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If the music publisher is granted the exclusive rights to all songs created by a writer during a specified period of time, advances are usually paid to the writer on a weekly, monthly, or yearly basis.
These monies are always recoupable by the publisher from future royalties due the writer for uses of his or her songs. For example, if a writer has been advanced $30,000 during the first year of an agreement and earns $45,000 in royalties, the publisher will recoup its $30,000 and give the writer the excess ($15,000).
In most cases, the publisher will normally not begin to recoup a writer's advances (even if the writer is immediately successful) until the second or third year of the agreement, since earnings normally take from 5 months to over 2 years to be distributed by the various collection organizations, performance right societies, and foreign subpublishers.
There are many variations on how advances are computed, such as advances based on the achievement of certain earnings plateaus (e.g., an additional $10,000 if a song has earned $20,000 in gross royalties), songs reaching the charts or certain positions thereon (e.g., $10,000 if Top 20, another $10,000 if Top 10, and an additional $15,000 if #1), the publisher achieving recoupment of all past advances or a percentage thereof (e.g., $25,000 if the publisher has recouped all prior writer advances or an additional $20,000 when the publisher has recouped 75% of all advances given to the writer).
Each agreement will have its own particular variations dependent on the needs, expectations, and bargaining power of both parties.
A number of agreements also use what is known as a "minimum/maximum" advance formula to compute annual advances after the initial period of the term expires.
Under this type of clause, the amount of the advance payable to the songwriter during each option year is based on a percentage of the monies earned in the prior year, but with a "floor" and a "ceiling" provided for regardless of the amount of earnings.
For example, a publisher might offer a songwriter an advance of $50,000 for the first year, with option year advances being based on 75% of the prior year's earnings with the following minimums and maximums:
To illustrate how these mini-max formulas work, we will take a writer who has a 75% of the past year's earnings calculation with a minimum advance of $75,000 and a maximum advance of $150,000 provided for in the option year.
If the writer earns $125,000 in the most recent contract year, the advance for the upcoming option year would be $93,750 ($125,000 X 75% = $93,750). If, however, the writer's share of earnings for the prior year was only $10,000 or $0, the writer would still be guaranteed the minimum of $75,000 for the next contract period.
One of the values of these types of mini-max advances is that they reward success by increasing future advances depending upon how much income has been generated in the past by the songwriter's compositions.
This type of advance structure also establishes a minimum advance which is payable to the writer during an option year regardless of the fact that the songwriter's compositions earned very little during the prior year.
One of the major issues in the negotiation of one of these types of so-called "mini/max" advance formulas is what type of income is going to be included in the calculation.
Some clauses state that only mechanical income will be included; others add performance income as well; some will include mechanical performance and synchronization income; and others will include mechanical, performance and synchronization earnings but exclude the one-time extraordinary fees paid for the use of songs in advertising commercials.
© 2004 Jeff Brabec, Todd Brabec This article is based on information contained in the new, revised paperback edition of the book "Music, Money, And Success: The Insider's Guide To Making Money In The Music Industry" written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales). www.musicandmoney.com
This article is based on information contained in the new, revised paperback edition of the book "Music, Money, And Success: The Insider's Guide To Making Money In The Music Industry" written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales). www.musicandmoney.com