some comparible deals - as pointed out by others earlier in the thread, the industry is going though big changes and I don't really know whether these terms of investment have a precedent, I think I need to run this lot past a decent music lawyer fairly soon to see how conventional and non-conventional financing stack up in comparison.
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Old 05-15-2011, 07:13 PM
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Default Re: UK Record Deal/comparisons

Personally, I think the deal looks good in some ways for you. The particular advantage is not incurring debt to begin with - which is where a lot of bands suffer because they never pay off label debts from their first record and/or tour.
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Old 05-16-2011, 02:16 AM
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Default Re: UK Record Deal/comparisons

not a money man so im getting confused with all the other stuff but heres my input

do you not feel if the band is going to get somewhere, a record company/ this record company would have offered you guys a signing instead of you paying them ?

or have they and ive misread ?
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Old 05-16-2011, 02:39 AM
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not a money man so im getting confused with all the other stuff but heres my input

do you not feel if the band is going to get somewhere, a record company/ this record company would have offered you guys a signing instead of you paying them ?

or have they and ive misread ?
Traditional 'deals' are quickly disappearing because the pockets of the record companies are far, far shallower than they once were.
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Old 05-16-2011, 02:44 AM
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Traditional 'deals' are quickly disappearing because the pockets of the record companies are far, far shallower than they once were.
ah ok

in my opinion as great an offer as it might seem, i dont think i could live with the idea of someone 'owning' 20% of my band
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Old 05-16-2011, 03:54 AM
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ah ok

in my opinion as great an offer as it might seem, i dont think i could live with the idea of someone 'owning' 20% of my band
Well, if you sign a record deal, then the record company owns much more than 20% of your band.

To the original proposed deal: Is it a good deal? Not really. Is it terrible? No, not really.

I've seen bands sign worse.

I've also seen bands sing really great deals, only to have their CD end up in the 99 cent bin because the label didn't promote the album. Having an investor come in and provide the advertising money in that case would have been really nice, even at 20%.

Although if my band had potential investor budget, I'd say screw trying to get signed, put out an independent album and use that promo money to sell the CDs, keeping the album profits in house rather than giving 80% of it to a record company.
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