Demo Deals and Development Deals

Many record companies these days, before they offer a new artist a multi-album recording contract, will offer an artist what is known as a "demo" deal or a "development" deal (basically different names for the same fundamental thing although a demo deal might be shorter and the development deal might last a little longer). Such a deal will usually entail having the record company pay for you to make a demo and, if they like it, have the first right to sign you. If they decide not to sign you, you get to walk with the demo. With the escalating costs of signing a new artist and the substantial expenses often involved in recording an album (not to mention the astronomical cost and expense of promoting and trying to "break" a new artist's first album), record companies often want to get a little taste of what an artist can do in the studio before they make the big commitment.

A demo or development deal is usually just a few pages long (as opposed to the long-form recording agreements which can be as long and cumbersome as the RJR Nabisco leveraged buyout paperwork), but it is still a binding legal commitment so it is best for you to understand what you are agreeing to when you do a demo deal.

Such deals are usually appropriate only for a brand new artist. Established artists have a track record and experience of which the record label is already aware. A new artist, however, may have to make some demos with a label before the company is ready to commit to the bigger numbers necessary to record an album. If the demo deal is properly negotiated there is usually no down side for a new artist to go this route. Same for the development deal: the demo making period may last a little longer which gives the a&r person more time to work with the artist, but the fundamental legal concepts in both agreements are similar. 

The deal usually consists of two parts: the first pertains to the conditions surrounding creation of the demos and the second pertains to the parameter of the "option" granted to the record company after the demos are completed. In rare instances a deal memo or long-form record contract is attached to the demo deal with the representation that the artist will enter into an agreement on the stipulated terms. However, since this would require extensive negotiation of the proposed terms of the record contract in advance of doing the demos, the usual procedure is to have the demo deal refer to a period of "good faith negotiation" after a decision is made to pursue the artist.

In negotiating the demo/development deal, the first issue is how much money the record company is willing to pay and how many demo recordings they expect. The issue of when it will be paid and what other conditions are imposed must also be addressed. The payment usually ranges from $1,500-$10,000 to be used as a recording fund. The dollar amount needs to be sufficient to complete a specified number of recordings, usually anywhere from 2-5 tracks. Be sure to state when the money is paid: the best thing for the artist is to get all of it up front, although some labels will insist on one-half upon signing and the balance upon delivery of the finished demos. In any event, language should definitely be added stating that if the money is not paid and the demos completed within a certain timeframe (e.g., 90 days) then the deal is automatically terminated. Not long ago I had an artist come into my office with a two-page demo deal he had signed without having had it negotiated by an attorney. The demos had never been made by the record company but the "option" term was very open-ended because it did not commence until the demos were completed - and they never were. Language such as this left the artist vulnerable to a lawsuit by the record company if he tried to sign with another label even though the demos had never been recorded and several years had passed. 

Here is a typical provision as proposed by a record company regarding payment and delivery:

Advance: NFU agrees to pay an amount of five thousand ($5,000.00) dollars to produce the Demo Recordings, one-half (1/2) of which will be paid when recording commences and the balance promptly after you deliver and acceptance of the Demo Recordings by NFU.

Delivery Obligation: You agree to deliver to NFU three (3) seperate Demo Recordings. You shall deliver these Demo Recordings with the acknowledgement and understanding that NFU has an option as set forth herein below) to enter into an agreement for your exclusive services as a recording artist. You will deliver the recordings to NFU within thirty (30) days following the date of this agreement.

One final related issue is whether the record company will require the artist to record in the company's studios or work with a particular producer or a&r person assigned by the company, or whether the artist is free to record under its own control and/or in its own studio. These are important issues which need to be discussed and resolved before the process continues.

The second part of the demo or development deal equation is the issue of the parameters of the "option" granted to the record company.

Here is a typical provision as proposed by a record company regarding the "option":

Grant of Rights/Option: By signing this document you agree that: (i) you will transfer all rights in the Demo Recordings to NFU; (ii) you will not negotiate or enter into any contract for your recording services with a company other than NFU until at least two (2) months after you deliver the Demo Recordings to NFU.

NFU will have an option, exercisable by notice to you at any time up to two (2) months after you deliver the Demo Recordings, to elect to enter into an agreement for your exclusive services as a recording artist. If NFU exercised such option, you agree to immediately negotiate in good faith so that an agreement can be signed within ninety (90) days after the expiration of the two (2) month period. If you and NFU cannot agree to the material terms of the Recording Agreement during the ninety (90) days, then you will have the right to negotiate a recording agreement elsewhere (subject to our Matching Right set forth in paragraph 3(c) herein below) if NFU fails to exercise its option within the two (2) month period.

Usually this option commences upon delivery of the finished demos to the record company and extends for a period of time. The option can be worded such that it gives the company anywhere from 30 days to 120 days to decide if it wants to proceed to enter into negotiations for a record contract with the artist. As far as this time period, the shorter the better for the artist. The artist wants the company to act promptly or lose the right to hold the artist. Moreover, you would never want to have to linger for months once it is obvious that the company has lost interest.

If the company does decide to move forward with the artist, then there is usually a period for "good faith" negotiations. However, if a deal cannot be reached, that may not necessarily be the end of the deal. 

Another important aspect of the "option" is the wording concerning a so-called "matching right" which might read as follows:

You may not enter into an exclusive recording agreement with any third party within six (6) months of the date of this agreement unless you first notify NFU in writing of the terms and conditions of the proposed agreement and offer NFU an opportunity to "match" such terms and conditions ("Matching Right"). NFU will not be required to agree to any terms and conditions which cannot be fulfilled as easily by NFU as by any other company (for example, the employment of a particular record producer exclusively engaged by another company). NFU can exercise this matching right and enter into said agreement with you by sending you a notice within fifteen (15) days after NFU's receipt of your notice. If NFU fails to send such notice, you are no longer bound by the terms of this agreement.

This pertains to the issue of the artist's obligations if the record company does not sign the artist either because it did not act or because the artist and its representatives were unable to come to agreement on the terms of a recording contract with the company. The matching right provision usually indicates that if the artist decides to enter into a record contract with another record company within a certain time after the demos are completed then the demo record company has the right to match the terms of such offer and the artist is required to enter into a contract with the first record company on such terms. The period of time for this matching right can run anywhere from 3 - 12 months. Again, the shorter the better for the artist. The artist is usually required to provide the demo record company an outline of the provisions agreed to with the subsequent record company. Then, there is a certain period of time (e.g., 10-60 days) within which the first record company has the right to make its decision. If it does nothing, the artist can sign with the second record company; if it decides to match the material terms of the other offer, then the artist is usually bound to do so with the demo record company. 

Although I could go on for pages with the grisly details of the various nuances of the language of the option provision and the matching right, suffice is to say that you should seek the services of an experienced entertainment attorney before you even think of signing such an agreement. As a general rule, you need a lawyer if you are asked to sign anything other than an autograph. Too many aspiring creative artists want to get a deal so badly they will sign almost anything that promises them a chance to do it. Even successful careers have a relatively short life span, especially in the music business. Therefore, it is important for you to get maximum returns in the good years and not sign away rights to valuable income.

As a general proposition you should never sign anything without having your lawyer review it first. Do not rely on anyone else (or even their lawyer) to tell you what your contract says. Your lawyer will "translate" the deal for you and explain to you exactly what you are getting into. Do not let anyone rush you or pressure you into signing any agreement. There is really no such thing as a standard "form" contract. Any such contract was drafted by that party's attorney to protect that party's interests; your lawyer can help negotiate more favorable terms for you.

If I may pontificate for a moment, everyone needs someone to look out for his or her interests. That is why you need a lawyer. If you believe in yourself and your talents, give yourself the benefit of the doubt, invest in legal representation and do not sign anything without consulting your lawyer. 

Wallace Collins is a New York attorney specializing in entertainment and intellectual property law.

Specializing in Entertainment Law & Intellectual Property Matters

Wallace E. J. Collins III, Esq.
250 East 39th St. (Suite 9K)
New York, New York 10016
Tel: 212 661-3656

Email: Wallace Collins

© 1993 - 2010 WALLACE E.J. COLLINS III, ESQ. all Rights Reserved.

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